Netflix has warned investors coming into Tuesday's second-quarter earnings call that subscriber growth will be especially light, expanding by as little as 1 million customers, a key metric that compares badly with the 4 million users worldwide added in the quarantine-fueled second quarter of 2020. 

Given the recent fixation of the Netflix narrative on slowing subscriber growth, some high-profile members of the equity analyst community wonder if the streaming company's announcements of new business ventures into merchandise and games are merely attempts to change the conversation. 

Bernstein analyst Todd Juenger said that some of his peers, “knowing second-quarter results and the third-quarter guide will be received as weak," believe that "Netflix leaked this [gaming] story now in order to change the narrative, distract, divert attention from the core business.” 

In the same note to investors, Juenger insisted he isn't in that group. “In our strong view, Netflix management has never behaved in a way where they would be expected to engage in such short-term diversions to try and impact/protect the stock price.”

Cowan analyst John Blackledge has also rated Netflix as "outperform," believing the best of 2021 will come toward the end of the year. “Management has also called out a content slate weighted toward the second half of 2021," he told investors. 

However, since Netflix announced the hiring for well-traveled former EA and Oculus gaming veteran Mike Verdu last week to run its fledgling online video games initiative, there has been second-guessing of the games strategy in the equity analyst community. 

And it's not surprising that the man who is perhaps Netflix's biggest bear, Wedbush's Michael Pachter, has been among the most vocal of critics. 

"The idea that they're going to launch games next year is crazy," Pachter said while appearing on Bloomberg's Take Stock. "There's no chance they get anything made in the next year."

Netflix leaked last week to Bloomberg that it will add a gaming feature within the next year, providing it at no additional cost to subscribers. 

"I don't see how Netflix has a prayer of pulling this off," Pachter said. 

For starters, Netflix hasn't built out a gaming development team, he pointed out.

"They hired a head coach. They have no players," said Pachter, who also noted the limited amount of gaming DNA among Netflix's upper management team, and the fact that few media companies have succeeded in launching gaming divisions. 

Disney, he said, has tried and failed three times.

Pachter is also puzzled by what intellectual property Netflix could lend to a gaming service add-on. 

"I don't see 'Bridgerton' the game as being all that compelling," he quipped. 

And he also wondered how, from a basic perspective of game control, it might all work. 

"Your TV remote has up, down and sideways motion. That's it. You can't play anything but solitaire," Pachter said.

Finally, the Wedbush analyst took aim at Verdu's frequent employment shifts, suggesting that based on pattern, he'll be out the door in Los Gatos in about two years. 

In the meantime, Pachter added, Netflix will "piss away a billion dollars on this, maybe, more likely two, three hundred million dollars."

Observers expecting Amazon to explore deeper dives into streamed content distribution take note: Former Suddenlink Communications and Cox Communications programming executive Kathy Payne has joined the online retailer as head of content acquisition for pay TV offering Amazon Channels.

Payne is well-versed in the ways of negotiating carriage deals with programmers. She served in various capacities for more than 20 years at Cox — last as vice president of content acquisition — before moving to Suddenlink in 2014 as senior vice president and chief programming officer. She left Suddenlink in June, after its purchase by Altice N.V., now Altice USA.

An Amazon spokesperson confirmed Payne is an employee and her official title is head of content acquisition, but declined further comment. Payne did not respond to The Wire’s request for comment.

Payne’s experience dealing with the likes of The Walt Disney Co., 21st Century Fox and Time Warner Inc. could indicate Amazon is getting serious about beefing up the services available through Amazon Channels. Launched in 2015, Amazon Channels is an offshoot of the Amazon Prime Video service, selling premium channels like HBO, Showtime and Starz as well as about 100 specialized streaming channels like Seeso, Shudder and Acorn TV. Amazon Channels is part of the overall Amazon Prime Video subscription, but some channels carry an additional fee.

Wedbush Securities managing director, equity research Michael Pachter, who follows Amazon, told The Wire, “Payne’s skill set certainly lends itself more to linear programming than to on-demand reruns, and her hire by Amazon suggests that they might be considering getting into OTT services that include traditional pay TV.”

Amazon has said before it hopes to keep growing Amazon Channels, which grew from around 80 at its inception to more than 100 this year. Its a la carte menu includes HBO for $15 per month, Starz for $9, Shudder for $5 and Seeso for $4. It doesn’t offer live feeds of those services, or any broadcast or basic-cable networks, but Amazon has said over time it could consider packaging channels into bundles at a discount.

“It wouldn’t surprise me if Amazon became an OTT distributor of linear television programming, and given the company’s substantial investment in [cloud computing platform Amazon Web Services] and in licensed and original TV and movie content, it isn’t a big stretch for them to get into nationwide television service,” Pachter said.

Like a lot of people, Dmitri Williams had never heard of Pokémon Go until it started trending on social media on Saturday, July 9 — and when his daughter downloaded it the next day.

“She said she wanted to go play with it outside,” said the CEO of gaming research firm Ninja Metrics and an associate professor at the University of Southern California. “That never happens, so I was all for it.”

SETS A SALES RECORD

By July 13, the augmented reality game had become the biggest mobile game in U.S. history, based on its 21 million active users, beating out 2013’s Candy Crush Saga and 2012 release Draw Something, according to data from SurveyMonkey. Three days into its release, Pokémon Go had more users than Twitter, and was No. 1 on both the Google and Apple App Store charts.

As of last Wednesday ( July 13), Pokémon Go attracted just under 21 million daily active users in the United States, surpassing Candy Crush Saga’s rumored peak U.S. smartphone audience of 20 million users and making it the biggest mobile game in the nation’s history.

How did a title from a little-known developer (Niantic) become an overnight hit? According to Williams and other analysts, the right confluence of events occurred: Smartphone usage is now ubiquitous; people are comfortable with using geolocation technologies; and the Pokémon franchise already had a dedicated fan base.

“You’ve got a perfect storm of social and technological things happening,” Williams said. “You can expect a zillion copy cats, because how these things work. This may or may not be a one-hit wonder, but gaming developers are creative, and they’ll do more with augmented reality than finding a Pokémon at your corner grocery store.”

Augmented reality (AR) games like Pokémon Go have been made before, and have been around for decades, Williams said. But this one could be a game-changer, he and other analysts said, that gets AR out from under virtual reality’s shadow.

“VR has been getting more of the headlines, but AR is consistently a more valuable technology,” Joost van Dreunen, CEO of New York-based video game data and analysis firm SuperData Research, said. “The two have long been lumped into the same bucket, but what Pokémon Go does is show everyone what can be done with AR, pushes it to the foreground.”

The consensus among industry observers is that the game’s novelty will wear out sooner rather than later, van Dreunen said. But Pokémon Go helped raise the stock of Nintendo — which has a 32% share of the franchise — by nearly 35% by the end of trading on July 13. So it’s a safe bet that others in the gaming and augmented reality space will look to repeat its success.

TEST OF TIME LOOMS

“This clearly demonstrates that AR can cross over into the mainstream on the devices people already have in at least some cases — you don’t need a bulky, expensive headset to use Pokémon Go, and that’s its power,” Jan Dawson, chief analyst with Jackdaw Research, said. “As such, it may help the concept of AR, but it doesn’t necessarily do anything for the kind of AR and VR experiences big companies are piling so much money into.”

The real test for Pokémon Go is whether people are still playing it weeks from now, Dawson said. That’s because the game is time-intensive, requires travel and relies on nice weather to keep users wandering around, looking for the hidden animals that make up the main part of the game. That combination won’t last forever, he said.

“The user experience has to be good, and they’ve done a good job on this,” Brian Blau, research vice president for per sonal technologies for Gartner, said. “But I don’t know if this changes the conversation for AR. AR games have been around on smartphones for a very long time. And they’re all gone now.”

If anything, Blau added, Pokémon Go was a much-needed shot in the arm for Nintendo and its investors, who’ve seen the gaming company lag behind rivals Sony and Microsoft for years.

Michael Pachter, managing director of equity research for Wedbush Securities, said much the same. The game brings together strong assets in Nintendo and Pokémon, but, “It’s only been a week, so premature to make the call on the game’s success.

“I think the success is more attributable to the intellectual property than to the game play. We’ll see if there is another successful AR game,” he said.

“My bias is that the game has challenges to remain on the top of the charts. It requires activity, which is anathema to couch potatoes, and sucks up battery life, which is anathema to Snapchat users,” Pachter added. “I think it will run its course at the top in a month or so.”