netflix Business Model – How does netflix make money

Do you remember how people would watch movies back in the day? When a new movie was released you had to go to the theatre, stand in line and get the tickets to watch a movie. Otherwise, you had to wait for it to be aired on a TV channel. People even had to buy DVD players to watch movies. You could rent DVDs from Blockbuster Video to watch your favorite movies. But that seems to be a long time ago. Now the movie-watching experience has completely changed. It is all due to technology. People are welcome to change if they are comfortable with it. That is exactly what happened to movies now. Unlike the past, you don’t have to go to the movie theatres the movies are going to come to you.  You can watch an unlimited number of movies sitting in your couches. 

If you are still wondering how then you must be living under a rock. You can just see the explosion of new video streaming platforms every year. People are slowly losing interest in cable connections. Because you don’t need a cable connection anymore. If you want to watch the news or some TV channels you can watch them on the internet. They are looking for something new that offers them new and exclusive content. What offers them new and exclusive content? You guessed it right, video streaming platforms and there is no need to tell you what is the most popular video streaming platform right now in the whole world. It is Netflix. Netflix has taken the world by storm as it gained popularity. There is probably no one in the current generation that doesn’t know about Netflix but not its business model. 

Let’s find out what made it so successful.

What is Netflix and how it all started?

Everyone today knows Netflix as a great video streaming service but it was not the case all the time. In fact, Netflix today as we know was completely different back in the day. Netflix was founded by Reed Hastings and Marc Randolph in 1997. Before that Reed Hastings owned a company called Pure Atria where Marc Randolph used work as a marketing director. Pure Atria was later acquired by Rational Software Corporation to become the largest acquisition in silicon valley at that time at $700 million. After that Reed Hastings and Marc Randolph came up with the idea of Netflix while they were going to their homes. They liked what Amazon was doing and wanted to do something similar which allowed them to sell stuff over the internet. They thought of selling VHS tapes but dropped the idea as they were costly and too delicate to ship.

So their idea could only be put into practice once they heard about DVDs. To see if it actually worked by mailing a DVD to the house of Reed Hastings. After that Reed Hastings started Netflix by investing 2.5 million dollars. Netflix was founded to sell and rent DVDs to people online. The only other company that used to rent DVDs at that time was Blockbuster Video but it didn’t do it online. Netflix is the first online rental service in the world. With 925 movies in their library, they had nearly all the movies that people wanted to buy or sell. Netflix introduced monthly subscriptions. This allowed people to rent an unlimited number of DVDs for paying a fixed amount. It started its streaming service in 2007. Since then it has acquired rights to a number of movies and TV shows to become the Netflix we know today.

Business model of Netflix

Netflix is currently the largest and most popular video streaming service in the world. It is available in nearly 190 countries. Netflix also set up its offices in many countries. But how did a company that started in America have such a huge customer base? You have to look at what it does to get the subscribers in order to understand this. Let’s look at what Netflix does to grow its subscription-based business. 

Value for money

When you subscribe to Netflix you don’t get access to one or two movies but they provide access to all the things in their library. If you have a Netflix subscription all you need is an internet connection to stream the movies you want to watch. Not only that but depending on the subscription model you choose the features to vary. If you take a subscription plan that costs more than multiple people can stream different movies or TV shows at the same time. This means that just by paying a few extra bucks more people can use it. 

Additionally, you don’t have to watch it on one device. You can watch it on any device that has an internet connection. Basically, you can watch it anywhere at any time. You can even stream movies on Netflix through gaming consoles like PlayStation. Not just Netflix has popularized this new format of shows called web series and it has a lot of them. When a new web series or a new season for web series is released it releases all the episodes of the season at once. You don’t have to wait for the weekend to see the next episode you can just binge-watch.

Reaching the audience 

Currently, Netflix has more than 192 million paid subscriptions around the world. It cannot just advertise to increase its customer base. You have to do a bit more if you want to grow your customer base in a new country. Netflix has been very successful in doing that. When many people think of Netflix they think that since it is an American company it offers only Hollywood movies. If they had done that they wouldn’t have reached all these countries. Netflix understood that if they want to capture the local audience they have to stream movies that are made in local languages. So if you are someone from Korea or India Netflix offers movies that are made in the regional languages of those countries. So you will be able to watch content that is made in different languages. It gives the audience a wide variety of content to choose from. 

Not only that Netflix realized the potential of the content these countries can make. So apart from acquiring rights to movies, Netflix has also started producing new shows in other countries. They produce these movies or shows and make them exclusive to Netflix. If people want to see the new movie or show produced by Netflix they have to buy a subscription. Netflix also has an algorithm that suggests new movies and TV shows based on the content that you have previously watched. This will give the audience new options for viewing if they don’t understand what to watch. Netflix’s recommendation algorithm works really well to keep the audience engaged in new content. Not only movies or web series Netflix also has a lot of wonderful and mind-blowing documentaries. It also has exclusive comedy specials from the best stand-up comics in the world. 

How does Netflix make money?

Netflix is an on-demand video streaming platform. One of the reasons why people love it is because there are no ads while you are watching something. If you look at video streaming platforms like YouTube you may find ads between the videos. But when you are paying a subscription fee for exclusive content you don’t want ads playing in between your viewing. Netflix allows you to stream movies without any interruption. So it cannot make money from ads. The only source of its income is the subscription fee you pay. There are no other sources of income for Netflix so it has to keep its customer base. Netflix understands that everyone will not have the same requirements for subscribing to a video streaming platform. So they have come up with different subscription options for their customers. A customer can choose a subscription plan that suits them. 

Netflix offers a one month free trial for all of its customers. After that, you have to pay for a subscription plan if you want to stream content. Generally, it offers three subscription plans. They are basic, standard, and premium with the premium being the costliest plan. Depending on the plan you choose the features to differ. So if you pay for a basic subscription plan you won’t be able to stream the content in HD and it allows you to stream content only in one device. But if you get the premium plan you will not only be able to stream the content in HD but also in ultra HD. Not only that you can stream the content in 4 devices at a time. The subscription rates change depending on the country. If you are living in India the subscription plans are quite cheap compared to the US.

Conclusion

This the business model of Netflix. It is a subscription business model. They offer different rates in different countries based on the economic conditions of the country. You have to pay to watch it is as simple as that. This business model is completely different from the business model of Telegram which does not generate any revenue. 

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