This post was most recently updated on February 25th, 2018
Being a movie buff (or even if you’re not), have you ever wondered how does Netflix make money? Netflix, for those of you who don’t know (and are living under a rock), is a media content providing company that lets users stream shows and movies online.
It started off by renting out DVDs (it still does) and now, it’s one of the most subscribed, and the most popular internet TV service. Over the last few years, it has gained so much popularity that people have seriously started thinking of cutting the cord from their existing cable service.
However, the question remains: how does Netflix make money? There are a few things you need to know before we can help you answer that.
What is Netflix: Rise & Opportunity
Over the years, seeing the need in the market that people are looking for good content at a reasonable price for everyday entertainment, Netflix came up with a formula. Besides building a very strong brand image, they started getting into brilliant content deals for users.
As a result, people started noticing a hoard of legal content available on Netflix, at a bare minimum price point. In addition to that, Netflix, also lured people in to try their service through a number of free trial offers of a month to 3 months.
And that’s not all. They also continued to collaborate and establish strong partnerships with multiple content producers to get the eyeballs they needed to build their brand salience.
How Does Netflix Make Money?
Let’s jump right into evaluating how Netflix makes money. And a simple answer to this question is: through a paid subscription model. However there are other revenue streams that Netflix enjoys through its content partnerships and and production initiatives that it invests in.
What is Netflix Business Model?
When we say that Netflix is the world’s leading internet television network, we really mean it. Over a 100 million members, from around 190 countries, spending 125 millions of hours watching movies and TV shows on the platform. That’s massive!
And millions more continue to sign up giving Netflix the exponential growth that it’s progressing towards. It is expected that millions of people are daily customers of Netflix, which brings them huge profits in return.
Being a global business, it has its earnings from users around the world primarily from a subscription model; this also makes Netflix’s business model, a risk-free one.
Netflix’s Target Audience
Netflix primarily targets a younger audience – males and females – who have an income level of $30,000 and above in annual income. Even though their main target seems to be people from the 18 to 35 age group, but their great offering appeals to a much larger lot.
The times when people wanted to go out to buy or rent movies have gone past us. It’s an era of video on demand and convenience, where most people like to watch content at push of a button, lazing around on their couch. This also includes binge-watchers.
Netflix unique-selling-proposition was to offer these content fanatics a service that’s too good for the value of the money they’re paying.
Another reason why Netflix is preferred is that it gives legal access to a huge database of movies and TV shows. The service is provided to users without any advertisements and ad-breaks disrupting the users experience. So people are willing to pay for an ad-free experience, and that’s where Netflix’s subscription model is such a success.
Another cool feature of having a Netflix account is that users can watch it on any device: a gaming console, your PC, TV, and even your mobile phones.
Plus, Netflix took away the waiting game for viewers that all TV networks en-cashed on over the years. Since Netflix is ad-free, they release all the episodes of a TV series in one go – not weekly, not in parts.
That was a very smart strategy, as this helped them get a large chunk of the audience who loved to binge watch TV series in one go, and don’t have the patience to wait for a week for another episode.
How Does Netflix Make Money: Monthly Membership Plan
One of the ways Netflix is making money is through its subscriptions or monthly membership fee. There are around 75 million people around the world, who have subscribed to Netflix. There are three subscription plans for the users that Netflix provides.
The only difference in each project is the streaming quality of the show or the movie. The cost of each varies from country to country.
- Basic- provides Standard definition
- Standard- offers High definition
- Premium- provides an Ultra high definition
Netflix also has a monthly membership plan for the DVD renting service. The fee depends on the number of Disc out-at-a time and Discs per month. You can sit at home and get the DVDs delivered to your home.
Multiple subscription plans allow Netflix to target a large number of people. This way, people with different income levels do not find it out of their range. Netflix is one of the best business model examples.
How Much Money Does Netflix Make?
Based on 2017 numbers posted by Netflix, they make north of $1.4 million a day (an estimate).
Netflix Case Study
This is mainly how Netflix makes money. It buys the shows and movies from media houses, streams the content and gets the subscribers to pay the monthly fee.
The company then spends the money it receives from subscriptions on more shows and movies. It then produces its season or a video and streams that for the subscribers.
Then, Netflix gives out the licensing deals to other media channels. The quality and the storyline of their shows get more viewers to subscribe.
That Settles It: Now You Know How Netflix Makes Money
Well! Now we all know how Netflix makes money. The Netflix business model seems to be one of the most successful models as we all see. The company makes good figures regularly, and we all can witness that.