Netflix’s video game venture puzzles Wall Street
NEW YORK: Netflix Inc.’s foray into gaming is raising more eyebrows than excitement among analysts.
Though there’s long been speculation that Netflix might move into video games, Wednesday’s news that it had hired an executive to lead the effort—and would start adding titles to its streaming platform in the next year—came as a surprise to many. The Los Gatos, Californiabased company doesn’t have the infrastructure or the expertise to create or support top-tier games, analysts said. And that capability won’t be easy to build.
“They don’t have a game catalog—they haven’t cultivated a base of gamers in their audience,” said Lewis Ward, research director for gaming at IDC. “And they don’t have an internal studio or infrastructure to handle a service.”
By experimenting with games, Netflix hopes to give customers one more reason to sign up for its service—and to hang on instead of leaving. It’s expected to start slow with the effort, helping minimize risk.
The company has yet to settle on its game-development strategy and may begin with just a few titles, Bloomberg reported Wednesday.
Netflix doesn’t currently plan to charge for the games, according to a person familiar with the matter. The idea is to feature the option alongside its current fare: movies, TV shows and documentaries that are beamed to its roughly 204 million members in more than 190 countries.
Still, it’s a daunting task. Wedbush Securities Inc. analyst
Michael Pachter, famously bearish on Netflix, was especially critical of the idea.
The executive tasked with leading the effort, Mike Verdu, has changed jobs four times in the past 10 years, before moving to Netflix, Pachter noted. And Netflix’s top management isn’t educated about the video-game business, he said.
“They are not going to succeed,” Pachter said in an interview. “They are going to spend a few hundred million dollars and quietly fold this with a tail between their legs.”
Of course, Pachter has been wrong about Netflix before. He’s recommended selling the stock for the past decade, even as Netflix has come to dominate the streaming industry—sending its shares soaring along the way.
But he has plenty of company in being skeptical about the gaming move.
One problem is Netflix lacks the infrastructure needed to support so-called AAA games—the industry’s term for top-tier titles with the best graphics. Such games require low latency, IDC’S Ward said. Netflix could partner with a cloud provider such as Amazon.com or Google, both of which have competing forays into games, but that would be hugely expensive, he said.
On the other hand, Netflix Inc. is set to roll one out a new studio in Bushwick, a neighborhood of about 100,000 people in Brooklyn, New York. The 170,000-square-foot facility includes six sound stages, as well as editing suites, meeting rooms and a commissary.