How Does Netflix Makes Money?

Published June 21, 2021 | Author: PenMyPaper

Netflix is one of the most popular and dominating media streaming service provider in the world. Established in the year 1997, this American company started its business venture by renting out physical media such as CDs and DVDs of movies and TV shows to its customers. Over the years, the company expanded its business thereby catering more customers across the country. Netflix is one of the first company to recognize the potential of media streaming and its future implications for the company. In 2007, the company slowly started to make its transition from the DVD rentals to subscription-based video on demand or content streaming service. According to our paper writing service, Netflix is one of the most commonly studied business organizations due to its successful transition into a newer business model. In this article we have discussed about how Netflix makesmoney from its business venture, thereby providing a peak into its business venture. This can also be used for your case study on the company.

Revenue Generation of Netflix

Before, we look into how Netflix makes money for your, let us look at the business operations of the company. Netflix is a streaming service provider, which offers media content like movies, TV shows and documentaries across a wide range of genres for streaming. The company purchases the distribution license from the media production companies and makes the content available for streaming in its platform. The customers can stream the said content, in return of a payment, which becomes the primary source of income for the company.

Netflix does not charge its customers for individual content that they stream, instead the customers are asked to pay a monthly subscription fee, which allows them to have access to the entire content library of Netflix. Same as what Amazon operations management provide in its Prime platform. It is important to note for your college essay that customers of Netflix do not the titles, it their digital format, they have limited access to them. Unlike iTunes, where customers can permanently purchase a content for a one-time payment, Netflix offers temporary access to their library as an online service. The customers will have their access to the content library revoked as soon as the subscription period ends, without renewal.

Netflix ensures that its customers always have something new the binge on. Therefore, the company constantly refreshes its library, by adding fresh new contents and while removing some of the older, least popular ones. In its domestic market, Netflix offers three different subscription plans, such as Basic, Standard and Premium. The Basic plan cost USD 8.99 per month, where the customer gets full access of the library but with certain restrictions. All contents are only available in standard definition (SD) and can be viewed on one screen at a time. The Standard plan costs USD 12.99 per month and allows the customer to view contents in high definition and on two screens simultaneously. Finally, the Premium plan costs USD 15.99 per month and allows the customer to view all contents in ultra HD and 4K as available. These subscription fees add up to the revenue of the company. Thus, in order to increase its earnings, the company seeks to increase its customer base as much possible. It should also be noted that the subscription fees vary across different international markets, and the content library can also vary greatly based on the country from which the customer is access the platform. Netflix do not have distribution license purchased from the media production houses only allow the company to stream the content in certain specific locations only.

In order to attract new customers, Netflix invests a significant amount of capital to create its own, Netflix Exclusive content. Not only does it allow the company to create a strong differentiation in the market, as these contents are not available in any other platforms, but also it helps the company to makes these exclusive contents available for streaming in any market location, as they have the sole ownership of the titles.

The revenue of Netflix also comes from its DVD rental service. Sounds like reading an Uber business model? But not really. Netflix started its business with DVD rental, but has eventually shifted to content streaming as the market evolved. However, the company still offers DVD rentals as a subscription service. There are two different tiers of subscription such as Standard and Premier. The Standard subscription cost USD 7.99 per month, where it allows the customer to rent one DVD at a time. The next DVD is sent out as the customer returns the previous one. The subscription fee increases to USD 9.99 per month for Blu-ray discs. On the other hand, the Premier plan USD 11.99 per month, allows the customer to rent two titles at a time. The price increases to USD 14.99 per month for titles in Blue-ray.

It is interesting to noted that over the years, the number of DVD subscribers has decreased and the number of streaming subscribers has increased.

Figure: Netflix DVD and Streaming Subscribers (in thousands)

Let's Sum it Up

Last but not the least, let’s go through what we have learned once again, so that you don’t have any queries on what to include and how to write a research paper on Netflix. Netflix operates as a media streaming and DVD rental service provider. Over the years the popularity of DVD rental has diminished and is gradually being replaced by the streaming service. The primary source of revenue for Netflix comes from the subscription fees that the company takes from its customers for the streaming and DVD rental services. These subscription fees come at different price points based on the value-added features offered by the company. The company seeks to attract more customers, through aggressive marketing and investing heavily on introducing exclusive content.

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