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Strange thing: Netflix’s plan to push into video games puzzles Wall Street

“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 sceptical 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.

Mobile games

Netflix may be able to more effectively compete in mobile games, according to Bloomberg Intelligence analyst Matthew Kanterman. After all, many Netflix subscribers, particularly in Asia, are already using the service on their mobile phones. Netflix also can capitalise on its intellectual property — say, “Stranger Things” — to offer games that people recognise.

In that scenario, “Netflix could emerge as a force to contend with,” Kanterman said in a note.

But most people who want to play mobile games can already find a greater variety of them in the Apple App Store or Google Play, Pachter said.

Bernstein analysts Todd Juenger and Gini Zhang said in a note that they were “tepid” about Netflix getting into gaming, partly because it would mean a lesser focus on the core business. They worry about creating a distraction.

“It’s hard not to imagine that if Netflix were to launch its own video games, the majority of the company’s energy would be focused on the success of that new, different, exciting thing (even among employees who aren’t involved in it),” according to the note. It’s also unclear how the company can capitalise on the video-game content without raising prices — and potentially turning away some users unwilling to pay extra, they said.

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Interactive shows

What would make more sense is for Netflix to develop additional interactive TV shows, which fall somewhere in between traditional TV and video games, Ward said. In such shows — already available on Netflix and platforms like Facebook — people can vote for the direction they want the story to go.

“Movie companies that tried to make video games have generally failed, and video-game companies that tried to make movies have generally failed,” Ward said. Still, “there’s a new middle ground that could emerge in the next 10 years.”

That could change the equation, he said. “My gut feeling tells me these guys are on to something.”

Netflix, which has long talked about Fortnite as a competitor, perhaps thinks it can avoid the fate of other gaming efforts that failed — thanks to its legions of loyal users.

“To its credit, Netflix has always erred on the side of choosing the risk of moving too fast and bold, rather than the risk of moving too slow and safe,” according to the Bernstein analysts.

It’s possible that “in hindsight, 10 years from now, this idea will look like a no-brainer.”

Bloomberg

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