Is Netflix’s jump into video games a smart strategy? This analyst says no

Streaming video giant Netflix, Inc. (NASDAQ: NFLX) wants to jump into the video game space and one Wall Street analyst thinks this is a bad idea. According to Wedbush analyst Michael Pachter, the move is simply “not smart,” CNBC reported.

‘Ill-advised’ strategy

Netflix may be in a position where it has to do something bold and different as subscriber growth metrics are showing signs of cooling down. The company thinks it has a winning strategy in leveraging its streaming video platform to offer mobile video game capabilities. But in a note to clients, Pachter wrote the move is “ill-advised.”

According to CNBC, the notable analyst explained in a note that Netflix’s management may not fully understand “how difficult” the mobile game space is. Netflix also needs to take a look at the many other companies that tried to enter the video game space with little to no success.

Rival content companies like The Walt Disney Company (NYSE: DIS) tried and failed to offer mobile games. But perhaps even more concerning for Netflix is the fact that core video companies spent many years building a mobile gaming platform but only saw success through acquisitions.

40,000 new mobile games created yearly

There are an estimated 40,000 new mobile games created each year and under a best-case scenario, Netflix manages to create “more than a handful,” of which a small fraction is considered top-tier games, the analyst wrote. Will this translate to a re-acceleration of subscriber growth? Doubtful. The analyst wrote:

Few of the 3.5 billion mobile gamers in the world will add a subscription to Netflix in order to access its 2 to 3 new games each year.”

New gaming boss a poor choice

Now, investors might disagree and argue that smashing success hits likes “Stranger Things” is a near shoo-in for success in mobile games. But taking a look at Netflix’s new video game boss Mike Verdu lowers the company’s chances of success. Verdu is a talented game designer but hasn’t produced a game for around two decades. The analyst wrote:

While he worked for mobile developers, his experience is limited, given that Zynga produced its first mobile game after he left the company, Kabam was sold only two years after he arrived, and he was at EA during a period of no growth.”

It appears that Netflix has “vast plans for succeeding” in games yet it is starting with “half-vast ideas,” the analyst wrote. There are simply too many hurdles to overcome and Netflix investors are giving the company too much credit for merely announcing an “ambitious (some might say audacious) endeavor.”