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 Netflix subscriptions than TV cable connections in the United States of America at present.
It is that company that is defaming pirated movies and shows over the World Wide Web. It is the most talked about the 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 the internet. A person needs to have a monthly subscription since Netflix only operates on a 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.
What Type of Content Does Netflix Have?
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’s 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 Make Money?
Do 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 were 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 depend on how many screens are there in one account and what video quality the 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 the rest of his family and friends.
To reduce this sharing ability of accounts, Netflix introduced a subscription plan where four different users can log in 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.
Now let’s understand Netflix subscription plans in-depth and also how does Netflix makes money. This will further clear that How Netflix makes.
As you can see from the above image, Netflix has 3 subscription plans in which the 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, Netflix considers itself no less than a TV cable connection company.
The company thinks that the people who can buy a TV cable connection can also buy a Netflix subscription.
➦ 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.
➦ 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 of it as going on a trip with a group, it will definitely make everyone happy since the cost of the trip will be equally shared and you can also see what others are doing.
➦ 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 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 makes money.
Now, the final question left is ‘How much money does Netflix make’. But before answering this question, we should understand all the costs incurred by Netflix.
Different Types of Costs
1. Licensing Cost
We discussed earlier 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 amounts 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 monthly free trial.
4. Research & Development and Technology & Development cost
In order to keep up with online streaming, Netflix has to spend funds on these costs from 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’s 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 makes.
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’s business model in which we got to know how Netflix makes money and learned about Netflix’s 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.