Why Netflix Should Not Enter Gaming Market

When Netflix (NASDAQ:NFLX) hired ex-Electronic Arts and Facebook (NASDAQ:FB) Mike Verdu to the company as VP of game development, it marked a wrong move for the streaming site. The gaming market is a multi-billion-dollar opportunity for specialized firms. Netflix has the infrastructure to grow in gaming, alongside its streaming content.

Will it work?

The gaming dynamics are different from Netflix streaming content. EA and Activision already dominate the space with blockbuster game titles. Netflix will need to experiment with hundreds of Indie game releases on its platform. None of them may take off. The optimistic will bet that Netflix needs only one hot game to succeed.

Gaming requires a different competency than non-interactive streaming media. Most popular games are not built on existing content. So, Netflix cannot leverage its online library. At best, it could cross-promote its games to viewers. If that does not alienate its customer base, the company stands a chance in the gaming market.

Last week, NFLX stock’s momentum to $560 broke down, finding support at around $530. Overall, the stock’s trend remains negative.

Investors should let the stock’s continued weakness play out before starting a position. Investors may wait for a drop to around $450 or lower before considering this stock as a buy.