What is the first thing that comes to your mind, when you think about watching shows? It’s Netflix. Right? The supremacy that Netflix has gained over the years is quite amazing. Despite various competitions from HULU, Amazon Prime, and YouTube Ads; Netflix remains superior. Let’s find out how does Netflix make money, Netflix’s revenue model & financial.
Reasons Behind the Success of Netflix
- Netflix over time has gained a lot of customers. The premium quality content and the easy user interface that the platform provides is the reason behind its massive success. Today, Netflix has around 208 million subscribers from around the world.
- Netflix has updated its business model, with time. The company is known to have modified more than a dozen times. It is listed as a successful business strategy today.
History Of Netflix
Netflix was founded in 1988 to provide rented copies of shows, movies, video games, and other forms of entertainment. The business was conducted on mail service. The startup was in demand. The founders thought of bringing technologies and advanced features to the early Netflix. This modification was a huge business plan.
The founders changed Netflix’s copied mailbox service to providing access to its customers. The users on the other hand liked swiping for their favorite content at their convenience. Netflix understood the global demand of providing world-class entertainment. This basic step even today leads Netflix among its competitors. The company today has software that provides subscription packages, according to customer’s preferences. These subscriptions tend to be different in different zones of the world. The video streaming services provide Netflix the world’s 9th largest revenue on the Internet.
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How Does Netflix Make Money?
The business revenue earning source for Netflix is its subscribers. Netflix since its birth has been a customer-oriented entertainment service. It operates in a way that the customers are kept in the highest preference.
The prime revenue for Netflix comes from its subscribers. Netflix brings up shows for the customers. The customers in return like the content and are willing to pay for it. Netflix does not restrict itself to a specific niche. It provides wider scope. You have to juggle between a different menu of movies, series, and even age-wise genres.
Netflix strives for on-demand service which is coupled with high-quality videos and varied tastes. Netflix also analyzes customer behavior and pushes personalized services to the user. It becomes easy for the user as you don’t have to Google similar niches. Your preferred taste can be a click away.
To What Extent Does Netflix Operate?
With 208 million subscribers, Netflix is operated worldwide. The 74 million subscribers are from Canada and the United States alone. Netflix streams all over the world with exceptions from countries like Syria, Mainland China, North Korea, and Crimean Island (Europe). The restrictions provided in these countries are due to the US policies and sanctions.
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Costs Borne by Netflix
In the early days, Netflix didn’t have a cost structure. Cash flow was very poor. The drawback was analyzed and it had to be improved. A new plan was drafted and it demanded a big investment value. Netflix today has a big cash flow.
Behind these profits, it is also necessary that we know where the big cash flow comes from. Cost revenue is an important feature of any company.
- The License Cost:
Netflix bears the cost of licensing and then acquires the content. It now streams it to its users. The content price fluctuates on the type of content the company is buying.
- Netflix Originals Production Cost:
Netflix launched its Netflix originals in 2013. Its prime reason was to cut down the licensing cost. The original series involves huge production costs, and the company maintains it.
- The Marketing Cost:
Everything on the internet needs a marketing strategy. Netflix has many competitors in the market. So, it invests in the marketing strategy.
Its marketing cost includes the advertisement expenses, affiliate payments, and device partners—The first month for the subscriber is free.
- The R&D Cost (Research And Development Cost):
It is because of the research and development that has made Netflix what it is today. With more than a dozen improvements, Netflix has acquired its success and fame. So, investment in this area is particularly important for Netflix.
- Technology And Development Cost:
Netflix never shows lagging. It is a seamless experience. Well, it is not easy for Netflix to maintain. IT partners with hundreds of ISPs to reduce the local traffic. The costs for these partnerships are hefty.
It also includes the streaming delivery cost, expenses in designing applications, and infrastructure cost.
- Human Resources Cost:
This section includes the payroll and other expenses of the human resources. The professional and partnership fees are included in the administrative costs of the company.
- Other Costs.
The miscellaneous costs that are incurred by the company are listed below:
- payment processing fees
- DVD posting Cost
- Cost of amortizing the streaming content library.
Now, you might have the gist of the cost revenues that Netflix incurs to maintain its subscribers worldwide. You must wonder, what could be the reason behind a customer choosing Netflix over other platforms. Let’s discuss it.
Netflix Financials – How Does Netflix Make Money?
The following statistics and financials have been obtained from the latest Netflix financials as of June 2021. The period considered here is from 1st January 2021 to 30th June 2021.
1. Net Revenue According to Region
|United States and Canada||$64,05,615|
|Europe, Middle East and Africa||$47,44,154|
2. Paid Memberships At the End of the Period According to Region
|United States and Canada||73,951|
|Europe, Middle East and Africa||68,696|
3. Average Revenue Per Membership At The End of Period According to Region
|Region||Average Revenue Per Membership|
|United States and Canada||$14.40|
|Europe, Middle East and Africa||$11.61|
Netflix Subscription Plans – How Does Netflix Make Money?
The answer is simple yet complicated. Netflix does not provide plan B for users. Unlike Spotify, this provides free offers on its music. Netflix focuses on the “pay and watch” strategy. You have to pay a subscription to watch Netflix. The basic structure is shared in the table below. Note that these costs are as of August 2021 and are subject to vary depending on the region from where you are purchasing Netflix and also the time.
|Packages||Screens||Quality||Pricing / Month|
One screen at once.
It does not provide HD content.
Two screens are available
|HD quality video.||$13.99|
Four screens at once
|Ultra HD quality.||$17.99|
Netflix doesn’t offer advertisements. It is a completely ad-free service. So, it is very convenient for users. Netflix, even today offers DVD rental on a subscription basis. Altogether, Netflix has everything that a user wants.
The recent surveys show that Netflix could multiply its revenue by featuring advertisements. And, it is of course true. But, the company declined the advertisement strategy. Adding advertisements can lower the users’ experience on the platforms, which might reduce the number of subscribers on Netflix.
To Wrap Up – How Does Netflix Make Money?
An interesting fact is that the business model is based on the customer. It is important to learn for the new startup that whatever you do, you should always focus on customers. Your audiences are your greatest revenue.
By the end of the article, you must be clear that Netflix depends only on subscriptions as its revenue source. In the era of binge-watching a show, Netflix is sky-profiting with its success. It is a remarkable journey of the Netflix era.
Frequently Asked Questions
Who is the founder of Netflix?
Netflix was first founded in August of 1997 by two entrepreneurs, Marc Randolph and Reed Hastings.
Who is the CEO of Netflix?
Ted Sarandos is the CEO of Netflix.
What is the rank of Netflix on the Internet, based on internet revenue?
9th rank on the internet.
What is the market value of Netflix?
As of January 2021, the net market value is around $250 billion.
How many subscribers does Netflix have?
Netflix Currently has Just Under 149 Million Subscribers.