November 24, 2019

Disney will not wipeout Netflix and Slack will be OK

Despite the popular belief by short-term investors, Disney will not drive Netflix out of business. Netflix is in the long tail business. Meaning they stream as much content as they can that is no longer popular in today’s week of entertainment, but it still loved. The long tail does not depend on Friends or The Office because most shows that make up the long tail are not producing the same revenue for studios as they were when they were new and fresh.

It cost Netflix an approximate $48 million to make Stranger Things. Disney spent over $300 million to make Avengers End Game. That means that Netflix can retry to find the next Stranger Things about 6 times. Even if they are successful only 50% of the time, that is 3 hit shows or movies. It’s way cheaper to play in the long tail than it is to dominate the blockbuster market.

Neither will Microsoft drive Slack out of business. 20 million users signed up, but it doesn’t mean their teams switched. The evaluation of a new team collaboration tool is not one week for the majority of teams. In the short term Slack’s stock may drop, and so will Netflix. It would be an underestimation of the impact by short-term investors to think it is the end for these companies. Netflix is the company that has innovated and ate its revenue several times by pivoting, not once, not twice, but thrice. From delivering DVDs in the mail to streaming online, to creating it’s on original content. Disney is playing catch up, not innovating.

That means they missed the next wave of innovation by a few years or what Clay Christensen calls, the innovator’s dilemma. They failed to eat their own lunch and missed the next innovation in television content. Although, they are big enough and have enough resources to catch up some.

Netflix is doing fine, they are playing the long-tail game.