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How does Netflix Make Most of its Money?

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Amanda Smith
January 10, 2018

Amanda Smith
Amanda Smith has written 1 articles for CGIDir.
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You certainly have a lot of insight about Netflix before going through this article. Netflix is the home for spectacular TV shows including House Of Cards, Narcos and Stranger Things. You must also be wondering how Netflix makes money. You have certainly heard about subscriptions as well.

One of the most engrossing platforms which have been providing fun and frolic to the audience glued to the online TV for some years now is Netflix. Netflix was brought to the market even one year before Google which might be an element of surprise for many.

At first, Netflix was giving away DVDs through a customary pay-per-rental model. Within two years’ time from its launch, in 1999 they initiated computerized distribution of motion pictures and TV shows. At that point, they have already set themselves up as an amazing amusement supplier organization which resulted in an effective IPO in 2002.

The video on demand service, however, went live in the year 2007 and had brought an end to the DVD-by-mail service. As Netflix started to build its archive with time, it took over the online industry be it web or mobile. Now Netflix is one of the most reputed brands providing you some really laudable service.

Besides the common Netflix shows, it also incorporates recommendations using an algorithm that includes categories such as “Oscar-winning Visually-striking Movies from the 1970’s”. Its tagline, “Netflix and Chill” which is a modern vernacular are just three words describing the importance of Netflix.

As of now, Netflix is doing brilliantly in the media industry.

The Netflix original, House of Cards was the first online TV-series grabbing an Emmy award in 2013, which encouraged more buzz about the platform. The year 2016 calculated that Netflix had generated revenue of $40 billion and gathered more than 83 million paid subscribers.

However, Netflix with an incomparable VOD server software incurs loss at times through its license agreements. Every video streaming platform requires a license in order to broadcast video content since the producers of the content might or might not agree with whatever you want to post. In case of independent movies, the whole process is cost-effective since Netflix provides an upfront license fee for two years to the producers.

Surprisingly, whatever original series you relish on Netflix is not meant for making an immediate profit. Instead, they increase the volume of exclusive content which would entice consumers to subscribe to the platform.

Imagine how many folks around you discuss House of Cards and Orange is the new Black?

The implementation of original and unbiased video content Netflix is urging individuals to sign up and register to their platform. Netflix’s undisputed algorithm targets the flicks which the audience would find interesting and urges to keep themselves subscribed to the platform.

Netflix is one streaming service using exclusive VOD server software which has an interesting effect on piracy. A small subscription fee is being paid by individuals to enjoy flicks rather than indulging in illegal torrents downloads and pirated movie copies.

A brilliant survey by “CHOICE” states that the rate of piracy in Australia was 23 percent in 2014 and decreased to 17 percent by the end of 2015. The number of people using subscription based services increased to 59 percent from 46 percent in a short span from March to September.

Netflix, as a digital video on demand torchbearer collected $8.83 billion as revenue in the year 2016. $187 of all the sales was coined as profit for the overwhelming business. From 2016 to 2017 domestic streaming experienced a revenue growth of 21% with international streaming at an unparallel rate of 64%.

Further investigation has proved that Netflix has acquired 4.7 million brand new domestic streaming subscribers in 2016 aided by 14.3 million international subscribers adding to a total of 19 million add-ons. The latest census states that Netflix has nearly a hundred million subscribers all over the globe.

The domestic subscriber list of Netflix grew up to 10% in the previous year with a 21% increase in sales. Overseas sales account for a 48% increase in the number of supporters however the revenue jumped to 64%.

Five years ago from now, Netflix used to generate 31% of its total sales from DVD service. A very few number of around 1% of the total sales arrived from international streaming which could only provide services to parts of the world such as Canada, the U.K and Scandinavia at the close of 2012.

Revenue collected from DVD’s has become obsolete as of now. Only 6% of the total sales of Netflix comes from the DVD subscriptions and is definitely walking the line of extinction. International streaming however has boosted up to 36% of Netflix’s annual revenue. The end of 2017 has seen international streaming surpassing the financial strength of domestic streaming.

Netflix is now available at every house and at most corners of the globe including Europe, Asia, South America and Africa.

If you are still wondering how Netflix makes money, check the Netflix business model. Netflix as an organization invests a huge amount of money to generate original content domestically as well as internationally. However, content costs are decreasing with the fall of the expenses incurred in different tools and technology.

Such risks taken by Netflix have increased the revenue three times in the last quarter of 2016 and have increased nearly five times in the first quarter of 2017. Whatever the case maybe, it is expected that Netflix will hit a 7% overall profit margin soon and keep developing from there.

This certainly does well to the movie industry since infringement is discouraged since it leads to losing money. TV-series and movie producers can even know who all are watching their flick by streaming legally.

Netflix has helped the current generation by providing features which have not been risked by cable providers.  It has affected in an interesting change in the media industry. Viewers are no longer confined to a specific time for relishing movies and TV-shows. Instead, they are allowed to customize their watching experience by watching whatever flick they want to relish at that point in time. However, this is just the beginning, there’s a lot more to come in future.

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