How Netflix Makes Money: The Netflix Business Model

Netflix was founded in 1997 by Marc Rudolph and Reed Hastings to rent films on DVD, but later on introduced online streaming of movies and TV shows, eventually becoming the #1 SVoD service in the world and choice of entertainment for most binge-watchers.

The company’s number of subscribers is so large, it covers more than a third of online traffic. These statistics about the company raises the question of how Netflix makes money? However, before we move on to this question, let’s first discuss the Netflix Business model.

The Netflix Business Model

According to Statista, Netflix is ​​the world’s leading online TV network, with more than 100 million subscribers in 190 countries. Users watch Netflix for about 125 million hours a day. The latest reports show a huge leap of Netflix subscribers to 214 million subscribers around the world, click here to learn more Netflix statistics.

The company’s target market includes men and women ageing 17-60 and families. Netflix targets its audience based on psychographic. So, it divides the users into three basic groups –

  1. Busy people who don’t have time to go outside to watch movies.
  2. People interested to fully utilize their money.
  3. Regular renters.

Netflix Value Preposition

It gives you legal access to highly customizable suggestions and high-quality service without interruption of ads. This service works with all the latest devices, including laptops, TVs, cell phones, and game consoles.  Moreover, it releases full-time episodes. So, users don’t need to wait for the next episode.

How Does Netflix Work?

Netflix allows subscribers to watch movies, TV shows, documentaries and more on various modern devices. The company also offers DVD rental programs where it provides movies and shows on DVDs.

While the content Netflix offers varies by region, many people also use a VPN service for accessing different libraries. For instance, let’s say you want to change your Netflix region and access the US library, you can do so by simply connecting to a VPN server in the US.

Moreover, Netflix works on a subscription-based model. Subscribers pay monthly to access shows, movies, and other available content with different video quality.

How Netflix Makes Money?

The main source of Netflix revenue is the subscription program. The subscribers pay for access to Netflix content and delivery to DVDs for them. In this way, it makes money.

Netflix’s Main Source of Profit

Netflix offers its users three different pricing plans depending on the video quality. The overview of each plan is given below to help you select the best one based on your budget and streaming requirements.

Monthly cost (US Dollar)$8.99$13.99$17.99
Simultaneous screens124
Number of smartphones or tablets to downloads 124
Unlimited TV shows and movies
Supports laptop, TV, smartphone & tablet
HD video quality
Ultra HD video quality

Please Note: The cost of these pricing plans varies from country to country.

A similar model is used for the DVD rental service. Its monthly fee is based on the number of Discs you rent per month.

Cost of Netflix Income

The streaming gaint has to incur huge costs to earn profits. The mains costs incurred by Netflix are discussed here;

1.     License costs

The company bear the cost of obtaining a license and obtaining different content for different regions.

2.     Production Costs

Netflix original series incur high production costs. So, this huge investment in original content production made the company one of the leading investors in the media.

3.     Marketing Costs

To compete with established players, including Hulu, Amazon Prime, Hotstar, etc., the company bear advertising costs.

4.     Cost of R & D

Netflix makes huge investments in research and development. It is the result of this investment that has conquered the streaming market.

Wrapping Up

Netflix is well recognized for its original content in the streaming market. The article above lets you know how Netflix works, its business model, and how it makes money. In summary, the discussion reveals that Netflix has captured the streaming market with the result of consistent efforts.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.