Can Netflix disrupt again?

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Netflix has just announced a US$5 billion deal with the WWE (World Wrestling Entertainment) to obtain sole broadcasting rights to the hit wrestling show RAW. Just hours after announcing the deal it followed up with a second announcement – it had added 13.1 million new subscribers in the final months of 2023, giving them a new record – 260 million subscribers worldwide.

It's big, and only getting bigger. The question now is, can Netflix disrupt it's competitors like it has in the past?

Netflix the Disruptor

Netflix is well known as a disruptor. It was born in the height of the dot com boom, disrupting Blockbuster’s VHS & DVD rental business by implementing:

• a lower-cost distribution method - supplying VHS/DVD to customers in the post instead of via a shopfront.
• a cheaper pricing model – Blockbuster earnt about US$800m a year in late fees, Netflix charged none.

When Netflix offered to sell itself to Blockbuster for US$50 million in 2000 they were laughed out of the room.  When Blockbuster LLC closed in 2014, Netflix had a market cap of US$20.63 billion.

Side note: the last Blockbuster branded store in the world was in Morley, Western Australia. It closed its doors in March 2019, by which stage Netflix’s market cap was US$141.98 billion.

Live Streaming: Let’s get Ready to Rumble!

WWE RAW is World Wrestling Entertainment’s primetime Monday night show, generally seen as its flagship program. For those who don’t follow wrestling, here are a few eye-opening statistics about WWE and RRAW in particular:

• RAW is televised on Monday nights and is 3 hours long, and is America’s longest running weekly episodic TV series.
• RAW’s 30th anniversary episode was watched by 2.34m people (US only).
• Outside the US most of WWE’s audience are in the UK, Canada, Germany and India (India alone avg viewers is over 2m people).

Was it worth US$5 billion?

Well, the deal is actually over 10 years, so only US$500m annually. This will be a relatively small part of its overall US$17 billion spend in 2024 (of which Australian content is $1 billion over the past four years).

It’s interesting because it’s Netflix’s first investment in live content – which is definitely NOT disruptive, because live broadcasts of entertainment have been going on for almost 100 years.

Netflix & Live Experiences

Walt Disney proved that entertainment fans will pay big money for live experiences based on their favourite content – and keep coming back.

Netflix has trialled this in “immersive retail” with Netflix at The Grove, which combines interactive exhibits from popular Netflix titles with, of course, merchandise.

This is also not disruptive – you can find these all over the world, including my personal favourite, the Heineken Experience.

Netflix House goes one step further – permanent bricks and mortar locations with not just retail and dining but also (again) interactive things like a Squid Game obstacle course. Basically a theme park.

Merchandise

This doesn’t even need an explanation. If you don’t have any Netflix merch in your house, you will at least have seen it in your local shopping centre.

Netflix’s metamorphosis

Once it had disrupted Blockbuster into oblivion, Netflix ended up disrupting its only true competitor – itself – a number of times:

• 1998-2007 Rental company – VHS/DVD’s in the post.
• 2007-2012 Syndicator – buying existing content and giving access via online distribution.
• 2012 – present Adaptor – buying existing content and adapting release schedules to internet video, aka the introduction of “binge watching” of newly released series.
• 2012 – present Producer – investing in its own content.

For a really interesting and extensive explanation of Netflix’s evolution and metamorphosis into the content behemoth it is today, check out Laura Osur’s excellent and comprehensive PhD dissertation Netflix and the Development of the Internet Television Network.

What happened to disruption?

Netflix wasn’t the first company to stream videos online – that was Starlight Networks in the early 1990’s. But Netflix was one of the first to realise that offering as much content as possible would be popular – similar to Amazon’s focus on giving customers access to “Long-tail” inventory that they’d be unlikely to see at their local bookstore.

Their next major advancement was to ensure consistent streaming quality worldwide. I wouldn’t class this as a disruption though, simply an improvement linked to the growing scale of internet infrastructure and footprint.

From 2012 onwards Netflix has acted more or less the same as other large content distributors like Disney, Paramount, and American Cable Companies: they've simply gathered and/or created content, then pushed popular titles out into spin-off titles, merchandising, and live experiences. There is nothing new in this path – it’s been happening since content broadcasting first began:

• Make content
• Distribute content
• Identify popular content
• Sell content-related goods and services

Netflix & Gaming

Netflix branched out into games in 2017 with the release of Stranger Things: 1984 (and if you’re Gen X you’ll love the 8-bit graphics). Again, this is nothing special or new – popular content titles get turned into games all the time, and vice versa.

There are two reasons why this gets a special mention:

1. Netflix made games available via their streaming platform. They weren’t the first streaming service to do this – Twitch introduced Twitch Play in 2016. But they were the first of the major content companies to do so (Disney distributes their games outside the Disney Plus platform).
2. The games are “free”, meaning included in the Netflix subscription. They’re simply another form of content that they deliver, without having to manually search for the games on the app store of your choice. This alone puts them ahead of their rival streaming services. (added bonus – the games are really well made. Grand Theft Auto is their biggest game launch and the gameplay is almost the same as the console version).

This is the most recent disruption they’ve come up with (even though Twitch got there first) and I think it’s the one that will give them an edge on their rivals. Gaming revenue is larger than both the film and music industries at US$170 billion annually.

And if you could go to a single platform to get the biggest selection of movies, series, AND games, why would you go elsewhere?

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👋 Hi, I'm the founder of Ascern Advisers. We place Part-time CFO's into businesses with Growth Potential. DM me or email me at david@ascern.com.au if you want to chat.