Dressed in comfy jammies, munching on snacks, sipping a chilled drink, binge-watching my favorite show, and planning to repeat another once I am done with this one! Rings a bell? Of course, you can relate because that perfectly describes the time you spend on Netflix.
Netflix has helped me appreciate the “me time” at home. The films and series available are entertaining and thought-provoking. I found my haven when I subscribed to this online streaming app. But in the midst of all this, the most frequent question that crossed my mind was how does Netflix make money?
Let’s check out how this streaming giant profits from the films and series on their platform.
Movies and TV series have always been the go-to activities of many people. The surge of internet and technology helped in making this activity accessible at home with online streaming apps. The latest box-office hits are not only available in movie houses alone. They are also released legally on specific theatrical platforms.
Entertainment is at the grasp of your hand. Few clicks on your phone, and there you are watching another episode on Netflix.
Netflix is one of the biggest streaming companies worldwide. They offer about 3000 films and shows of various genres, depending on the location, to their growing online subscribers and audience.
The online streaming business
Televisions have been a staple appliance in many households for many decades. Watching different scenarios unfold on the four-cornered box, whether it be black and white or color, has grown into business opportunities for many video companies and production fits.
Online streaming also saw challenges while it was growing with the aim of a wider audience reach. The internet was not immediately available to many people. While the internet was slowly increasing, along came it the gradual growth of online video streaming as well. It turned out to be successful because many found it very useful for entertainment and even for education.
Today, numerous companies, such as Disney+, Amazon Prime, HBO Max, and Netflix, are competing in the online video streaming industry. Each offers different features and original concepts that continuously attract and increase their market shares.
However, the company leading the industry is Netflix, with about 167.1 million paid subscribers globally. What has Netflix continuously gained that massive market share securing an annual revenue growth for them? Let’s see.
Features of Netflix
In 1997, Netflix started as an online movie rental provider. When DVD came to be, Netflix jumped onboard and offered movies through DVD rentals, which were delivered to the homes of the customers. Eventually, the company grew and introduced the first concept of subscriptions for film and personalized recommendations for the users’ film preference.
A decade into the industry, the company launched its online streaming services for subscribers with several films and shows available on its platform. This cemented Netflix as a movie streaming giant, and the rest is history.
Currently, the brand offers its platforms to 190 countries, each with its local films made available as well. The offers differ depending on the subscriber’s location. Netflix also produced their original movies, series, and documentaries that were widely accepted by their viewers and even won different accolades from various awarding bodies.
For new users, Netflix may be used for free for one whole month. Succeeding months would be charged according to a subscription plan chosen by the user. They offer subscription plans for both online streaming and DVD rentals.
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Online streaming plans
1. Basic Plan
This plan enables you to stream and download movies and shows on one device at a time. Subscribe to this plan for only $8.99 per month.
2. Standard plan
This plan lets you stream and download shows for two devices at the same time with high definition quality. $12.99 per month is the subscription charge for this plan.
3. Premium plan
For four devices at the same time, this plan offers the high definition and ultra-high definition streaming quality of shows. The premium plan entails $15.99 per month for the subscription.
DVD plans
1. Standard
The regular DVD plan amounts to $7.99, while the Blu-ray disc is for $9.99 per month. There is no limit to the number of borrowed discs, but the user must be able to return the borrowed disc then the next CD would be delivered.
2. Premier
Costs $11.99 for DVD and $14.99 for Blu-ray, this plan lets you keep two discs at a time.
Netflix has been growing its market with constant improvement of plot lines for their originally produced shows and building their film features from other production fits.
The company stands by three C’s as their business principle – cost, convenience, content. Though online streaming is said to be pricey, Netflix found a way to solve that for its subscribers. They tied up with cable companies so that installing a new cable box would entail a cheaper Netflix subscription.
A phone, a tablet, a TV, a laptop, name it, Netflix is available. Any device can be installed with Netflix, and it takes a few clicks to be subscribed to it. They want to deliver their services in any way possible for their market to enjoy continuously. An offline download feature is available for users to view shows even without the internet connection.
Quality will always define the market’s response to service. Netflix aims to maintain its content as exciting as possible. Each show they produce is not only of a great cast ensemble but also of a great plotline. Age-appropriate ratings are also applied on the shows and films.
One excellent feature of Netflix is their constant enhancement of delivering the best of entertainment with the assurance of its value. This makes Netflix stand out and patronized by many viewers worldwide.
Brand partners
Unlike other companies, Netflix is not keen on the idea of having ads or commercials on their platform. This poses a challenge because, most of the time, ads pull in a large amount of revenue for a company.
They stood by the point that they do not want ads to hinder their viewer satisfaction because it is their branding. Their marketing team has been working hard to pull in a different form of promotion for the streaming giants.
Without ads, Netflix dove into the concept of brand partnerships. They regularly partner and collaborate with other brands to promote their shows via tangible products.
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Subway is one brand that they partnered with to promote the show “Green Eggs and Ham.” This is a witty banter because Subway is a sandwich joint, and their show is commonly about sandwich specials. Netflix was able to put a product, Green Eggs, and Ham Sub. This attracted many people and was a good publicity stunt for the company.
Other brands such as Diesel had a partnership with Netflix to produce outfits inspired by the show, Money Heist. The Netflix hit, Stranger Things, was promoted with the help of Coca-Cola.
Social media also plays a significant role in forging brand partnerships. Netflix makes an effort every time a show would be the subject of jokes and memes. Their banter with online followers increases the marketing image of being relatable to their subscribers.
An executive from Netflix also stated in a New York Times article that shows themselves make some brand partnerships. The show production team usually chooses to contact brands that they know will be a good marketing campaign for them.
Whenever brands are mentioned and appear on certain shows, most of them are free as per Netflix. It is quite different from the usual marketing concept wherein the streaming company pays brands for them to appear on the show. Netflix does not do that.
This marketing strategy of Netflix is working for reviews. Shows appear to be as natural because of the participation of brands that are household names in the industry.
The audience matters to Netflix. They are after what their market wants to see. Netflix collaborates with companies that they feel have the same objective and approach as a particular show would for the audience. A brand partnership is not all about advertisements. For Netflix, it is about creating a similar atmosphere where viewers won’t get the feeling of “It’s only for promotion.”
Source of revenue for Netflix
As of this writing, Netflix is worth $163 billion as per the market cap for March 2020. Last year, Netflix tallied its net revenue at $19.86 billion, a 29% increase from 2018 revenue. This proves that Netflix is continuously growing its share in the market. The company has built its net worth from various sources through their services. Listed below are identified as the primary source of revenue for the company.
DVD rental
As Netflix had its humble beginning with a DVD rental service, they still pull in a good share of profit until today. Though subscriptions did drop at a significant number around 500,000 as of 2019. Despite the drop in subscribers, it still delivers domestic gain for Netflix.
The decline may be attributed to the increasing number of online platforms to watch movies as well. Let’s face the fact that physical discs of shows don’t usually find their place in an internet-operated home.
The DVD rental service is only offered in the US. This is also to minimize the possible loss or risk in the case that they unsuccessfully market them internationally.
Netflix is still paying respects to its first services by acknowledging and continuing the operations of its DVD rentals. Its small share in the overall company profit is worth the shot.
Subscription
The user’s subscriptions account for the lion’s share of Netflix’s annual profit. Through the years, online streaming subscriptions grow by the day. In the US, Netflix has an 85% audience share of the online streaming service industry. Today, as the world has been halted to a stop by the pandemic of the CoronaVirus (COVID) 2019, the numbers have increased undoubtedly.
The numbers speak for themselves. Since subscriptions are continuously growing, users are the ones responsible for the successful thriving of the streaming giant. Subscription plan payments incur $1 billion monthly.
The international audience accounts for more than 52% of the total revenue from subscriptions. If compared with the domestic audience, with 45.8% of the revenue, this just shows the market of Netflix is mostly from other countries.
Streaming services are the main product offer of Netflix. Therefore, it is not a surprise for its massive profit for the company.
Netflix originals
The arrival of more online streaming platforms poses a challenge for Netflix to retain their market share. When Disney announced its release of Disney+, films produced by the company were slowly pulled from the list of Netflix. The same happened when NBC announced its platform, pulling out their show, The Office, one of the fan favorites on Netflix by 2021.
As of a 2018 ranking, six out of the ten most-watched TV series are Netflix originals. The tendency to pull-out many shows and films from other production fits pushed Netflix to make sure its content gets constant viewership. It turned out very successful with the creation of Lilyhammer in 2012.
The show paved the way for other shows and films by Netflix to have its rapport with the audience. Stranger Things and Bird Box are the two highest-grossing Netflix series and films, respectively. They smashed online box-office with Stranger Things garnering 64 million views and 80 million views for Bird Box.
These original content are profitable by its pull on the audience to subscribe to the platform for its streaming. Building the content of shows will ensure the growth of their market and audience in the long run. Consequently, the subscriptions translate to monetary payments for the services offered by Netflix.
Movie and TV series
Aside from originally produced content, Netflix offers other movies and TV series by different production fits.
These movies are very profitable for Netflix because of its partnership with companies to acquire licensing for its streaming on the platform. The availability of several shows makes Netflix diverse, which helps the audience choose what they want to watch and enjoy.
This wide array of film options on the platform is a magnet for more subscribers to watch Netflix. Netflix operates an algorithm that personalizes the content you see. This way, other movies, and Netflix originals are recommended to several audiences.
They also offer Netflix Kids, which is suitable for younger audiences with age-appropriate recommendations. This gives parents and guardians the assurance of a healthy show for their children.
The reason behind the success of Netflix is an investment. They invest in the content they offer and in their audience.
Investing in audience preference makes the services more inclined to them. Netflix knows how to listen to their market. They utilize the resources of the internet, checking out the latest trends in lifestyle and entertainment to form a platform the market needs and loves.
The impact of Netflix
Netflix has influenced the world one way or another. It was the first company to utilize the internet for its services fully. This paves the way for them to connect with their market easily and know their views and opinions.
The company used the trend of entertainment, injecting it with their brand. Boom! Every single person wants to watch every episode on that platform. They were able to establish themselves very well acquainted with every subscriber.
The film industry is far from what it is now. Part of that development is the introduction of Netflix to the market. Their platform served as a go-to place for them to watch their favorite show and even view the originally produced content.
They offered comfort and convenience in their streaming service that is accessible to any device. Subscribers embraced their brand of being able to watch anything wherever they are. Box-office also changed its landscape. Though theaters still mattered for many, Netflix originals such as Bird Box, are up for the challenge and even breaking movie records.
No one can deny preferring to “Netflix and chill” at home than to go out and do something. Netflix was able to turn the tables and offer a new dish to the customers, a complete package.
Experts refer to the impact as the “Netflix effect.” They were able to attract consumers to binge-watch series and movies with their delivery of quality content and service. Netflix pulled this off because they listened to the people’s pulse, to their market.
Though it was not an overnight success, Netflix deserves a round of applause for being able to give its subscribers comfort tailored to their personal preference. Netflix was able to successfully provide content while establishing a connection to its subscribers, which is the ultimate goal of any company – relate to their audience.
Wrapping up!
Entertainment is available in the most convenient and exciting way possible. Thanks to technology, Netflix is able to offer its interesting content to a number of audiences.
Netflix owes its huge profit to the subscribers who continue to patronize their services. Put it this way, Netflix is an online cinema with a wide array of box-office choices. Their impact on the world is on a huge scale involving culture, lifestyle, and innovation.
Companies may learn a lot from Netflix and its business strategies. They stood by their investment despite all the risks. Investment in any business does impact the trade exchange and growth of the market.
The key takeaway we can learn from the profit cycle of Netflix is that it relies on its market. Their market influences how the company will respond. Along with response comes their own flavor of innovation and development, this helped Netflix succeed profoundly.
Now that you know how Netflix makes their millions, you can get back to binge watching your favorite show.
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