Netflix Business Model (How Netflix Makes Money?)

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Mostly everyone likes binge watching especially on Netflix. Founded by Reed Hastings and Marc Rudolph in the year 1997, Netflix was used as a DVD on rent internet platform back then. Today it has become the No. 1 movies and shows streaming online company. There are more number of Netflix subscriptions than TV cable connection in the United States of America at present. It is that company which is defaming pirated movies and shows over the World Wide Web. It is the most talked online streaming platform today. As of 2018, the platform had around 139 million subscribers globally.

Knowing all the stats of the company, the question arises ‘How does Netflix make money’ and ‘what is Netflix Business Model’. Before jumping directly to Netflix revenue model, let’s first understand its services and how the company operates.

As most of us all know, Netflix provides movies, documentaries, shows online through different devices like laptop/desktop, mobile, tablet, TV, etc. which are connected to internet. A person needs to have a monthly subscription since Netflix only operates on subscription based model. The platform provides content in different languages and various video qualities. The content is from all over the world. Also, Netflix produces its own movies, shows and documentaries from time to time.

netflix business model

There are 2 kinds of content on Netflix

1. Licensed 2nd Run

Under this type of license, Netflix purchases online streaming rights of already released movies, shows and documentaries. They only have to pay the License fee which depends on the content’s popularity and time period.

2. Self-Produced Original

In 2013, Netflix started to produce its own movies, shows and documentaries. Shows like House of Cards and Narcos made Netflix more popular. Netflix now spends much of its total cost on original content. The company has produced around 100 original shows.

Netflix Business plan is very clear and simple. Take license of already released movies, shows and documentaries or self-produce original content and stream it online.

How does Netflix makes money?

Many people have a question in mind that how does Netflix make money? The main source of revenue of Netflix comes from its subscribers. That means, to stream movies, shows and documentaries, people have to purchase Netflix monthly subscription. There are also different plans for DVDs which was separated from online streaming subscription plans from the year 2011. This is how Netflix makes money.

Netflix has different subscription plans for various kinds of users. The plans basically depends on how many screens are there in one account and what video quality user wants to stream in. Let’s understand both of these in depth.

  • Number of screens

    Netflix knew from the beginning that if a user has one Netflix account. He will share that with rest of his family and friends. To reduce this sharing ability of accounts, Netflix introduced a subscription plan where four different users can login to one single Netflix account and stream their content on four different screens. Netflix also has a single user and dual user subscription plan in which users have access to one screen and two screens respectively.

  • Streaming Quality

    Netflix shows its content in three different qualities, i.e., Standard Definition (SD), High Definition (HD), Ultra High Definition (Ultra HD). The company has different plans accordingly.

how much money does netflix make

Now let’s understand Netflix subscription plans in depth and also how does netflix make money. This will further clear that How Netflix makes.

As you can see from the above image, Netflix has 3 subscription plans in which first month is free. Also, once the subscription has started, a user can cancel it anytime.

Netflix subscription plans 

1. Basic Plan

This is the cheapest plan of Netflix. Though not so cheap, but Netflix considers itself no less than a TV cable connection company. The company thinks that the people who can buy a TV cable connection, those can also buy Netflix subscription.

Plan features

  • Standard Definition (SD) Video Quality
  • Single screen access per account
  • Unlimited Streaming

Price: $8.99 per month

2. Standard Plan

This plan is basically for couples or 2 friends. A little advanced than the Basic Plan, this is the best online streaming experience for a user.

Plan features

  • High Definition (HD) video quality
  • Dual screen access per account
  • Unlimited Streaming

Price: $12.99 per month

3. Premium Plan

This is the most bought plan of Netflix. Though priced at a higher rate, the subscription can be shared with family and friends. Thinking it as going on a trip with a group, it will definitely will make everyone happy since the cost of the trip will be equally shared and you can also see what other are doing.

Plan features

  • Ultra-High Definition (HD) video quality
  • Quad / four screens access per account
  • Unlimited Streaming

Price: $15.99 per month

This is the most valued plan of Netflix. Also, the company’s most of the revenue share comes from the Premium plan. The bonus for a user is a free trial of any plan for a month. You just enter your debit/ credit card details and the free month starts. This was the complete answer to how does Netflix make money.

Now, the final question left is ‘How much money does Netflix make’. But before answering this question, we should understand about all the costs incurred by Netflix.

Different types of Costs

1. Licensing Cost

We discussed earlier about the licensed 2nd run content which Netflix streams online. The company, in order to acquire that license pays the license fee which is different for various movies, shows and documentaries.

2. Production Cost

Netflix started its production of content in the year 2013 with the streaming of ‘House of Cards’, which is a very famous show. With gaining success from its own production, Netflix continued to produce more and more content and started spending mainly on the production and release.

3. Marketing Cost

Netflix spends a lot of amount to promote its subscription plans as well as the online content on the platform since there is a lot of competition now in the online streaming business. Different advertising channels like TV, print & outdoor advertising, Social Media, Website Ads, etc. are used by the company worldwide. Also, the company has to bear the cost of the users who have signed up for the first time for the One month free trial.

4. Research & Development and Technology & Development cost

In order to keep up with the online streaming, Netflix has to spend funds on these costs on time to time.

5. General & Administrative Cost

These costs include all the office expenses, payment to human resources and partnership fees.

In the year 2016, Netflix annual revenue was $8.831 billion and the revenue for 2018 was $15.794 billion. The revenue has almost doubled in these 2 years. This is the answer to how much money does Netflix make.

By the end of June 2019, the total revenue Netflix has generated in this 2nd quarter is $4.923 billion. The company is expected to achieve a new milestone this year.

All in All

This was the complete study on Netflix business model in which we got to know how Netflix makes money and learned about Netflix business plan.

I hope this article was helpful to you and if you have any suggestions then you  can mention them in the comments down below.

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