Netflix Business Model | How does Netflix make money?

Netflix is an OTT platform. During the covid 19 pandemic, the use of the OTT platform has increased on a large scale. Since all the cinemas were closed due to COVID-19(how does netflix make money), new films are being released directly on OTT platforms, And the demand for OTT platforms increased.

What is Netflix?

Netflix is ​​an American OTT (over-the-top: In OTT platforms, you can watch Movies, and T.V Shows directly Over the Internet ) content provider and production company headquartered in Los Gatos, California.  The company  was founded in 1997 in Scots Valley by Marc Randolph and Reed Hastings. Netflix is a subscription-based OTT platform where you can watch many movies and TV shows on your device without any interruption of ads. To Stream Movies and TV shows on Netflix, you need a fast internet connection, a Netflix subscription, and a device like Smartphone or laptop.

Netflix Business Model
Netflix Business Model

Netflix Business Model

As we previously told you, Netflix was started in 1997, and based on the market cap, Netflix company’s total worth is USD 228.5 Billion USD in 2021. In 2020 Netflix’s actual worth was USD 225.79 Billion.

Initially, Netflix started its business by selling DVDs and renting them out by mail. After one year, Reed Hastings left selling DVDs and focused only on Giving DVDs on rent. After some years, Netflix expands Its business, and In 2007 Netflix Introduced streaming media content and Giving DVDs on rent. After that, Company expands its business in2010 to an international level from a national level  And  introduced its streaming service in Canada, followed by Latin American and Caribbean sea countries. After that, In 2013, Netflix starts its own Content Production company and make its first series, ” House of Cards.”

Netflix Business Model
Netflix Business Model

Netflix’s Target Audience

Netflix operates in 191 countries around the world. Netflix is ​​not available in some countries like Syria, Crimea, North Korea (due to American restrictions), and mainland China (due to local resistance). Netflix is ​​one of the leading OTT platforms in the world. Netflix touched a milestone of 20 9 million customers in July 2021. The target audience of Netflix comes in the age group between 17-60, and the Households income level with USD360000/ year and up

Value Proposition Of Netflix

Netflix Provides you legal access to many movies and TV shows with the best-personalized suggestion algorithm; you can watch these movies and TV shows without any interruption of any advertisements. Netflix service is supported on the broadest range of devices, including PCs, TVs, mobiles, gaming consoles, and the web. There is no boundation of time like television, and you can watch any movie or web series at any time.  

Netflix Business Model
Netflix Business Model

How does Netflix make money?

As we know, Netflix is an OTT platform that provides legal access to many movies and TV and Shows to its subscribers. The company generates a huge part of its revenue by selling Netflix’s subscription. People buy Netflix’s subscription to get legal access to Netflix content and get DVDs by mail.

Netflix provides three different types of plans based on video streaming quality and the number of device access given below.

Basic Plan:- In the Basic Plan, you can stream videos on Standard Definition, and the account can be accessed by only one device.

Standard Plan:-In the Standard Plan, You can Stream Videos on High Definition, and only two devices can access the account.

Premium Plan:-In the Premium Plan, You can Stream Videos on Ultra High Definition, and four devices can access the account.

The pricing of these plans varies in different countries.

Similarly, Netflix also provides DVD rental subscription plans. In the DVD rental service, Netflix provides three different plans based on the number of DVDs out at a time, which are given below.

Starter Plan:- in this Plan, you can take one DVD at a time, and you can take only two DVDs in a month. 

Standard Plan:- in this Plan, you can take 1 DVD at a time, and you can take unlimited DVDs in a month. 

Premier Plan:- in this Plan, you can take two DVDs at a time, and you can take unlimited DVDs in a month. 

the price of these plans also depends on disc formats ( Standard Definition or High Definition, Blue-ray, up to 1080 ). The cost of these plans varies according to country.

Netflix Business Model
Netflix Business Model

Cost of revenue

 In simple words, the cost of revenue means the total cost a company spends to incur profits in the distribution of production, marketing, product, or service. How does Netflix make money? the answer to this question is incomplete without knowing the cost of revenue of Netflix.

There are a lot of expenses and expenditures which Netflix has to incur to get those profits.

License cost

Licensing cost is a cost that Netflix has to pay the material to the company to take the rights to the content. As we know, many films on Netflix are TV shows, In which Netflix produces some films and web series, and Netflix for the remaining range buys their rights.

Netflix Business Model
Netflix Business Model

Production cost

As we told you that Netflix had launched its own production company “Netflix,” and produced its first web series, “House of Cards.” The company started Netflix Genesis to avoid licensing costs. Production cost is the cost to produce materials like movies and web series. There is a lot of money in production, which has to spend the largest on making films and web series to Netflix.

Marketing cost

Netflix is a leading OTT platform but not the only one. Some other OTT platforms like Amazon Prime, Hotstar, Zee 5 and Hulu, etc., are available over the internet, Netflix’s competitor. Netflix acquires some marketing strategies like an advertisement, affiliate programs, and a free trial for every new user to compete with them. the spending done by Netflix on these things is known as a marketing cost.

Research and development cost

 Netflix also invests its money in its research and development department. Due to this department today, it reached here and still leading towards growth with the subscription-based business model.

Netflix Business Model
Netflix Business Model

Technology and development cost

There are millions of Netflix’s subscribers who watch movies and web series at a time. To provide them lag proof and seamless experience, Netflix also invests its money to acquire advanced technologies.

General and administrative cost

Administrative costs include salary and other expenses on the human resource that perform administrative work of the company,

Miscellaneous cost

 There are a lot of other miscellaneous costs that are incurred by Netflix, like payment transaction fees, DVD posting cost, and server costs (where media libraries are stored).

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