Business Model of Netflix

By /

How does Netflix make money: Analyzing its business model

Netflix Inc was incorporated in Aug 1997 and its operations began in April 1998. Today, it is the leading television network of the world with more than 139 million subscribers globally. Every day members from more than 190 countries enjoy around 140 million hours of streaming content on Netflix. The streaming service allows its users/members to watch a large variety of content including movies, documentaries, Netflix originals as well as other types of content that is accessible on nearly all internet devices. There are no limits and paid members can enjoy unlimited content. However, subscription plans differ and some limits related to the number of screens and quality of content may apply.  

Netflix has seen its popularity and customer base grow very fast. The popularity of internet-based streaming services has grown a lot in recent years. There is also a lot of competition from the likes of Amazon Prime, YouTube, Hulu, Hotstar, Disney+ and others. Netflix has focused on content quality, marketing, as well as the growth of its subscriber base for profitability. Its business model has some distinct features that are the main reason behind its popularity and leading position.  The corporate headquarters of Netflix are located in Los Gatos, California. In 2018, Netflix added around 28 million net new subscribers. While the success of Netflix can partially be attributed to the growth of the internet and internet-based services, there are other sources of competitive advantage too that have helped it achieve a leading position in the streaming segment. 

Several things have changed over the last decade from the way people accessed information and entertainment as well as technology and people’s tastes. People have moved on from the linear TV experience to the streaming video content. The linear TV experience does not offer the same flexibility as the streaming video channels. The flexibility that the internet offers has continued to grow the popularity of streaming services. The way the internet has grown ubiquitous, one can expect Netflix to continue to remain in lead for a longer time.  

While the internet is now more reliable and faster, the growth in use of smart devices including smart TVs and smart-phones as well as tablets also has driven the growth of internet entertainment. Moreover, the freedom and flexibility that internet entertainment offers as well as the rapid pace of innovation are also aiding the growth of entertainment platforms like Netflix. The US is both the largest and the most deeply penetrated market for Netflix where it aims to increase its membership ultimately to between 60 and 90 millions. One key strength of Netflix is its differentiated business model. It is not a generic video company but a TV and movie series network. Over time, Netflix is trying to differentiate its service even more from its competitors.  

Netflix is successful today, but it has not been an easy journey. Instead, the company has been through its fair share of troubles before reaching this point. It had not started as the Netflix it is today but as a DVD by mail company in 1997. For the first five years, Netflix had to struggle to achieve a sustainable business model that was cashflow positive. During the next five years, Netflix was fighting against Blockbuster in the United States. It started streaming in the US in the year 2007 and internationally in 2010. The Qwikster DVD fiasco took place in the year 2011 and then the first original series came in 2013. Around twenty years after its beginning, the company went global in 2016. In that year, it launched its services across more than 130 countries. So, over its lifetime, Netflix has seen quite a bit of struggle and continued to improve and strengthen its business model. Today, it is a global company offering its services in nearly every corner of the world except China. 

Business Segments: 

The business of Netflix is divided into three major reportable segments that are Domestic streaming, International streaming, and Domestic DVD.  

Domestic Streaming:

In the domestic streaming segment, the number of paid memberships at the end of 2018 was approximately 58.5 million and the company added around 5.7 million net new paid memberships in the year. The number of free trial memberships at the end of the fiscal year 2018 was around 2.1 million. 

International Streaming

 The number of paid memberships in the international streaming segment at the end of the year 2018 was around 80.8 million. The company added approximately 22.94 million new members in the international segment. The number of free trials in the international segment was around 7.1 million.  

In this way, the total number of paid memberships at the end of 2018 was 139.3 million. The company added more than 28 million new paid members to its subscriber base in the streaming services including international and domestic in 2018. In the year 2017, the number of total paid subscribers for streaming services was above 110 million. The total number of free trials (domestic and international streaming) at the end of 2018 was above 9 million. 

Domestic DVD

 In the domestic DVD segment, the total number of paid subscribers was around 2.7 million and the number of free trials was around 25 thousand.  

Target Customer Segment: 

The target consumer of Netflix is the millennial user from the affluent segment. Lifestyles of consumers have changed a lot in recent years. More and more users are flocking to online channels to satisfy their need for entertainment and utilizing several channels apart from social media and online streaming to access video content. Netflix mainly targets the affluent young users with an international credit card. The millennial user whether a college goer or an employed professional is unable to utilize traditional channels of entertainment for several reasons. While online channels fit better in his lifestyle, the level of accessibility and flexibility any specific channels offers is also a major determinant of which one the user prefers.  

Sources of Revenue (How does Netflix make money)

Monthly membership fees across all three business segments are the major source of revenue for Netflix. In the domestic streaming segment, it derives its revenues mainly from the monthly membership fees for streaming online content to members/users in the United States. In the international streaming segment, the company derives its revenue from the monthly membership fees from streaming online content to international subscribers. In the domestic DVD segment too, it derives its revenues from monthly subscription fees for DVD by mail. 

The focus of Netflix is both membership and revenue growth. A larger customer base means higher scale as well as higher reach and more word of mouth. Its focus is also on revenue growth since that allows it to improve content and service quality as well as maximize shareholder returns. The company offers several tiers of pricing so the people can buy one that suits their needs and circumstances. In the streaming segment, the company offers three main plans starting from Basic.

Basic Plan:

The basic plan is a one-screen standard definition plan and the user can watch on one screen at a time. However, he still has unlimited access to ad-free content. He can watch anytime from anywhere on one screen.  

The next plan which is also the most popular plan is the Standard plan. In this plan, users get to watch content in High Definition wherever applicable and can use two screens to access Netflix content. Netflix also offers 1month free trials. The company also keeps testing new pricing approaches including various tiers and pricing points for the sake of understanding customer demand. However, despite testing new approaches the company did not have to lower its prices in new markets for growing its membership base. Instead of lowering prices, the company has focused on improving the quality of content across all the dimensions including content, streaming delivery, payment methods, user interface, etc. The growth that Netflix has achieved in Latin America is an example of this approach.  The premium plan lets the user access content on four different screens and watch TV shows and movies in HD or UHD, as applicable.

Netflix total revenues from domestic streaming by the end of the year 2018 was 7.65 billion US Dollars. The total number of paid members at the same period was 58.5 million. Its total revenue from the international streaming segment at the end of the fiscal year 2018 was 7.8 Billion dollars. Total revenue from streaming in 2018 was 15.4 Billion USD rising form 11.2 Billion USD in 2017. The total revenue of Netflix from the domestic streaming in 2017 was 6.15 Billion and that from the international segment was 5.1 Billion dollars. The average global monthly revenue per paid membership during 2017 was 9.43 dollars.  Revenue from the domestic DVD segment was 365.6 million compared to 450.5 million in 2017. Memberships increased in the streaming segment globally leading to a rise in revenue whereas the number of memberships in the domestic DVD segment fell leading to a decline in revenue.  

Netflix is focusing on growing both its subscriber-base and revenue. With growth in the number of memberships comes revenue growth as well as higher scale. The net income of the company jumped from approximately 559 million in 2017 to 1.2 Billion USD in 2018. 

Original Video Content : 

Content offered by Netflix varies by region and includes a large variety of content including documentaries, ward winning shows, Netflix originals, and more content. The focus of Netflix with regards to content is to understand people’s tastes and accordingly bring them a large range to choose from. Even in a single market, people’s tastes may vary broadly.  A simple and fast learning user interface allows Netflix to offer suggestions based upon the user’s choices. From action blockbusters to Korean soaps, anime, sci-fi, Sundance films, zombie shows, or kids cartoons, Netflix offers a wide variety of suggestions for the user on his homepage. Netflix acquires, licenses and produces content including its own original programs so as to offer its members unlimited viewing of TV shows and movies.  

 In recent years, Netflix has grown its range of original programs, many of which are Emmy, Golden Globe and Academy award-winning documentaries and original series. This is also an important point of differentiation which has been able to differentiate its services a lot from its competitors. The company is at scale since 2013 which allows the company to create more original content economically. With growing scale, its range of original content has also grown. As it has continued to produce more originals, that has helped Netflix acquire more experience, understand people’s tastes better and how each original affects its brand overall. Licensing of content is generally time-based where Netflix pays for a multiyear exclusive subscription Video on Demand (SVOD) for any given title. The content industry is highly fragmented and in each market Netflix can license content from multiple suppliers.   

Netflix has not used a pay per view or ad-supported content. Instead it has used a flat-fee unlimited watching business model. Another major differentiator of Netflix services is the level of content personalization. Netflix serves highly personalized content to its subscribers. The focus is to serve the right content to the right person. Achieving higher level of personalization has also helped it achieve high-level global popularity and stronger word of mouth. Original series is a rapidly growing proportion of its content and it has helped the company make greater headway in the right direction.  

The large range of original content also gives the brand some strong competitive advantage as compared to its competitors. Now, the company is also making original programming in non-English languages. Apart from the US, the company also has a large subscriber base in non-English countries like India and Japan.  Such emerging markets have great potential and offer a substantially large customer base. Another major advantage that a Netflix subscription offers is that you can download content to your iOS, smartphone or windows device and watch it later even without an internet connection. So, apart from interesting and engaging content suited to various categories of viewers, the brand offers an excellent level of personalization, service quality and customer convenience. 

Marketing and Global Growth:- 

The company online advertising and other channels for the promotion of its content and to drive viewership. It utilizes a large variety of channels for promoting its content and brand. The company has been able to grow its subscriber base quite fast using a large variety of promotional channels. Apart from digital advertising and social media, the company also utilizes a broader array of marketing channels and public relations programs that help it drive viewership and grow user base. Word of mouth has also helped it grow its popularity and subscriptions worldwide. The brand has increased its spending on paid marketing which showed in its marketing expenses for 2017 and 2018. Marketing costs grew from 1.4 Billion dollars to 2.37 Billion dollars.   

The company has also used several kinds of partnerships for promotions and to make Netflix content more accessible to viewers. These companies have made it easier for users to discover, sign up, use, and pay for the services of Netflix. Major partners of Netflix in this regard include consumer electronics device companies, game console manufacturers, pay-TV, and mobile operators, Internet service providers, mobile device and set-top box manufacturers, and the physical retailers. The company also makes marketing arrangements with companies for the promotion of Netflix, increase general awareness regarding the brand, and to attract new members. These partnerships do not just help Netflix but benefit the partners as well. These companies also benefit in the form of customer acquisition, the opportunity to upsell higher value packages of speed/data/content, lower churn rate, and higher brand affinity. The payments that Netflix makes to such partners are recognized as marketing expenses. 

The company clearly had a strong branding strategy with central focus on customer convenience. Apart from selling affordable packages and making its content highly accessible, it also focused on people’s taste sand creating great quality original content as well as providing a highly personalized experience to its users. Word of mouth has also played an important role in the marketing of Netflix. It became one of the most talked of online entertainment brands. The difference clearly was in the type of user experience and the level of convenience the brand offered. It worked to know people’s taste and after that it focused on engaging and original content. Then it differentiated its services to a level that made it an easily recognizable and outstanding brand. 

 Instead of using aggressive growth techniques and trying to push viewers, it employed a balanced strategy aimed at pulling audiences in larger numbers from around the world. Several times people have raised a question regarding its expenditure on original content and why it is spending so much if not just for the sake of differentiation. While competition is a major challenge, product quality and user experience are of paramount importance for Netflix. It is investing in what it considers suits the taste of its audience from various parts of the globe. This has helped it attract and retain customers.   

In this way, the brand was also able to build a strong reputation whose benefits are growing more and more obvious. With an increased scale, the brand is more confident about producing its own original content economically. Moreover, it expects to attract and retain new viewers in larger numbers just by focusing on exclusive content. This is an art that Netflix has mastered through experience. Customer experience is now the most important part of marketing and apart from user convenience, Netflix has continuously improved service quality in all its dimensions including content quality, user interface, downloads, streaming etc. The more engaging the user experience, the higher is the popularity level and the lower the churn rate.  

Social Media Marketing: 

You cannot avoid social media when you are taking a generation of customers that spends a very large part of its time on Facebook, YouTube and Instagram. Social media is also a major part of the promotional mix of Netflix. The company uses these channels for promoting its products and user engagement. Apart from promotional posts and videos, it also uploads the best scenes from specific programs to engage users. On top of all, it has got a nice large user base of around 55 million on Facebook. In 2017, its total base of paid subscribers was only 110 millions. So, you can imagine the kind of reach Facebook helps it achieve. The largest social media channel of more than 2 billion users helps reach customers in households around the world. By using Facebook to highlight the best content, Netflix also sues it to increase use among existing users as well as attract new ones. On YouTube it has around 7.5 million followers and on Instagram around 12.9 million followers. It has uploaded more than 2600 videos including promotional videos like trailers and scenes as well as behind the scene and interview videos. YouTube offers access to a large pool of customers and can be great for attracting new customers. Every brand with a video marketing strategy and especially the entertainment brands use YouTube for promotions. 

Organizational culture: 

The company employed around 5,500 employees as of 2017. Unlike the other unique things about Netflix, it has also established a unique organizational culture. Organizational culture has grown very important in the 21st century. Apart from other things, it influences employee motivation, productivity, and the level of collaboration inside an organization. Netflix values integrity, excellence, respect, inclusivity, and collaboration. It has established a fun, stimulating, and creative culture whose focus is the free flow of ideas, innovation, independent decision making, passion, and integrity. Netflix strives to hire and retain only the best. However, its culture encourages an open exchange of ideas and breaking rules.  

Competition: 

Netflix is facing heavy competition from several sources. Apart from the direct competitors in the streaming video section, there are many more competitors in the entertainment, social media, and gaming segment. Currently, Netflix is trying to further differentiate its services from its competitors to retain its competitive edge.  It is not just the streaming video providers like Hulu, HBO, or Prime but other social media sites like Facebook, Twitter, and YouTube as well as TV, DVD, DVOD, and video games are also important competitors of Netflix. The entertainment industry is quite broad and there are several companies competing directly or indirectly with Netflix to win the customers’ precious time. Video piracy is also a threat. Netflix has focused on strengthening its edge by investing in original content and superior customer experience. 

Risks:- 

Netflix has been able to achieve success after having struggled for several years. However, despite this growth, there are challenges in its way. The company faces strong competition globally from several sources. There are other forms of risks too and challenges in the way of fast and profitable growth. While competitive pressures are a major challenge in the way of Netflix, there are other risks involved in its business too. The company is also facing regulatory pressure as well as other threats from several more resources. The company relies upon a number of partners to make its content available to its subscribers from all around the world. Privacy concerns have also increased the level of risk involved in the business model of Netflix. Apart from it, technological advancements are happening at a fast pace which can cause a competitive threat to grow larger. 

Major costs and expenses:

Apart from marketing and costs related to content production, there are other major costs too involved in the production of original content like personnel expenses as well as research and development. The technology and development expenses of the brand increased from $953 million in 2017 to $1.2 Billion dollar in 2018. Marketing costs of the brand rose from $1.44 Billion in 2017 to $2.47 Billion in 2018. General and administrative expenses increased from 431 million to 630 million in the same period. The cost of revenues rose from 8 Billion dollars to 9.96 Billion dollars during the same period. Net income was 1.2 Billion in 2018 against 558 million in the previous year. 

Five Operational Performance Objectives

Businesses need a set of Operational Performance Objectives to manage their performance and profitability in the short and the long run.  There are five basic performance objectives that apply to every kind of business operation. In the case of large businesses that face a lot of competition, these objectives become even critical. These five basic operations objectives are – cost, dependability, flexibility, quality, and speed. The performance objectives have both internal and external implications and they are interrelated. The internal effects of these performance objectives have a definite impact on cost. 

Quality:

Quality is a leading operational performance objective. It refers to consistent performance according to your customer’s expectations. It has a significant impact on customer satisfaction. However, quality can have a different meaning in one industry compared to another. Compare an automobile business with a technology business. The same quality standards do not apply to each. So, quality can acquire varying meanings in different settings or industry environments. While in some industries, the level of staff friendliness is the main scale to measure quality, product efficiency is the main indicator of quality for another. However, no matter whatever industry a business belongs to, customers appreciate quality above other things. This is evident in the case of all the market leading brands that have built their positions and brand image through a consistent focus on quality. Quality can, therefore, have a direct and major influence on customer satisfaction as well as organizational performance overall.

 Quality is also related directly to a company’s social image or reputation among the general public. If a business delivers consistently according to its customers’ expectations, it will achieve a strong image in the market and among its customers as well as the general public. Many things become easier for such businesses like customer acquisition. Positive word of mouth helps them acquire new customers easily. They also enjoy higher customer retention as well as higher brand recall. These things have the potential to grow an organization’s profitability. In the context of the technology industry and social media, quality is measured on the basis of many factors. While performance is a leading indicator of quality, pricing, marketing and brand image are also indicators of quality for computing brands. 

Netflix is one of the leading entertainment brands of the world with a large customer base of more than 190 million users from various corners of the globe. Its growth is mainly because of its services quality and its large collection of movies, TV shows and other programs. Netflix has a large collection of original movies and TV programs. These are among the central attractions of the brand. However, at the core it is the quality of the products that the company creates which has helped the brand expand its user base faster. The company has also focused on delivering good quality user experience which is also a primary driver of high level sales and revenue. The company has brought three plans including a premium plan that delivers UHD experience. However, it has priced its services affordably. For a large number of users around the world affordable prices are also a  sign of quality. The company delivers a seamless user experience. To maintain the level of quality, it invests in research and innovation so that it can serve its customers better. Apart from the best suggestions, there are several more features that drive higher user engagement and differentiate the Netflix experience from the other streaming services.

Speed:

The advancement of digital technology has helped the technology industry evolve after. From search engines to social media dn digital marketing, a lot has changed in our world with the evolution of digital technology. However, while companies are doing their best to acquire faster growth, speed has become a core factor driving business growth. Again, speed can have different implications for different industries. For example, it can mean something else for the physical hardware brands and something else for a search engine or a social media brand. The pace of technological innovation at a technology brand is also a sign of speed and critical to win against competition. Still, in nearly every industry speed matters just as much as quality or prices. Customers want products delivered to their doorsteps faster. In this era, where a large range of services are delivered and consumed online including a large range of technology and entertainment services, speed matters a lot. Sometimes, it can be the differentiating factor for a company helping it stand out from the crowd of brands. In other cases, superior speed may mean a superior customer experience.

The advancement of digital technology has led to enormous changes in the world. Speed has become integral to business growth. For online streaming businesses, it is crucial to focus on innovation because of heavy competition. There are other online streaming channels like Hulu, Disney Hotstar, and YouTube, as well as Apple TV+ and several gaming sites and apps that compete with Netflix. Social media is also a leading competitor of Netflix since a large number of users spend their time on social media networks. Innovation is essential since the pace of innovation at a brand affects growth for any technology company. However, in the case of online streaming services, speed mainly means the seamless delivery of their services. Netflix has focused on delivering seamless user experience, and for that, it always focuses on innovation. It uses cloud technology for the delivery of its services worldwide. It ensures that users can access their services from anywhere on the world using an internet-enabled device. The quality of the internet network is crucial to watch programs on Netflix. Otherwise, the company has got a vast collection of movies and TV programs which is larger than any other streaming services provider. It also updates its collection faster and regularly.

Dependability:

Dependability or reliability is in itself considered a sign of quality in this era. Dependability, reliability, or trust are synonymous with brand equity which is an important strength for any industry-leading brand. How dependable your business is or how much your customers trust your brand affects your brand equity. However, there are several factors that affect dependability in each industry. For example, while the quality of raw materials and the final product will have a direct impact on the dependability of a business, in the case of others it is the timeliness of delivery.

 Keeping the promise you made to your customers also affects dependability. Another factor that has kept growing in importance for businesses as well as customers in the twenty-first century that also affects dependability is the overall level of customer experience. Brands that offer a superior customer experience overall are considered to be more dependable by the customers. Apple and Amazon are two great examples of companies that have maintained very high-level customer loyalty because they deliver superior customer experience.

In the 21st century, customer loyalty is not easy to achieve since there are a large number of factors that affect dependability. Trust is the most critical factor that affects how loyal your customers will remain to you over their lifetime. However, user engagement and user experience are of higher importance in the context of online streaming services. If Netflix has experienced fast growth in its user base, then it is mainly because of its quality of services and the seamless user experience that it offers. It is why millions of users from around the world trust Netflix. User trust is based on several factors, like service quality, pricing strategy, brand image, and company culture. Netflix excels in nearly all the areas mentioned above. It has got an excellent organizational culture. Apart from that, the company has also built a superb image in the market. It has used a pricing strategy that allows it to cater to users from various segments, including higher-end and lower end. Overall, the company has retained users’ trust well, and that has helped the company expand its user base faster.

Flexibility:

Flexibility means the ability to change what, how, and when operations do. There are four types of flexibility in general that apply to business operations. They include product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility. Product/ service flexibility means the ability to introduce new or customized products or services. Mix flexibility means the ability to widen the product/services mix to cater to the customer needs better. Volume flexibility denotes the ability to change the output level to produce different quantities of products/services over time. Delivery flexibility, on the other hand, means the ability to change the timing of delivery. Overall, flexibility is an essential aspect of operational performance, and superior flexibility also denotes outstanding performance. Flexibility can also acquire different meanings in different industrial environments. For example, in a healthcare environment, the ability to introduce new types of treatment and to widen the range of available treatments or the ability to adjust more patients and reschedule appointments can all be a sign of flexibility. However, in the case of the automobile, hospitality, or retail industries, flexibility can mean different things.

Flexibility is essential for businesses that want to taste success early. The more flexible the business operations of a company, the faster the business will taste success. It is because customer needs are evolving, and customers’ expectations have also changed a lot with time. Having more flexible operations ensures that you can cater to the changing demand patterns with higher efficiency and retain the trust of all your stakeholders. 

In the case of the internet-based services, flexibility can denote the ability to deliver its services globally. Seamless user experience is also a sign of flexibility. However, a varied and extensive range of services also marks high flexibility. Online streaming services are very different from the brands that mainly rely on physical operations for business and growth. Netflix does not have to depend on physical processes for business growth since it delivers its services online entirely. So, irrespective of the weather conditions or other hurdles that affect physical businesses, it can continue to operate in all conditions. The company has grown its customer base faster in recent years. It utilizes cloud computing technology to deliver its services worldwide. Cloud technology offers very high flexibility and allows the company to provide its web-based entertainment services in all corners of the world seamlessly.

Cost:

Cost in terms of operations performance mainly means the operating expenses incurred by businesses. However, the proportion of various operating costs can vary from industry to industry. For example, staffing costs may represent the largest costs for a transportation company but the costs of raw material may be the largest group of operating costs for an automobile brand. In the case of most companies, if their operating expenses are low, they can also keep the prices low for their customers. Not all companies compete in the market on the basis of price.

 Some companies compete on product quality, the other companies compete based on customer service, and others on marketing or all of these factors. However, even the companies that do not compete based on prices, they too are interested in keeping their operational costs low. If a company reduces its operating expenses, that will help it increase its profits because a penny saved equals a penny earned. To keep operating expenses low requires focusing on areas where the company incurs the highest operating costs.

The cost of revenues and marketing expenses of Netflix are the two largest categories of operating expenses of Netflix, followed by the R&D expenses as well as S, G&A expenses. Its operating expenses have grown faster in the last fiscal, which is due to several factors, including the fast growth in the user base as well as high-level competition in the market. Growing competition from various sources makes it difficult to acquire new users since many players are competing to obtain the same users. Due to this, apart from the expenses on marketing, the R&D expenses of the brand can also grow. 

The cost of revenues of Netflix in fiscal 2019 was around 62% of its net revenues compared to 63% in the previous fiscal year. The total costs of revenues of the company grew to $12.4 billion in 2019 compared to $10 billion in 2019 (year on year growth of around 24%). However, the marketing expenses of the company grew only slightly in 2019 as compared to the previous fiscal. In 2019, its marketing expenses were $2.65 billion compared to $2.4 billion in 2018. Increased competition in the market has led to a higher focus on user acquisition, and therefore, Netflix is spending more on running marketing campaigns. The research and development expenses of the company also grew by around 25% in 2019 compared to the previous fiscal year. In 2019, the company spent approximately $1.55 billion on research and development as compared to $1.2 billion in 2018. Technology companies are generally known to invest massive sums each year in research and development to stay competitive and maintain their market shares. The last important category of operating expenses of Netflix is the S, G&A expenses, which amounted to around $0.91 billion in 2019 compared to $0.63 billion in 2018.

Conclusion:- 

Netflix has seen a lot of growth since it entered the international markets in 2016. Within these three years, its subscriber base has grown a lot. The number of paid memberships in the streaming video segment including domestic and international has grown to 139 million in 2018 from 89 million in 2016. This is a sharp jump. However, while growth has brought more confidence and the brand is trying to strengthen its edge through differentiation, there re challenges ahead. The company is spending a lot on producing original content. There are other expenses too which are affecting net income. However, it is a heavily competitive market and apart from HBO or Prime or Hulu, Facebook and YouTube are also important competitors. Differentiation and user experience have helped Netflix retain its popularity. Netflix is not planning to increase prices fearing that it can lead to erosion of customer base and market share. These things apart from privacy concerns and higher government regulation are making the situation challenging. Most people anticipate that viewership in the US has reached a point of saturation but the company is bullish about growth expecting its userbase in United States to rise to between 60 and 90 millions. Apart from accessibility and superior user experience, original content is also a major strength in this business model. Differentiation is clearly going to benefit the brand but maximizing shareholder returns can be a challenge for it since a lot is going into producing original content. 

  • Sources: 
  • Net Flix Annual Report 2017 
  • Netflix Q4 2018 Financial Statements. 
  • Netflix Annual report 2019.
CITE THIS.
APAPratap, A. (2019, March 2). Business Model of Netflix. Retrieved from https://notesmatic.com/business-model-of-netflix/
MLAPratap, Abhijeet. Business Model of Netflix. 2 Mar. 2019, notesmatic.com/2019/02/business-model-of-netflix/.