Do you ever ask the question – how does Netflix make money? In this comprehensive article, you will find answers on the business model, revenue streams, and costs incurred during operations and fulfillment. Presently, Netflix Inc. is unarguably the largest video streaming platform on the planet. It boasts of over 190 million subscribers, with a presence in 190 countries. On top of that, it offers one of the best customer experiences as streaming has no place for adverts interruption.
The current pandemic has helped a lot boost Netflix’s customer base. There was an increase of 23.3% in the company’s paid memberships globally, compared to the previous year.
Understanding Netflix Business
The company started in 1997 as a service for renting DVDs for home entertainment. In a bid to become innovative and capture market share in the booming entertainment industry, they pivoted to an Over-the-Top (OTT) platform. Besides, they were one of the Subscription Video on Demand (SVOD) pioneers, which allowed users to subscribe to their favorite video content only. Other important competitors using this model include YouTube TV, Amazon Prime, Disney+, and Hulu. Starting from 2013, Netflix began releasing its original movies such as “Stranger Things” and “Okja.”
Netflix Revenue Streams
As mentioned earlier, a subscription is its major revenue stream. With over 190 million subscribers, this amounts to monthly revenue and profit of almost $950 million and $43 million, respectively. By the end of 2019, Netflix made over $20 billion. Customers can choose from any of its three packages.
- Basic Plan: costs $8.99 monthly. Quality level – standard definition. The number of devices – one.
- Standard Plan: costs $12.99 monthly. Quality level – high definition. The number of devices – two.
- Premium Plan: costs $15.99 monthly. Quality level – ultra high definition or 4K viewing feature. The number of devices – four.
Other revenue streams include DVD and Blu Ray rentals service. Each of these has its payment package.
- Standard Plan: $7.99 monthly. You have access to only one disc at a time.
- Premier Plan: $11.99 monthly. You can collect two discs simultaneously.
Blu Ray Streaming
- Standard Plan: $9.99 monthly. You can take to take only one disc.
- Premier Plan: $14.99 monthly. You have access to two discs per time.
Netflix Cost Structure
Every business has its associated costs, including Netflix. Streaming operations cost the business more than half a billion dollars in 2018. Also, it pays actors and actresses whose content it licenses on the platform. The company also invests heavily in original movies. For example, it spent over $250 million to produce movies such as Bright, War Machine, Ozarks, and Death Note.
Netflix Business Demographics
The company categorizes its customer segments into four major demographics:
- The United States and Canada– with over 64 million customers.
- Europe, the Middle East, and Africa– providing over 32% of streaming income.
- Latin America – contributes 10% to the streaming income.
- Asia-Pacific– with almost 10 million users.
This article has provided an extensive answer to the question – how does Netflix make money? Now you know about all the revenue streams, identified the costs the company incurs to satisfy its customers, and the business demographics.