Netflix's recent foray into the world of video games may be "ill-advised," analysts said.
The video streaming company recently announced plans to produce video games based on its growing proprietary intellectual property to lure in new members and to increase its profit growth.
Netflix said its massive library of content and user data will give it an edge in the multibillion dollar video game industry. The company also expects the games to fuel future television shows and movies, which should attract more subscribers to its service.
Unfortunately, some analysts don't quite agree with Netflix's prospects in the highly competitive video games industry. Analysts said Netflix would be better off expanding into other mediums such as podcasts instead of creating expensive video game titles.
"As it burns cash, the company has chosen to expand its content offering to include podcasts (we think this is smart) and games (we think this is not smart)," analysts at Los Angeles-based investment company Wedbush Securities said.
Netflix said it plans to first focus on creating mobile video games based on popular Netflix properties. While the prospect of getting mobile games based on hits like "Stranger Things" may excite consumers, analysts said Netflix likely doesn't realize the costs and effort involved in creating these games.
"The business graveyard is littered with the corpses of content companies that have failed at making mobile games, with Disney the most prominent failure. Even video game publishers like Activision, EA, Take-Two, Ubisoft and Nintendo have tried for years to create compelling mobile content, and each has had lasting success only through acquisition," analysts said.
Netflix said it plans to offer its video games as part of its existing subscription plans at no extra cost. Analysts questioned the strategy and how Netflix plans to get the money it needs to create expensive mobile games.
Analysts said if Netflix does go ahead with its plans, it will only likely be able to create a handful of games per year. They said mobile gamers are unlikely to join a subscription that only gives them access to a few new games each year. If Netflix eventually moves to more sophisticated games for personal computers and consoles, it will face even larger hurdles, analysts said.
"This is complex stuff, and we think that while Netflix has vast plans for succeeding in games, it has started its efforts with half-vast ideas. In our view, investors have given Netflix way too much credit for pulling off this ambitious (some might say audacious) endeavor," Wedbush analysts said.