Netflix is the leading provider of streaming media in the world that delivers TV shows and movies by the using internet connection. This company was founded by Reed Hastings and Marc Rudolph in 1997. In 1998, the company grew by beginning in the DVD by mail business. Then in 2007, it expanded with the introduction of streaming media while retaining the DVD and Blu-ray rental service. Until 2016, Netflix can be accessed in more than 190 countries and in that year, it offers Netflix Original content via its online library films and television. Netflix has more than 83 million paid subscribers from around the world until July 2016 and it includes more than 47 million in the US. After we know about the amount of subscribers, then some of you perhaps wonder how does Netflix make money. Here, we are going to discuss it.
Subscription is the main source of revenue for Netflix. The subscribers of Netflix pay to get access the content and to get DVDs delivered to them. That is how the company makes money. Netflix offers 3 plans for the users based on the streaming quality of the content provided and the number of screens which can access the content. Those plans are:
· Basic: The users can stream the content in Standard Definition on a single screen at a time.
· Standard: The users can stream the content in High Definition on two screens concurrently.
· Premium: The users can stream the content in Ultra High Definition over four screens concurrently.
In the business of DVD by mail, the membership plans differ by the number of DVDs which a member have out any given point. The members can pay an additional surcharge to access to high definition Blu-ray discs, in addition to the Standard definition DVDs. Netflix has 3 operating segments:
· Domestic segment. It refers to the content streaming business in the US.
· International streaming. It refers to the streaming business from countries other than US.
· Domestic DVD. It refers to DVD by mail services business in the US.
In 2014, Netflix produced $5.5 billion of total revenues. Of those total revenues, Netflix produced:
· $3.4 billion revenues, 62.3% of the total, from the domestic streaming business.
· $1.3 billion revenues, 23.8% of the total, from the international streaming business. International streaming revenue share increased from 8% in 2012 to 23.8% in 2014.
· $765 million revenues, 13.9% of the total, from domestic DVD business. Domestic DVD business share decreased from 31.5% in 2012 to 13.9% in 2014.
The question of how does Netflix make money cannot be answered without stating the cost of revenue. There are a lot of expenses and expenditures that the company has to incur to get those profits. The expenses are production cost; licensing cost; marketing cost; research and development cost; technology and development cost; general and administrative cost; and miscellaneous cost that includes payment processing fees, DVD postage cost, amortization of the streaming content library and many others.