One of the greatest developments of technology in recent times is the launch of streaming services. The unbeatable comfort and competitive pricing of video streaming services has taken over the global population by a storm. There has been a steady increase in the viewership in the recent years with various factors contributing to the same. Netflix is one of the most popular Over the Top (OTT) services offering a wide range of movies, TV shows and original content in multiple languages across the world.
Family time which used to be getting along at movie theatres have started to become things of the past. With just less than half the cost spent in theatres, you get exceptional experience at the comfort of your home any time you want, which is the USP of OTT platforms. Moving over from just streaming films, and web series, OTT is evolving as an educational platform too. It is becoming a content creator’s ideal avenue as they can reach a wider audience easily.
To understand how OTT platforms can be profitable ventures, we take the example of Netflix. This blog delves deep into how does netflix make money and its revenue model.
About Netflix
Netflix is a subscription-based video streaming platform originally based in the USA. Available in over 190 plus countries, the platform offers unmatched listing of movies, web series, documentaries, etc. All you need to watch your favorite TV show is an internet connection and a subscription to the platform. Till date, it has added several million subscribers, and the count is only increasing.
Netflix.com started off as a DVD-rental service through mail in 1997 and slowly changed the way people rented DVDs of their choice. All movie listings were present in its website and people could select the ones they wished for from the comfort of their homes for a monthly fee instead of per-DVD as was usual in the video renting shops.
2007 saw a shift in Netflix as a streaming service where viewers could access shows directly over the internet. Shortly by 2012, it also started tie-ups with game console makers and Blu-ray players to enable streaming through their devices. Later it moved over to producing original content before it laid hands on live streaming in 2024.
Netflix can be accessed through smart TVs, smartphones, laptops, tablets, etc. It has a market cap of 383.64 billion dollar. A survey by Forbes lists Netflix as one of the best American companies at rank 21.
One should understand how Netflix leveraged technology to attract and retain customers since its start. It uses sophisticated algorithms that recommends viewers TV shows, movies, etc., based on their preferences and previous watch history. This personalization has been a real hit with customers as their search is made seamless.
Also, it lays great importance on the streaming quality of videos. There is no lag for viewers, and they get 4K quality, HD videos in their living room with just a Netflix subscription.
Core revenue stream for Netflix
Since Netflix began its streaming journey as a subscription-based model, its primary income stream is subscription fees. It receives 90% of its income through subscriptions alone. It offers various plans to suit the requirements of different types of audiences. Have a look at Netflix revenue model that has made it a successful OTT service.
It has a mobile-only, basic, standard and premium plans with a monthly fee that would be charged from your account once you sign up.
- The Basic plan allows unlimited access to content limited to 1 device at a time with a 720p HD resolution.
- The Standard plan supports 2 devices at a time with 1080p full HD streaming.
- The Premium plan allows up to 4 devices at a time (download on 6 devices) with 4K resolution.
Subscription fees:
Mobile: INR 149/month
Basic: INR 199/month
Standard: INR 499/month
Premium: INR 699/month
- The pricing strategy of Netflix is tiered and directed at benefiting various categories of viewers. The basic plan is the cheapest and is best suited for viewers who are satisfied with a lower resolution.
- The mobile plan benefits individual viewers who wish to watch on the go, while the standard and premium plans appeal to viewers who watch together as a family.
- While these are ad-free plans, it also offers plans with ads, which acts as a source of income for Netflix while being available at lower rates for the budget conscious.
- Its pricing is affected by local market conditions, competitor’s pricing, and the cost of content production.
Additional revenue streams
From what began as a streaming platform, Netflix diversified its earning potential through various means. These help the platform improve its revenue to let customers enjoy competitive pricing.
- One of the main additional streams for Netflix is advertising. It promotes brand ads in-between streaming to help them reach a wider audience. The brands pay Netflix for promoting their brand.
- Netflix sells its own-production ventures to other platforms and earns income through this means also.
- Netflix official online store sells specially curated merchandise and earns additional revenue through this. It sells many variety of products such as t-shirts, coffee mugs, gift cards, puzzles, figurines, accessories, and drinkware.
- It has also partnered with many mobile and internet service providers internationally, to offer Netflix service as a part of their bundle subscription package.
- Ticket sales in exclusive events curated by Netflix also proves to be another source of revenue. It also sells its merchandise at these events making it a double delight for customers.
- Many brands have collaborated with Netflix to showcase their products in the shows it features on its platform. This is another form of bringing the brand closer to the audience without being formally projected as an advertisement.
Financial performance of Netflix over the years
Netflix showed an annual growth rate of 14% per year from 2019 to 2023, indicating a steady increase in revenue. It shows a robust financial position with a net debt/EBITDA ratio under 1.0 during the month ending September 2024.
With the rapid diversification of its profile, it has added more customers and increased its profits greatly. Supporting advertisements in its platform has increased the revenue potential for Netflix, along with being a big relief for price-sensitive customers. It has attracted that section of public who would otherwise be hesitant to purchase a Netflix subscription.
There have been some downs too in recent times in Netflix’s journey, Its policy on password sharing wasn’t much of a favoured move but still had many people create new accounts adding to its customer base.
Also, there are some markets where Netflix subscriptions have saturated to an extent that no additional customers are created. Such areas face lesser growth, which may pull down the revenue in the future.
The net income of Netflix in 2022 was around 4.5 billion dollars, showing a significant increase from the time it started in 2007. But, the cost increases in the near future can impact its revenues as well.
Its recent venture of live streaming of sports events, especially the legendary WWE show from January 2025 can increase the costs substantially, and it could take a little while for Netflix to stabilise and balance the revenues.
The pressure from rising content costs can also impact its profit margins in the future. According to a report by Forbes, net profits could just be 3% higher than the projected levels in 2027, in that case.
However, with continuous innovation and diversification, Netflix’s business model will continue to be successful, leading the way for many others to enter the market.
Do you want to create your own streaming service?
The Netflix example shows how OTT platforms are becoming profitable ventures with people’s inclination towards convenience and affordability. With Enveu by your side, you can build your own OTT platform too and become one of the leading streaming services for multiple genres.
This dynamic digital world throws open a lot of opportunities for you to choose from. You can launch an on-demand educational content platform that makes learning a breeze, or change the way you engage with your audience with sports streaming, or build any other exclusive content platform on OTT. While this may not be an easy task for all, Enveu steps in to make it amazingly simple.
Be it live video streaming, podcast hosting, white label streaming, etc., we have your back. We have rich experience in building flexible and scalable cloud and OTT solutions with a team of highly talented project managers, architects, design experts, and more.
Connect with us to begin your own exciting OTT journey.
