business plan for netflix

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Netflix offers a variety of plans to meet your entertainment needs.

As a Netflix member, you are charged monthly on the date you signed up. A Netflix account is for people who live together in a single household. Learn more about  sharing Netflix .

Sign up for Netflix today and choose from several payment options . You can easily change your plan or cancel at any time.

Pricing (US Dollar)

Standard with ads *: $6.99 / month

Standard : $15.49 / month ( extra member slots ** can be added for $7.99 each / month)

Premium : $22.99 / month ( extra member slots ** can be added for $7.99 each / month)

The Basic plan is no longer available for new or rejoining members. If you are currently on the Basic plan, you can remain on this plan until your plan is changed or your account is canceled.

Depending on where you live, you  may be charged taxes  in addition to your subscription price.

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The Best Way for Netflix to Keep Growing

• Andrei Hagiu

Allowing third-party content could lead to new forms of revenue and new subscribers.

Netflix’s model has been undeniably successful to date. However, fighting the blockbuster content-acquisition and creation battle is becoming ever more expensive, and it involves an increasing number of combatants. Furthermore, the growth of Netflix’s subscriber base is slowing down. Netflix can and should become a platform. Why? Its big subscriber base (130 million worldwide) and content-delivery infrastructure are potentially very attractive to many third parties, including video content providers, developers of cloud gaming, and marketers. How would it become a platform? Simply by allowing these third parties to sell their products or services within Netflix’s service but outside Netflix’s subscription, on terms controlled by the third parties.

Netflix has a lot to gain by becoming a multisided platform.

• Andrei Hagiu is an associate professor of information systems at Boston University’s Questrom School of Business. theplatformguy

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Netflix Business Model (2023) | How does Netflix make money

Last Updated: Feb 3, 2023

Company: Netflix, Inc. Co-CEO:  Ted Sarandos & Greg Peters Year founded: 1997 Headquarter:  Los Gatos, USA Type: Public Ticker Symbol: NFLX (NASDAQ) Market Cap (Feb 2023):  $ 162.95 Billion Annual Revenue(FY22): $ 31.6 Billion Profit |Net income (FY22): $ 4.49 Billion

Products & Services:  Netflix Official Website | Monthly Subscription Plans | Video Recommendation-Algorithm System Offerings Streaming Options Domestic (featured tool) | International Streaming Options and Features Competitors:   Amazon Prime Video | HULU | YouTube | Direct TV | Sony PlayStation’s Vue | HBO | Sling TV | HotStar | Disney + | Apple TV+

Table of Contents

Introduction to Netflix, Inc.

Netflix, Inc . happens to be one of the most successful entertainment mass-media-companies of all times. Netflix, Inc. originally began its inception in 1998 by providing services to customers through means of mailing out physical copies of movies, shows, video games and other forms of media through standard mailing system.

Through its successful startup and the rapid changes that technology introduced over time, Netflix converted its business model . They went from physical copies handouts to allowing customers streaming their favorite contents from the comfort of their own convenience.

Today, the platform has advanced to streaming technologies that have elevated and improved Netflix’s overall business structure and revenue. The platform provides its viewers the ability to stream and watch a variety of TV shows, movies, documentaries and much more, through means of using a software application.

Since Netflix converted to streaming, it is the world’s ninth-largest internet company by revenue , ranging its presence at a global scale. The following is a compilation that comprises specifications of Netflix’s business canvas model and its core operations.

Business Model Canvas of Netflix

1. Netflix’s Key Partners

Netflix has built more than 35+ partners across the media business. Netflix today has millions of different types of genres for subscribers to select from and enjoy watching. 

• Built alliances with Smart TV companies like LG and Sony for new emerging markets and several other aspects.
• Netflix has set an alliance with Wii , X-Box , PlayStation and many other brands in the gaming industry. Netflix built partnerships to provide and cater its “ gamer-clients ” with an entertainment video game.
• Netflix joined forces and partnered with Dish, Tivo and other TV network companies.
• Netflix crucial phase of converting the business from mail-in-system to streaming, Netflix established a partnership with Apple , Android, and Microsoft .
• Finally, Netflix joined the network and big data providers like Google and Amazon . (Amazon was accompanied to promote Netflix listings and subscription options)
• Netflix recently partnered with Samsung to further integrate its streaming service with Galaxy smartphones. In exchange, Samsung users will benefit from Netflix’s original shows and special bonus content.
• To expand in West Africa more aggressively, Netflix partnered with Nigerian filmmaker Mo Abudu , the owner of Ebony Life TV. This partnership will enable Netflix to create new content targeting consumers in West African nations.

2. Netflix’s Value Propositions

Netflix strategizes methods and aims to provide the best customer experience by deploying valuable propositions.

Here are a few of what Netflix idolizes:

• Users can stream 24-7, minus the ads !
• View shows & movies in high-definition
• Stream content conveniently anywhere without going to a DVD store or theatre
• Get unlimited access to TV shows and movies
• Access to exclusive Netflix’s original movies or shows
• New signups can avail a 30-day free trial ( 1 month free of services )
• Contract-oriented but can cancel at any time !
• Access locally-produced and culturally-relevant content
• Receive algorithmic recommendation for new items to watch
• Avoid commercials ads- Some people like looking at commercials and other advertisements and some people avoid them.
• At Netflix, users have the flexibility to either turn on notifications and suggestions or keep them switched off.
• Netflix “ user profiles ” gives leverage for users to personalize their user account and preferences. The User profiles allow the “admin-user” to modify, allow or ever restrict certain users
• Sharing accounts options is one of the rarest features a movie platform can provide. Sharing accounts feature on Netflix allows spouses, friends or even groups to share an account with specific filters and preferences already set.
• Netflix solves the issues with theaters and mainstream media that frustrated most consumers. The company promises to solve the problems of its target with four simple words – Watch Anywhere. Cancel Anytime .

3. Netflix’s Key Activities

• Hire and retain software and tech geeks
• Maintain and expand its platform on the website, Mobile apps, TV apps.
• Produce, acquire and license Netflix’s original content to expand its video library
• Develop its pricing strategy and subscription model to ensure affordability and new customer acquisition.
• Develop a roadmap to enter into the new market .
• Ensure great user recommendation to retain current customer base.
• Build and secure a partnership with Studios and content production house
• Negotiate the deals with Studios, Content providers and Movie production houses
• Comply with the laws (laws as per to State or Region/country), maintaining compliance to censorship , specifically for minors and children. Netflix has always promoted and operated within the boundaries of censorship.
• Supporting disadvantaged communities and other ideological issues that are important to its customers. 
• Building local communities and economies that support the development of its local original content .

4. Netflix’s Customer Segments

• The Netflix platform is designed to offer a vast collection of different types of genres for subscribers to select from. Their collection (movies or shows) are designed appropriately for
• Everyone, who is interested in watching movies, TV shows and documentaries – and honestly who isn’t?
• Although Netflix offers content for children and adults alike, Netflix aims to promote Family-friendly , educational and entertaining content to help capture the better interests of families.

5. Netflix’s Customer Relationships

Self-setup made easy.

• Netflix platform was originally designed to ensure that it is simple and easy to use.
• Developers of the Website ensured to associate elements and themes that serves and promotes friendliness and provides a self-setup

Exceptional Customer Experience

• Netflix provides customer services through means of the website portal, email inquiries and users have the option to reach a representative directly, by telephone and live chat.

Online Live Chat Services

• Users have the option to opt-in to a live chat session with a Netflix representative.
• Users can directly chat with a Netflix representative to ask questions and support related inquiries.
• Request for discounts and other special promotional deals that they may qualify or offer such user or subscriber.

Social media

• Channeling major advertisements, deals, and other promotional deals through Social media channels and other relative platforms to help gain the high attraction of customer and new sign up users conversions.
• Social media is also used to inform and update individuals that operate or are familiar with the Netflix platform. Such platforms may include Facebook , LinkedIn , Instagram, Twitter , Snapchat etc.

Netflix gift Cards

• Part of the subscription plan, all users will be geared to receive special promotional discounts and other gift cards to avail.

6. Netflix’s Key Resources

Software developers.

• Software developers at Netflix are at constant innovation
• Design and enhance to help create a better customer-user experience

Recommendation system (algorithm)

• Artificial intelligence and selection preference sequence technology helps developers design and build the recommendation algorithm system for its users.
• Some data are based on “new releases,” or internal data that identifies user watch selection and the most viewed.
• Provides users with relative results based off of frequent searches

7. Netflix’s Channels

Through Netflix’s channeling sequence, users and interested users can access Netflix platform from one or more of the following;

• Online streaming through the website
• Streaming through Mobile apps
• Streaming on TV Apps and Gaming consoles
• Mail delivery for DVDs

8. Netflix’s Cost Structure

• Major purchasing rights establishment (TV shows and movies)
• Cost of producing movies
• Cost for providing personalized recommendations, R&D and artificial intelligence
• Subscription maintenance cost
• Paid-Connection deal with Internet Service Provider (ISP) such as Comcast to stream Netflix data at high speed.
• Infrastructure (data centers) cost of streaming content
• DVDs and mail-related shipping costs
• Employee salary distribution (customer service, Engineers, etc.)

9. Netflix’s Revenue Streams

It wasn’t until 2007, when Netflix launched “streaming” services through Netflix subscription plans , that it attained significant revenue streams and additional revenues.  

• Monthly subscriptions fees with three different price options In US market (Basic – $8.99/month, Standard – $12.99/ month & Premium – $15.99/ month)
• Netflix has established a global presence with international streaming to expand its customer base.
• Upselling opportunities – Upgrade from Basic to Premium Plan etc.
• Money-making movie studio with Netflix original shows like fuller house, house of cards, etc.

How does Netflix Make Money?

Netflix was a platform which started as only offering an extensive collection of movies, shows and dramas (925 listings) through the mail-in-delivery system . It wasn’t till 2007 when Netflix has decided to convert their business structure from mail-in-system to streaming content based on subscriptions. Before launching online streaming in 2007, Netflix revenue on average summed at annually at around $997 million . 

Subscription-based Business Model

• Netflix has over 230 million members from over 190 countries (as of Dec 2022)
• In fiscal year 2022, Netflix generated  $31.6 billion annual revenue from both the United States and international regions.

Important partnerships

• One of the most influential tactics implemented was its ability to build alliances with a wide range of movie producers, filmmakers , writer, and animators to receive content and legally broadcasting the contents required aligning licenses.
• To make the Netflix platform and its streaming possible, setting the partnership between Internet Service provider was also crucially important.

Technology ( Monolithic architecture )

• Technology platforms allowed “streaming” accessibility to become convenient and unique and during their conversion year in 2007, not a lot of media companies offered such, which made the platform greatly attractive.

During the early year in 2000, Blockbuster was offered to purchase Netflix and all of its assets for only $50 million .

As of feb 2023, Netflix is worth $163   Billion in market cap value. Perhaps, it isn’t really about what a company sells, rather, it’s about how a company sells or promotes its products.

Through Netflix’s powerful technological tactics, innovating the accessibilities has helped to increase customer/user experience positively. Netflix implemented in several areas that helped to capture the global market. 

 References & more information

• Netflix Annual Report

Tell us what you think? Did you find this article interesting?                                                     Share your thoughts and experiences in the comments section below.

A management consultant and entrepreneur. S.K. Gupta understands how to create and implement business strategies. He is passionate about analyzing and writing about businesses.

11 comments

Cancel reply.

Informative article, exactly what I needed.

Informative article!

Thanks Umar, Happy reading !

Disney+ next?:)

really a good one

Thanks Luca !

Yes, artical was very informative. Thank you.

Kirby – Thank you for the great feedback, really appreciate it. Happy reading !!!

excellent insight

Great article! Where can I find the list of sources you used? Thank you!

The Primary source of the article is Netflix’s Annual report – you can find the link in the reference section. And for secondary sources, links are embedded within the article.

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Business Plan Template for Netflix

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Ready to make your mark in the entertainment industry? Look no further than ClickUp's Business Plan Template for Netflix! Whether you're an entrepreneur with a groundbreaking idea or an existing business ready to take your streaming platform to the next level, this template has got you covered.

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Don't just dream of becoming the next big thing in streaming—turn your vision into reality with ClickUp's Business Plan Template for Netflix. Start planning your path to success today!

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Main Elements of Netflix Business Plan Template

ClickUp's Business Plan Template for Netflix is the perfect tool to help entrepreneurs and businesses in the entertainment industry launch or expand their streaming platform. Here are the main elements of this template:

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With ClickUp's Business Plan Template for Netflix, you can streamline your planning process and set your streaming platform up for success.

How To Use Business Plan Template for Netflix

If you're looking to create a comprehensive business plan for a streaming service like Netflix, follow these steps using the Business Plan Template in ClickUp:

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Use a Doc in ClickUp to outline your mission statement and vision for Netflix.

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To build a successful streaming service, you need to know who your target audience is. Research and identify the demographics, interests, and viewing habits of your potential customers. This will help you tailor your content and marketing strategies to appeal to your target audience.

Create custom fields in ClickUp to document your target audience's preferences and characteristics.

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Use the Table view in ClickUp to create a comparison chart of your competitors and their key features.

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Use the Calendar view in ClickUp to schedule and track your marketing campaigns and distribution plans.

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Determine your financial projections for your streaming service. Estimate your revenue streams, including subscriptions, advertising, and partnerships. Calculate your expenses, including content acquisition, production costs, marketing, and operational expenses. Identify potential sources of funding, such as investors or loans, and create a detailed financial plan.

Use Dashboards in ClickUp to track your financial projections and monitor your revenue and expenses.

By following these steps and using the Business Plan Template in ClickUp, you can create a comprehensive plan for your streaming service like Netflix. Remember to regularly review and update your business plan as your service evolves and the market changes.

Get Started with ClickUp’s Business Plan Template for Netflix

Entrepreneurs or existing businesses in the entertainment industry looking to launch a new streaming platform or expand their existing services can use the ClickUp Business Plan Template for Netflix to outline their strategy, identify target markets, analyze the competitive landscape, define revenue streams, and create a roadmap for success.

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• Use the Getting Started Guide View to provide step-by-step instructions for team members to follow.
• Customize your plan by adding custom fields:
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By following these steps and utilizing the various views and custom fields in the ClickUp Business Plan Template for Netflix, you can create a comprehensive and strategic business plan for your streaming platform.

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How Does Netflix Make Money? Netflix Business Model Analysis

Netflix is a subscription-based business model making money with three simple plans: basic, standard, and premium, giving access to stream series, movies, and shows. Leveraging on a streaming platform, Netflix generated over $33.7 billion in 2023, with an operating income of over $6.95 billion and a net income of over $5.4 billion. Starting in 2013, Netflix started to develop its content under the Netflix Originals brand, which today represents the most important strategic asset for the company that, in 2023, counted over 260 million paying members worldwide.

Netflix Business Model Short Description

Netflix is a subscription-based business model making money with three simple plans : basic, standard, and premium, giving access to stream series, movies, and shows.

Leveraging on a streaming platform, Netflix generated over $31.6 billion in 2022.

Since 2013, Netflix has been transitioning from a platform (primarily providing licensed content) to a media powerhouse (mostly producing its own content). In 2021, Netflix spent over $4 billion on produced content.

We describe the Netflix   business model   via the   VTDF framework   developed by FourWeekMBA.

Table of Contents

Netflix’s business model today

Before we dive into the history and break down the Netflix business model.

Let’s look at some of the key highlights from the current landscape of 2022.

Let’s do that by looking at the graphic below:

2022 marked the year where The Walt Disney Company managed to build a streaming empire, which passed Netflix’s total subscription count.

Indeed, by November 2022, Disney’s streaming products had reached over 235 million subscribers, compared to the 230 million subscribers of Netflix.

It’s important to highlight and emphasize that Disney achieved that with a multi-product strategy , where with different streaming services (the primary ones are Disney+, ESPN+, and Hulu), it managed to grow big in a short time frame successfully.

Yet, it’s also true that Disney still has the option to bundle these streaming services up in a single offering. This indeed might be a possible move by Dinsey to expand its streaming empire further.

In fact, Netflix started as an aggregator, and by 2013, it had begun to invest more and more into original content. Going forward, Netflix’s main advantage will be built on original content.

2022 has been a difficult year for Netflix, and yet a year that is determining a business model transition that can help the company transition to a billion members/users worldwide.

To give you a little bit of context about what happened in 2022. By Q1 of 2022, for the first time in its history, Netflix subscribers had slowed down.

Yet by the end of 2022, Netflix was back on track, bringing its subscriber base to over 230 million subscribers.

This made the company rethink its all business model and evaluates, for the first time since its inception, an ad-supported Netflix.

Of course, the company might have been experimenting over the years with ads; we can’t know for sure.

Yet, the real move into the ad-supported business came this year.

Thus, let me take you through the journey to show you the various transitions, or if you wish, in startup lingo, the “pivots” Netflix has been going through for most of its history:

• Business model change number one: the initial idea of Netflix came when Randolph and Hastings carpooled for a few months, trying to figure out their next business venture. When Randolph pitched for the first time the idea of running a movie-by-mail business, Hastings wasn’t impressed. However, a couple of months after their discussion, a new technology (we were in the year 1997), the DVD, made the whole idea viable. As they started to roll this business model of DVD rentals by mail, orders began to pour in. However, it took a good year and a half for Netflix to transition and experiment with subscription services. Thus, eliminating the pain of having to pay for late fees (something Blockbuster was doing). As the co-founders explained over the years, rather than an aha moment, this was the result of a painful attempt to make Netflix survive.
• Business model change number two: As Netflix IPOed in 2002, Reed Hastings, who had succeeded Randolph as CEO of the company, already envisioned a future where Netflix had to make its content available on-demand. The Internet had exploded a few years earlier, and Netflix was already exploring ways to deliver content on demand. Yet, it would still take a few years for this model to become fully viable. In 2007, Netflix started to offer a streaming service. Eventually, the whole business model turned into that. An on-demand streaming service based on a subscription revenue model, where paying members could consume all the content they wanted at their own pace and without any additional fee.
• DVD rentals as a heritage of the old business model: when we look at today’s financials, it’s interesting to see how DVD rentals are a heritage of Netflix’s past business model. Indeed, in 2021 DVD revenues were about $182 million (a tiny number compared to the over $29 billion in revenues from streaming services). Yet it’s also interesting to notice how Netflix keeps generating revenues in that segment, also at a wide margin. This shows how the DVD subscription service was a great, viable idea. However, if Netflix had not changed its business model, its DVD market would have been way way smaller compared to the streaming services market.
• The pandemic effect is over: In 2021, the acquisition of new paid members slew down. From over 36 million new members in 2020 to over 18 million new members in 2021. The effect of the pandemic is over. Indeed, the fast growth of Netflix’s paying members was driven by the pandemic.
• Keep growing overall paying members’ base: Netflix still grew its overall paying members base, from over 189 million paying members in 2020 to over 210 million paying members in 2021. This is a good sign that the company, while maturing, can also pull some interesting growth numbers.
• Price spikes:  since the overall paying members’ growth started to slow down, Netflix implemented various price spikes to its membership packages. This created a boost in revenues. While price spikes might be sustainable in the long term, it’s critical for Netflix to keep investing in great, original content only available on its platform. Because, over time, if Netflix were to lose traction in terms of the brand’s strength, additional price spikes might become way more burdening to users, which would cancel their subscriptions. For now, the basic packages are still convenient, thus, most paying members still stick with them.
• A media powerhouse: Netflix has been the first streaming media player to start massively investing in original content as its main asset. In fact, there is a key statistic to look at, which is licensed vs. paying content. Indeed, in 2019 the % spent on produced content was 21% vs. 79% on licensed content. This number changed by 2021 when the produced content grew to 34% of the total content spending. While licensed content in 2021 represented about 66% of the total content spending. This shows how Netflix is fully transitioning into a media company, where most of the content available on the platform might be produced content.
• Entering the ad business: since it inception, Netflix has worked with a simple subscription-based model. It’s incredible how the company managed to grow to over 220 million members worldwide, with a such simple revenue model. Yet, as of 2022, the company also realized that if it wanted to reach the next level of scale (a billion users?) in the next decade, it had to add an additional engine to its business model. Similar to Spotify’s business model , Netflix launched an ad-supported tier, in 2022. In my opinion, this is a way for Netflix to test, understand, and kick off a learning curve in the TV advertising business. If it will work out, we might see, over the years, Netflix offering a completely free ad-supported plan, as Spotify does. Why? Because, the ad-supported machine if scaled, can help Netflix reach a billion users worldwide, while it keeps growing its premium members base! Spotify has been the master of this model, and many companies like Netflix are trying to learn from it.
• Vertically integrating the content machine: the point above shows that Netflix is vertically integrating its business model, getting more and more into production, thus becoming a key player in the media industry. This approach is critical because the overall business model survival, in the long-term, depends on the ability of:
• Having content available on Netflix only. As we saw, this is critical to make its subscription sticky, for members, in the long term. Especially in light of the fact that paying members acquisition is slowing down. From that, it also depends on Netflix’s ability to keep increasing its prices, without triggering a leaky bucket.
• Having control over content gives control over the cost structure. The fact that Netflix will own the content makes it possible for the company (in the long term) to have control over its cost structure. Indeed, for now, when Netflix advances the money to acquire licensed content, this expense is amortized over the years, as members pay for their subscriptions. However, if the licensed content agreements expire, suddenly that content might not be available on the platform, making the subscription less interesting. In addition, relying too much on licensed content, also makes Netflix subject to competitors’ retaliation. In short, Netflix’s competitors might cut it out from licensing agreements, thus posing a threat to its business model.
• Having control over distribution:  another key element of producing your own content, is the fact, that Netflix can freely distribute it across its global platform, without needing specific licensing agreements for each country. This is critical because it’s very hard to know at foresight, in which country, a TV series might be most successful. Indeed, over the years, Netflix has shown how series made in a country can become hits globally (see the “Casa de Papel” or “Money Heist” global success). The fact that Netflix does own the content makes it much easier to experiment, launch globally and benefit from that content.
• Also being able to license it to others, when it makes sense to amplify it.  By owning its content, Netflix also has the option to license it to others, when it makes sense. This is critical to amplifying TV Series on other networks. Take the case of an old Netflix series, which had been already passed through the Netflix platform for years. As Netflix has already enjoyed the full distribution of this content on its platform, it can allow other networks to distribute it for a fee. Thus, creating an additional revenue stream, while amplifying its own content!

The Mediafication of Netflix Business Model

When many analysts look at Netflix, they consider it a tech company. Indeed, Netflix does have tech components that are an essential part of its business model.

And the company does work as a platform business model . However, Netflix identifies itself much more as a media company.

For instance, if you look at the underlying infrastructure for Netflix, this mostly relies on Amazon’s servers, as explained below:

Why didn’t Netflix build its own data centers? In reality, Netflix is focused on providing great content, and building its brand through that.

That is why, in these years, we’re assisting the “mediafication” of Netflix, and I won’t be surprised if in the coming years, at a certain point, produced content investments will pass the licensed content investments.

At that point, we can officially call Netflix a media company!

This index I like to call “Mediafication Index” and we can use it to track the full transitioning of Netflix from platform to media company.

Content Arbitrage Multiple

So how do we track the health and ability of Netflix to keep generating growing revenues compared to its content investments?

The answer is the Content Arbitrage Multiple. This metric, which we invented, is a ratio between the total revenues/content investments.

For instance, in 2021, the Content Arbitrage Multiple was 2.4x. Indeed, on the $29.7 billion of total revenues in 2021, Netflix had invested over $12.2 billion in content. This was a 5% growth compared to a Content Arbitrage Multiple of 2.3x in 2020.

Of course, there is a lagging issue here. For instance, when it comes to produced content, we’ll see the results of it in terms of revenues, profits and cash generated a few years in the future.

Indeed, with licensed content, this can be quickly made available on the platform and enhance its content selection.

When it comes to produced content, it might take 2-3 years from the first investment to see it going to fruition. Thus, it’s important to perform the same analysis on a 3-5 years basis at least.

Netflix origin story: the history of Netflix in a nutshell

As Marc Randolph, co-founder of Netflix, explained, the idea to start a company that would wreck down dominant players like Blockbuster wasn’t the result of a lightning moment, rather it happened after considering thousand of business ideas .

The initial launch of Netflix

For a bit of context, back in January of 1997, Randolph was working for a software company run by Reed Hastings. As the company got acquired, Randolph would be unemployed shortly after that. Both Randolph and Hastings were in the same situation, where the company who was acquiring them, was keeping them around for six months, as to enable a smooth transition after the acquisition. 

Thus, in these six months, Randolph and Hastings started to brainstorm hundreds of business ideas . Indeed, Hastings and Randolph, which had the habit of carpooling, used that opportunity to brainstorm business ideas . As they drove each day to their office in the Santa Cruz Mountains, in Sunnyvale, the two men brainstormed hundreds of ideas, and for weeks they could not find a really good one to be the object of their next venture.

Among these ideas, Randolph pitched Hastings the idea of video rental by mail. Hastings was not impressed. Indeed, the business would not be viable considering that at the time video rentals came into big cassettes, which were heavy, expensive and fragile. Thus, not a feasible idea.

Yet, a couple of months after the idea came to Randolph, Hastings mentioned to him, how he had read about this new technology, called DVD. A thin and small flat rounded plastic object. This could easily fit into a small envelope.

They went right on to test the idea. Randolph placed a DVD into a pink gift envelope which he sent to Hastings’ home in Santa Cruz. The next day, Hastings received the DVD, intact, and handed it to Randolph. The CD inside was unbroken, and it had arrived in Hastings’ home in less than 24 hours for the price of a stamp!

That is how they realized their idea might work. And a few months later, Hastings wrote a check for 1.9 million dollars to Randolph to start the company. 

After hiring a dozen people, and spending the next six months developing an e-commerce website, finally on April 14, 1998, Netflix was launched. As Randolph pointed out, at the time Netflix wasn’t trying to dominate the DVD market, to go against Blockbuster, or to look for a larger market, like streaming.

They were trying to survive. Indeed, for a year and a half, Netflix was struggling to find its business model , a business model that would make it viable and scalable.

Finding a viable business model for Netflix

Later on, the company would change leadership, with Hastings taking over as CEO (still to these days). Under Randolph, Netflix would go through a first transition phase becoming a subscription-based business model, with DVD rental. And it would later use the same model for streaming services.

Netflix started as a DVD-rental company. That was the most viable way to start a   business   that could compete with existing players like Blockbuster.   Netflix   could have tried to play it bigger.

Netflix   had known for years that being a competitive player in the DVD-rental space, was “just the beginning of something else:”

In a   Wired article , entitled “The   Netflix   Effect” from 2002, Reed Hastings, still current   Netflix’s CEO, highlighted:

The dream 20 years from now, is to have a global entertainment distribution company that provides a unique channel for film producers and studios.

Converting the business model from DVD to streaming operations

Reed Hastings, after its initial investment, got more and more involved with the company until he took over as the new CEO. Already in the early 2000s, Netflix was looking into ways to transition from DVD, which had enabled the initial development of Netflix’s business model, to streaming.

For years, the Netflix executive team had been looking at how streaming was evolving. They thought by the early 2000s this might have been an option. Yet, they missed the shot for several years. Indeed, it would take longer for the streaming technology to become fully viable.

Yet when it did, it proved to be quite successful for Netflix’s business model. Indeed, Netflix started to offer streaming options by 2007. As the NYT announced at the time:

The impending death of the company, with its online system for renting DVDs delivered by mail, was predicted late in 2002, when Wal-Mart said it would enter the business; again last year, when Apple and Amazon announced movie-downloading services; and again last week, after the introduction of a series of products and services intended to bring Internet video to television sets.

The NYT highlighted, back in 2007, how Netflix’s death had been predicted several times (and indeed, the company did go through various near-death experiences in these years). Yet

Yet, as Hastings had highlighted “..DVD is not a hundred-year format, people wonder what will Netflix’s second act be.” Back then the NYT remarked: 

Netflix is introducing a service to deliver movies and television shows directly to users’ PCs, not as downloads but as streaming video, which is not retained in computer memory. The service, which is free to Netflix subscribers, is meant to give the company a toehold in the embryonic world of Internet movie distribution.

As Netflix announced its streaming service, its shares dropped 6.3 percent and a JPMorgan Securities analyst downgraded the stock, citing increased competition. 

Yet, by 2011, the streaming service execution had successfully been rolled out, with streaming subscribers passing the DVD subscribers. In 2011, in the US paid DVD subscribers were over 11 million, in the same period streaming subscribers had passed 20 million!

In 2009, Netflix’s revenues were over $1.6 billion. By 2011, the number passed the $3.2 billion mark!

Netflix had entered a new era, it had passed through the transitional business model of DVD subscription services, and tapped into a market expansion strategy , where the streaming segment became many times over the DVD segment.

In 2021, DVD subscriptions had become an obsolete business model, whereas the company generated over $29.5 billion from streaming subscription services!

However, to get there, Netflix had to go through another important transition in its business model. And move from being a platform/aggregator of content to becoming a media brand.

From platform to brand: Becoming the new Hollywood?

In a historic speech, in 2013, at the Edinburg International Film Festival, Kevin Spacey summarized well, the transition of Netflix, which created the company we know today:

Indeed, back in 2013, Netflix had started to implement a new strategy . The company no longer just aggregated content on top of its platform. It started to develop its own content, and it did that through a series called “House of Cards.”

Kevin Spacey’s speech captured the important transition that media companies had to go through if they wanted to survive the next wave of media, empowered by the Web. This speech is worth reading at it all because it opened up the way to the Netflix that we know today, and it created a new standard for media companies, where everyone followed the lead set by Netflix.

Like Kevin Spacey highlighted back in 2013:

House of Cards creatively actually follows the model more often employed here in Great Britain.The television industry here has never really embraced the pilot season looked to buy the networks in the United States as a worthwhile effort and now look of course we went out to all the major networks with House of Cards and every single one was interested in the idea but every single one wanted us to do a pilot first.

In short, Kevin Spacey highlighted how the “pilot content model” was broken. And how, thanks to the Internet, and new waves of content consumption, the habits of hundreds of millions of new consumers, had completely changed.

He further explained:

And look, it wasn’t out of arrogance that David Fincher and Beau Willimon (the producers of House of Cards) and I were not interested in having to audition the idea.

It was that we wanted to start to tell a story that would take a long time to tell. We were creating a sophisticated multi-layered story with complex characters who would reveal themselves over time and relationships that would need space to play out.

And the obligation of course of doing a pilot from the writing perspective is that you have to spend about 45 minutes establishing all the characters and create arbitrary cliffhangers and basically generally prove that what you’re setting out to do is network.

Netflix was the only network that said ‘we believe in you,’ we’ve run our data and it tells us that our audience would watch this series we don’t need you to do a pilot.

By comparison last year 113 pilots were made, 35 of those were chosen to go to air, 13 of those were renewed but most of those are gone now.

And this year 146 pilots were shot, 56 have gone to series but we don’t know the outcome of those yet, but the cost of these pilots was somewhere between 300 and 400 million dollars a year.

That makes our House of Cards deal for two seasons look really cost-effective.

In other words, Kevin Spacey explained how the new model, they envisioned, back then, was a model where it was way more about crafting a story, and the characters around the story. Thus, going way beyond the pilot.

This model not only focused more on building the story, and the characters, but it looked at creating such a hook for the people watching the series, that they wanted to watch it all at once.

Not only this model would be more convenient, eventually, as the cost of developing a few episodes would be much less expensive, in comparison, than that of developing a pilot. But, it would give it a different format. A format that would be more in line, with the way consumers approached it.

Indeed, Kevin Spacey explained:

Clearly the success of the Netflix model releasing the entire season of house of cards at once proved one thing: the audience wants the control they want the freedom!

If they want to binge as they’ve been doing on house of cards and lots of other shows then we should let them binge.

I mean I can’t tell you how many people have stopped me on the street and said thanks ‘you sucked three days out of my life.’

And through this new form of distribution we have demonstrated that we have learned the lesson that the music industry didn’t learn give people what they want when they want it in the form they want it in at a reasonable price and they’ll more likely pay for it rather than steal it.

Well, some will still steal it, but I think we can take a bite out of piracy so I predict that in the next decade or two any differentiation between these platforms will fall away.

This opened the way to binge-watching , a new, and powerful way, to distribute content. And Spacey also remarked:

Is 13 hours watched as one cinematic whole really any different than a film? do we define film as being something two hours or less? surely it goes deeper than that.

If you’re watching a film on your television is it no longer a film because you’re not watching it in the theater? if you watch TV show on your iPad is it no longer a TV show? The device and the length are irrelevant. The labels are useless except perhaps to agents and managers and lawyers who use these labels to conduct business deals.

But for kids growing up now there’s no difference watching avatar on an iPad or watching YouTube on a TV or watching Game of Thrones on their computer it’s all content it’s just story.

And the audience has spoken they want stories, they’re dying for them they’re rooting for us to give them the right thing and they will talk about it, binge on it carry it with them on the bus and to the hairdresser force it on their friends, tweet, blog, Facebook make fan pages silly gifs and God knows what else about it.

Engage with it with a passion and an intimacy that a blockbuster movie could only dream of.

And all we have to do is give it to them!

The prize fruit is right there shinier and juicier than it’s ever been before. So it’ll be all the more shame on each and every one of us if we don’t reach out and seize it.

And I want to leave you with the words of a man is as any to address the Nexus of Commerce and art Mr. Orson Welles who once said: “I hate television I hate it as much as peanuts.”

This was the start of Netflix’s transition from aggregator/ platform to media powerhouse!

In 2013, Netflix became the first streaming platform to win a Primetime Emmy Award with House of Cards. By 2021, most awarded shows were coming from Netflix’s original production!

A glance at the Netflix business model

Starting in 2013, Netflix started to develop its own content under the Netflix Originals brand, which today represents the most important strategic asset for the company that in 2021 counted over 221 million paying members worldwide.

Netflix is changing the way we consume traditional media. From series like Stranger Things, Narcos, and Black Mirror, Netflix has been able to become a titan of the media industry, with more than a hundred and fifty thousand members across the globe.

With three simple subscription plans (basic, standard, and premium) from $9.99 to $19.99 (in the US), Netflix has been able to become a multi-billion dollar unicorn worth more than $150 billion in March 2022.

Netflix wasn’t an overnight success

Like any start-up, also Netflix has its founding myth. As the story goes Netflix founder and CEO Reed Hastings recounted how the idea behind Netflix came about:

The genesis of Netflix came in 1997 when I got this late fee, about $40, for Apollo 13. I remember the fee because I was embarrassed about it. That was back in the VHS days, and it got me thinking that there’s a big market out there. So I started to investigate the idea of how to create a movie-rental business by mail. I didn’t know about DVDs, and then a friend of mine told me they were coming. I ran out to Tower Records in Santa Cruz, Calif., and mailed CDs to myself, just a disc in an envelope. It was a long 24 hours until the mail arrived back at my house, and I ripped them open and they were all in great shape. That was the big excitement point.

This was the year 1997, still a long way to go until Netflix reached its scale and international expansion worldwide, which can be dated in 2017.

Today Netflix is among the most successful brands in the world. And this happened not only because it managed to create one of the most successful streaming platforms of the Internet era. But also because Netflix has learned along the way when to transition its business model .

In fact, Netflix started with CD first, then it expanded its strategy by adopting streaming.

Also, it’s important to understand how Netflix changed the way we consume content (from movies to series) and also how it was the first platform player to transition from aggregator to media company.

Indeed, starting with House of Cards, in 2013, Netflix heavily invested in original programming, which today is the main growth driver and sticky engine for the company.

How does Netflix’s business model work? A simple subscription will do

As explained in the Netflix annual report:

Our business model is subscription based as opposed to a model generating revenues at a specific title level. Therefore, content assets, both licensed and produced, are reviewed in aggregate at the operating segment level when an event or change in circumstances indicates a change in the expected usefulness.

In short, Netflix sells three simple kinds of subscriptions:

With simple packaging and three subscriptions (basic, standard, and premium) you can get the streaming of all the available series, movies, and shows available on the Netflix library.

Currently, the subscription prices vary from a base plan of $9.99 to $19.99 (in the US).

Business segments

The business segments are the are of the business that has a different financial logic and thus require a separated strategy .

As of 2021 Netflix revenues were over $29 billion, with a staggering growth compared to just 2013, when the revenues passed $4 billion. And a continued growth after 2019. As the pandemic hit Netflix revenues kept growing. Yet Netflix also managed to consolidate the revenues generated during the pandemic (also thanks to increased service prices).

If we look at the global picture, you can see how Netflix has more than 221 million subscribers worldwide.

The company has three business segments:

• Domestic streaming:  revenues from monthly membership fees for services consisting solely of streaming content to our members in the United States.
• International streaming: revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States.
• and Domestic DVD: revenues from monthly membership fees for services consisting solely of DVD-by-mail. This is a heritage of the old business model, which Netflix used to run before it became a streaming-first company.

Let’s dive a bit into the numbers of each of those segments to understand the financial logic behind those and also see what’s strategy of Netflix in the next future.

Netflix US streaming financials explained

From the numbers above you can see how the Netflix total number of members in the US grew from 67 million in 2019 to over 75 million in 2021.

As you can see from the financials above, Netflix has managed to both increase the number of paying members, and the rate each of those members pays. Indeed, the average monthly revenue per membership grew from $12.57 in 2019 to $14.56 in 2021.

This shows, that the platform, for now, is sticky enough for paying members to stay, even when there are price increases. Thus, the churn rate, which is a key metric for a subscription-based platform is stable enough to enable a consistent revenue growth for Netflix.

Of course, where the brand becomes less differentiated in the future, additional price increases might determine a sudden switch of users to other platforms, and therefore, an accelerating churn.

What about other geographical areas?

Netflix international streaming financials explained

The overall international segment has become larger than the US segment. This shows the ability of Netflix to successfully launch its content worldwide. This is, in fact, one of the most effective strategies that Netflix has been using in the last years.

Netflix invests in original content worldwide, making it accessible on its international platform, thus, enabling the content to become successful worldwide.

This has created international series, like La Casa de Papel (Spanish series, in the US, renamed as Money Heist), which not only were massive successes in the countries where they were launched, but they became incredible successes worldwide.

While changing the whole way people consume content across the world.

Netflix indeed mastered a new methodology for analyzing, developing, launching, and distributing content.

In a speech at the Edinburgh Television Festival in 2013, Kevin Spacey said: “If they want to binge then we should let them binge,” r eferring to the method of consumption that Netflix enabled for the members.

Where platforms and TV networks released series gradually, Netflix released entire seasons all at once, giving consumers the choice of how to consume content. This has created a habit of binge-watching , which also turned out to be one of Netflix’s sticky engines of growth.

Below I explain the difference between the old content model, and the new one, built by Netflix.

When looking at Netflix’s content model, it’s also important to frame it in the context of its overall financial model.

In fact, Netflix is a subscription-based platform, where members pay for content, which is made available through it. In short, Netflix advances the investments needed to develop, and license content. And those costs are amortized over time, as subscription revenue comes in.

It all started with that DVD pay per rental business model

Today we give for granted the on-demand business model of Netflix. Yet, back in the day, you could have movies “on-demand” only with the pay per rental business model . As technology has evolved, the on-demand model has been possible also for media companies.

Netflix has been able to transition its business model when streaming became viable as a technology at scale. Thus transitioning its business from a pay-per-rental or DVD subscription business to an on-demand streaming service.

Yet, it’s interesting to notice, as of 2021, how DVD revenues still show up, as a heritage of Netflix’s past business model. This is a historical relic of the evolution of Netflix’s business model and is very interesting to look at. Indeed, as of 2021, Netflix still had $182 million in DVD revenues.

Is Netflix profitable?

Netflix is a profitable company, which net profits were $5.1 billion in 2021. Growing from $2.7 billion in 2020.

The company runs a negative cash flow business model, where it anticipates the costs of content development and licensing through the platform.

Those costs get amortized over the years, as subscribers stick to the platform.

Netflix cash flow negative business and cost structure

Netflix Financial Statements 2021

As highlighted in its financials:

Net cash provided by operating activities decreased $2,034 million from the year ended December 31, 2020 to $393 million for the year ended  December 31, 2021 primarily driven by an increase in investments in content that require more upfront cash payments, partially offset by a $4,702 million or 19% increase in revenues. The payments for content assets increased $4,933 million, from $12,537 million to $17,469 million, or 39%, as compared to the increase in the amortization of content assets of $1,423 million, from $10,807 million to $12,230 million, or 13%. The increase in payments for content assets was primarily driven by delays in productions resulting from the pandemic that impacted the prior year, which resulted in the timing of certain production payments being shifted into the current year. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion

Therefore, the company has to invest substantial amounts of cash upfront to develop Netflix’s original content.

To understand why the Netflix business model also runs on negative cash flows, we need to dig into the Netflix cost structure:

We acquire, license and produce content, including original programing, in order to offer our members unlimited viewing of TV series and films. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to streaming assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the Consolidated Statements of Cash Flows.

What can we learn from Netflix’s business model?

For a company that started in 1997 as a website with  925 titles available for rent through a traditional pay-per-rental model; a company that in 2000 offered itself for acquisition to Blockbuster for $50 million and now it’s worth more than a hundred fifty billion dollars. What can we learn from it?  

Business modeling isn’t about just how you monetize

There is a misconception in the business world, that a business model is seen as a monetization strategy . A business model also embraces a monetization strategy but is way more than that. It is how you monetize your business.

It is about how you make your product or service available to an audience.

It is about the value you create not only for your business but also for several stakeholders. In fact, as I see it, the more a business model creates values for several players, the more it will be able to create an ecosystem that will help the organization part of its scale.

In the end, the organization and the scale are just the result of that ecosystem. This also applies to Netflix. Looking at the financials is a good starting point. Yet Netflix isn’t only a subscription-based media provider. Netflix is also based on the concept of on-demand. It is a media production company.

It is a brand that in the mind of its subscribers can mean several things. In fact, among the over a hundred thousand subscribers some tribes get assembled around the Netflix series which has become the symbol of our generation.

We like to call things “innovative.” What’s new isn’t the business model but the application of it

The first critical aspect of business models is that we like so much the word “innovative” which we tend to call anything we see as such. In reality, in most cases, it is just about taking an old business model and applying it to a new industry.

Just like the wheel , invented in Mesopotamia over five thousand years ago, it took us way more than a thousand years to put it on the bottom of the luggage. In fact, the first wheeled luggage might date back to the 1970s.

In other words, in business just like in any different life domain, what’s hard isn’t the discovery of a new business model but the application of a business model that has always existed to new industries.

The subscription business model has been used by traditional newspapers, magazines, and academic journals for decades.

As technology evolves old business models become viable to new industries

One interesting aspect that you’ll notice if you go on the Netflix blog is that the most critical editorial piece is the Netflix ISP Speed Index , a monthly report that provides  updates on which Internet Service Providers (ISPs) offer the best primetime Netflix streaming experience.

Companies like Netflix, or other tech giants like Google, Amazon, Facebook, and Microsoft’s successes are strictly tied to the technological advancements we’ve achieved as humanity. Imagine you had a poor internet connection.

Would you pay even a dollar for a Netflix subscription? Of course, you wouldn’t. Thus, as technology evolves, the business models of companies like Netflix depend on how fast technology has advanced. Had the internet not snowballed Netflix would still be a DVD rental company.

Why? The on-demand business model is possible thanks to the speed at which the internet infrastructure can travel today.

The power of the on-demand business model and the “Uberization” of the service economy

In the digital world, the on-demand economy is dominating the business arena. The “Uberization” of services means offering more options on how to consume something.

In the Netflix case, the subscriber is given more flexibility and optionality about what to watch. For years, TV has used us to rigid schedules. That worked in the years when large corporations with strict schedules were the norm.

Instead, with the rise of digital nomadism and the self-employed, freelancer our habits and the way we consume media has changed drastically. In this scenario, on-demand has become a dominant business model in the media industry.

Also in this case though what seems an innovative business model it’s not. In fact, once again what is innovative in its application. In fact, when Netflix back in 1997 started to rent DVDs from its website, it was already working on the premises of the on-demand business model.

However, as the web evolved and streaming became viable, they started to apply the on-demand model through their platform.

On-demand model plus the subscription business model

What makes a business model powerful is the mixture of several ingredients; in the Netflix case, the on-demand business model, with a simple subscription applied to the traditional media industry has made it incredibly effective.

The subscription business model can scale

Netflix proved that the subscription business model could scale. However, this doesn’t happen overnight. If we look at the international expansion of Netflix, we can see how it started to expand outside the US only in 2010.

And it was only in 2016 that it launched globally. This isn’t random. The subscription business model requires a lot of financial resources.

The subscription business model requires enormous investments

We acquire, license and produce content, including original programing, in order to offer our members unlimited viewing of TV shows and films.

This was specified in the Netflix Annual report for 2018. In fact, at this stage Netflix is as much a media production company as a service provider:

Content obligations represent one of the most important financial items of Netflix. In fact, based on the success of the content investments Netflix has made in the past years and will be making in the coming years, will determine the success of the overall business model.

No wonder, then, that content obligations also represent a risk factor for the company, which in its financial statements highlighted:

We have a substantial amount of indebtedness and other obligations, including streaming content obligations, which could adversely affect our financial position. As of December 31, 2021, content obligations were comprised of $4.3 billion included in “Current content liabilities” and $3.1 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $15.8 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition. Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.

We all like the logic and the scalability of the subscription business model. You create a product or service have people enroll in it, and you make money each month, steadily. Yet this isn’t always the case. And also scaling a consumer subscription business model is not easy at all. And Netflix is among the few who have learned this playbook on the fly.

And yet, also a company like Netflix still runs substantial risks related to the investments made in content.

When you offer a subscription that will never come at a low price. Instead, you will need continuous support, development, new ideas, and ways to make sure your subscribers stick as long as possible.

In fact, only when you’re able to have a customer acquisition cost (CAC) that is way lower than your customer lifetime value (CLV) that is when your business gets viable.

However, this is easy said than done. In fact, a sales funnel of a subscription-based model is way longer than a company that sells a one-off product or service.

This is reflected in Netflix’s financial statement as in many other companies that operate with the logic of the subscription-based business model.

Netflix is a media company

Another line item that is interesting to look at to witness the transition of Netflix, from just a tech platform to a media company, is the proportion of investment into licensed vs. produced content.

Wherewith licensed content Netflix purchases the rights to distribute it across its platform. For produced content Netflix, de facto, invests in owning the content and distributing it according to its own rules.

Indeed, the licensing content presents its advantages. Some of them are:

• Netflix can expand its library, faster, making available titles that otherwise would cost too much to produce from scratch.
• Licensed content also is less expensive (at least in the short-term) compared to produced content.
• And it can help the company quickly change the kind of content it offers on the platform.

However, licensed content has its limitations:

• You don’t own it.
• Distribution rights change over time and can be subject to retaliation from competing platforms.
• Your service might be influenced by external factors you can’t control, like changing rights agreements, which can affect the whole business’s bottom line.

Indeed, the difference between licensed vs. produced content, for Netflix, doesn’t just mark the difference between tech and media companies. It also marks the difference between a company that distributes content and a company that is vertically integrated.

When Netflix invests in production, it has to learn a playbook of how to manufacture content from scratch, this gives the company the ability to create long-term competitive advantages, and really become a new Hollywood.

Therefore, while content production can be pretty expensive, and it needs to be amortized over time, making sure to have subscribers that are willing to pay more over time, and stick to the platform also presents important advantages:

• Control over distribution, as owned and produced content can be distributed at the company’s own wish, which gives it great flexibility to understand where it’s best suited, thus, creating more options to make it successful.
• Control over the long-term strategy of the company, as the owned content, won’t be subject to the volatility, intrinsic to licensed content.
• Differentiation, as the produced content, will represent the company’s ability to innovate and produce great series (think of the growing numbers of Netflix Originals becoming hits).
• Monetization, as while in the short-term content production is way more expensive, it’s also what keeps subscribers hooked to the platform over time (If I can find Netflix series everywhere else, why would I stick to the platform?).
• More distribution options, as the company can perhaps license its content to other platforms, thus creating more options over time.

Key takeaways

• Netflix has grown from a DVD rental site born in 1997 to an over a hundred fifty billion market cap company. Today Netflix has become a major player in the media industry, and it is investing billions of dollars in the production and development of TV Shows that have become a symbol for millions of people worldwide.
• At the same time, the international expansion is costing Netflix billion of dollars, and the subscription-based business model requires continuous investments to keep millions of people paying their monthly plans. As the SaaS industry has taken over the tech world, many give for granted that a subscription business model always makes sense.
• In reality, as we’ve seen in the Netflix case study, it took it thirteen years to start expanding outside the US. And only in 2016, after almost twenty years Netflix was able to reach Asia.
• Netflix runs a cash negative business model where it advances content development costs and amortizes them over time through paying subscriptions. Thus, it’s crucial that Netflix is able to make the platform sticky for subscribers.
• Netflix turned into a media company, as it started to invest more and more into content production, rather than content licensing.
• Netflix’s content model changed the industry, as it enabled members to have new options to consume content, it also generated whole new industries for series, based on binge-watching. What Netflix created in terms of a playbook for media platforms, in the course of the last decades has now become the standard playbook for anyone that wants to compete in the media industry!

Are we going toward an ad-supported Netflix?

For the first time, in 10 years, Netflix has lost subscribers.

As soon as Netflix announced its first-quarter results, on April 20th, 2022, the stock fell apart:

In a single session, the company lost 35%. And we’re not talking about a low-cap meme stock. That burned billions of dollars in a single stroke.

Not only this was unforeseen (clever investors like Bill Ackman had placed very large bets on Netflix) but it seems very hard to assess where the problem lies.

Indeed, it’s easy to point out all the issues Netflix has today. But there is another fundamental problem: where’s the attention going? 

Netflix explained how the COVID boost in revenues has ended, and numbers didn’t lie about that:

The executive team has identified a few core problems that caused this sudden loss in subscribers:

Uptake of connected TVs

As Netflix pointed out they do not control the hardware part, thus, the more streaming services are offered on smart TVs, and the more traditional TV services add their own on-demand services, the harder it gets for Netflix to keep the same level of attention.

In the past, I pointed out, how Netflix started to build its distribution on hardware, by placing its default button on the smart TV controller, before anyone else. Yet the remote controller is now, getting very busy!

100m additional households are watching but not paying for Netflix.

Over the years, Netflix has incentivized users to simply share their passwords. This is also what made Netflix cool in the first place.

Yet, when you reach saturation, you get, as a company, much less cool about users sharing their passwords.

Therefore, Netflix is working on new paid sharing features, where current members have the choice to pay for additional households, trying to monetize these users.

We can also foresee some crackdowns, where users will be prevented to access the platform if sharing the password on other devices (things might get ugly there!).

An ad-supported Netflix

In the last years, as we went through the pandemic, Netflix has been spiking up prices for its subscriptions, which worked pretty well in terms of revenue generation .

For one thing, it shows how much people love Netflix, as they kept the subscription, nonetheless these price spikes. Yet, this strategy doesn’t work well, especially when the macroeconomic scenario isn’t as good.

As Netflix CEO, Reed Hastings has highlighted, on arstechnica:

“Those who follow Netflix know I’ve been against the complexity of advertising and a big fan of the simplicity of subscription, but as much as I’m a fan of that, I’m a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense.”

And Hastings further highlighted, in relation to the ad-supported plan:

“I think it’s pretty clear that it’s working for Hulu. Disney’s doing it; HBO did it. I don’t think we have a lot of doubt that it works. You know that all those companies have figured it out. I’m sure we’ll just get in and figure it out as opposed to test it and maybe do it or not do it.”

How would this work?

Hastings explained: “it would be a plan layer like it is at Hulu so if you still want the ad-free option, you’ll be able to have that as a consumer. And if you’d rather pay a lower price and you’re ad-tolerant, we’re going to cater to you also.”  While the ad-supported service is tempting, is also worth highlighting that it might run at very tight margins for the company if the underlying content is primarily licensed content (just like for Spotify, the more you stream licensed content, the more content royalties costs go up).

Instead, such a model might work, if Netflix were to do it to offer its own content, but with the caveat of pacing that out.

In short, when a new series comes out, instead of enabling ad-supported subscribers to binge-watch it, content would be paced out. And if they want to watch it all, at once, they would need to pay for a full subscription plan.

New streaming services have also been launched

Macro factors

Including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact as well.

Here there is not much control if not keep focusing on re-growing the subscriber base.

What do I think should Netflix do instead?

First, we need to reassess competition, and where it’s coming from., is the competition really between tv and streaming only , attention is not an asset, easy to control..

And while Netflix is assessing its competition, linearly, in reality, the threat might be coming from unexpected places.

The main mistake I believe Netflix is doing is on assuming that the main competitors are TV and streaming services. There is more to it!

Beyond streaming, attention is a fluid asset 

As Anand from CB Insights has highlighted  “Maybe TikTok is what is killing Netflix?”

“You get a show or a movie you’re really dying to watch, and you end up staying up late at night, so we actually compete with sleep, and we’re winning!” 

Yet, today most of the attention is moving to other platforms. And the interesting part, is that, while platforms like TikTok offer natively short-form content. Many people end up spending hours on the platform.

So below are some of the things, I believe Netflix should do:

Vertical integration

Netflix managed to build an incredible brand over the years. It’s still an app, either on a Smart TV or on a mobile marketplace. The main company’s asset is its content. Not even the licensed content (that can be taken away from it, anytime), but its own content (the Netflix original series and movies). Thus, in order to build a long-term advantage, Netflix should also focus on bringing to market a successful device for consuming content.

As the story goes, back in 2007, Netflix was looking into building its own hardware. Indeed, its set-top box (it would enable to stream movies from the Netflix catalog) was ready for launch! Yet, at the very last minute, CEO, Reed Hastings canceled the project.

As reported by The Verge ,  Hastings’ fear was that “if the company released its own hardware, it would be seen as a competitor to the very companies with which it hoped to partner.”

Hastings has been quoted as saying: “I want to be able to call Steve Jobs and talk to him about putting Netflix on Apple TV, but if I’m making my own hardware, Steve’s not going to take my call.” 

This shaped the company for years. Yet, what if Netflix got into the hardware game again? Instead of a Smart TV, Netflix could build a VR device to watch its series in high definition. Or perhaps a projector, smart theater device, to project Netflix anywhere in the house!

The company could sell it at cost while offering its subscription services within the device. In this way, if successful, over time, it can control the overall customer experience.

Reassess the content development strategy.

In the last years Netflix has produced great series, and important hits, yet, it shifted on quantity vs. quality.  The content development efforts instead should be more skewed toward coming up with new content formats, innovating those formats, and raising the bar again (just like Netflix did in 2013 with House of Cards).

A hybrid between binge-watching and scheduled releases.

Binge-watching has been a disruptive content format, which has helped define Netlfix as a brand. Yet, one thing was to enable binge-watching, back in 2013, and toward the pandemic. Another is to ask, whether binge-watching is still a competitive format today.

In fact, binge-watching worked as an incredible flywheel in the early years. The rhythm it demands might not be sustainable over time, from a business standpoint.

While in the past, as a Netflix subscriber, once you had binge-watched your way through a series, you could still wait for the next series. Now, you have way more choices and options. And the need to jump on another series might drive you out of the platform.

Paradoxically then, in this scenario, it might make sense to start testing out some hybrid forms of content consumption. For instance, why not give the ability to binge-watch only for higher-tier plans? In short, binge-watching has been a defining feature of Netflix, in the early days. Might become a feature to discern between basic to more advanced plans.

Content formats that go beyond series 

Netflix has been testing, for a few months, new short-form content formats, such as  Kids Clips and  Fast Laughs . Fast Laughs, in particular, is a TikTok-like platform where clips of popular shows on Netflix are hosted, and shown with a continuous scroll, and at full screen. In short, it tries to replicate TikTok’s successful formats.

Indeed, as Netflix highlighted:  Fast Laughs offers a full-screen feed of funny clips from our big comedy catalog including films (Murder Mystery), series (Big Mouth), sitcoms (The Crew), and stand-up from comedians like Kevin Hart and Ali Wong.

Of course, this can be a powerful strategy to attract young users from platforms like TikTok, and Netflix has the data to understand what content on Netlfix makes sense to translate into short-form clips.

Yet to make those sorts of platforms successful, Netlfix should plug in user-generated content. In short, it should enable mechanisms on its platform that enable users to cut the clips they find most interesting and interact with the content.

This new, user-generated content, can become new formats, that can also serve as a way for the company to create new types of content, that are able to attract future generations.

More on Netflix Business Model

• Netflix Business Model

Binge-Watching

Coopetition

Platform Expansion Theory

Netflix SWOT Analysis

Is Netflix Profitable

Who Owns Netflix?

Netflix Employees

Netflix Subscribers

Netflix Revenue

Netflix Yearly Average Revenue

Netflix Average Monthly Revenue Breakdown

Netflix Revenue By Country

Netflix Subscribers Per Region

Disney vs. Netflix

Read Also: Netflix Business Model , Netflix Content Strategy , Netflix SWOT Analysis , Coopetition , Is Netflix Profitable .

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Netflix Biz Model Canvas

Netflix is based on a linear business model that monetises on subscription revenues (tiered plans) and is one of the biggest players in the Media & Content vertical in Digital Technology.

“Netflix is one of the world's leading entertainment services with 233 million paid memberships in over 190 countries enjoying TV series, films and games across a wide variety of genres and languages.” Netflix .

Key Customer Value Proposition / unique selling proposition

Netflix’ key value propositions & unique selling proposition are based on providing engaging digital content (movies & TV shows) in convenient ways (TV, laptop, tablet, mobile phone) that can be consumed on-demand and that is not interrupted by ads. More recently Netflix introduced a cheaper layer for those who accept ads - but a majority of users are on the ad-free plans.

Value Creation

Value is created through a linear process where most inputs are sourced and then processed to digital media content within the firm. Netflix-created shows/movies make up a majority of their content. This fact is a hallmark of the linear business model as Netflix runs it and a major differentiator from YouTube.

Digital Content & Media vertical

Broadly, speaking digital content & media business models leverage the linear (Netflix) as well as the platform biz model (YouTube, Spottily, Kindle) to provide access to goods that once were distributed on physical media. Amazon Prime Video is a hybrid in that they have a considerable amount of their own content (linear biz model) but also allow subscriptions to other channels via their front-end (Platform Biz Model). Most types of content & media: Fiction / non-fiction books, magazines, music (semi-pro / professional), videos, movies and more are now available via digital channels (probably one of the major exceptions are educational textbooks).

This article is structured in line with the elements of the business model canvas:

Key Partners

Key Assets & Resources

Value Propositions

Key activities, customer relationships, customer segments, cost structure.

Primary partners: Netflix has become much more self-sufficient in that most of their content is now self-created. Previously, they were far more reliant on favourable terms on licensing (and purchasing) content. This dependency has reduced quite a bit. Nevertheless, these should be considered primary partners.

Content/IP owners  (studios / distributors): shows and movies that Netflix acquires or licenses from 3rd parties

IP holders: such as Marvel and others who can license their IP to Netflix for their own content creation. Some of this content has done very well. Even where Netflix creates their own content based on this IP, they are depended on getting acceptable terms with these partners . In addition, Netflix is entering into this space themselves with the acquisition of Millarworld .

Investors: Oddly enough, Netflix is still somewhat dependent on investors. Not so much on stock investors (though of course they dont mind a bump in their share price). But stock issuance is a negligible way to get cash in the door. But bonds still play a huge role. Sure enough, Netflix can always get cash in the door by issuing bonds. But it the interest rate (also called coupon rate) of the bonds play a role for the ongoing interest expense. This cash then is used to create content.

Content delivery partners: Need to also be considered as primary partners given the outsized importance and the strangely fickle nature of it. Ordinarily, one would think that these are infrastructure partners and thus of lower significance. Netflix consumed 15% of internet traffic in 2019 and close to 20% in the US. These are pretty staggering figures for just a single company. But they are and will be coming down with the emergence of many other streaming services. It shows however the importance of this infrastructure layer. You also note the difference to the Uber Business Model where we didnt include tech (or infrastructure partners) in the primary partners.

Internet Service Providers (ISPs):  are essential to the  delivery of the content  in “real-time” to the end customer (and simultaneously to millions worldwide in case of new launches) via  Netflix Open Connect standard . But there are tectonic shifts happening (in the US market) that may pose a  threat to Netflix  (note, the described Comcast and 21st Century Fox merger didn’t happen, rather Disney who are not an ISP bought major Fox assets. The described threats, however, are still simmering)

Regulators:  Policies of the  Federal Communications Commission (FCC) , esp on the topic of net neutrality can have a crucial influence on Netflix (and the entire industries) trajectory, including swaying M&A (dis)approvals / anti-trust dealings of the FTC (here is one  opinion piece – note the emphasis on opinion). We wouldn't refer to them as "partners" but they are an important stakeholder. This area is - and always was - a heavily-lobbied space.

Amazon Web Services (AWS): Almost all of Netflix IT is hosted on AWS (from a functionality perspective but not from a content perspective). They also use Amazon’s Content Delivery Networks (CDNs). We wouldnt include AWS as a primary partner but it's listed here for completeness sake.

Learn more about key partners in digital business models here .

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Secondary partners: There is a micro cosmos of wider "partners" (stretching the limits of this term) and influencers whose opinion on individual titles can play a role (though nowhere as much as many of them may think of their "esteemed" views). The whole space is literally a vanity fair in which Netflix has fared surprisingly well for a tech company led by an engineer (a lot of the success in this field is probably to be credited to Ted Sarantos and others).

Prizes and film festivals:  Strong promoters and influences in the industry can help get the word out, e.g. Film Academy (Oscars), Cannes Film Festival, etc. Netflix titles ran at the Academy Awards and won some prices anyway

Influencers:  Magazines, TV shows and others covering the film industry can give free promotion (or criticism)

Filmmaker “guilds” and individuals:   Directors, actors, writers and their guilds/unions are some of the most powerful players in the (US) film industry

Cinemas, Theatres:  E.g. the  ban on Netflix films at the Cannes  film festival was a consequence of French cinema owner’s protest against Netflix practice not to show their content on theatre screens (but Netflix has recently made an interesting move in  acquiring one of the title winners of Cannes )

Netflix Business Model on a Page (B-MAP)

The Business Model Canvas may be an acceptable tool to describe traditional offline business models. But it has major limitations when it comes to Digital Biz Models.

We have developed the Business Model on a Page (B-MAP) format to explain in crystal clarity the business models of digital companies, especially the core value creating aspects.

What’s more we have decided to make our B-MAPs super affordable at $3. Our contribution to get your innovation journey kick-started in just 30 minutes!

Check out the Netflix Business Model on a Page (B-MAP) + a 20-minute walk through video with explanations at an unbelievably affordable price - learn more …

Key Assets & Resources

The Netflix brand: while Netflix primarily promotes their new shows, they still build a brand through this type of promotion. They rank within the global top 100 brands

Content library – Netflix-owned content:  (created or acquired) can have a more extended life cycle in that they can re-run after being fully amortised (i.e. generate revenues at no costs – any firm’s dream). They can also be licensed out to other content distributors and generate revenues that way

Content library – licensed content: licensed content still plays a big role, esp those evergreen series that are already well-known. A number of other streaming content providers, however, have announced they will stop their licensing to Netflix. Larger studios have their own plans to build streaming libraries. Reducing their dependency on others is one of the reasons why Netflix is pouring so much money into acquisition and creation of content

The app / website:  the key resource to deliver the experience and content

Algorithms:  constant analysis of data based on algorithms and improvement of the business, app, features, etc

Recommendations:  falls under algorithms but is such an integral part of Netflix’s success that I call it out separately

Data:  Captured data, such as behavioural data, preferences used e.g. for micro-segmentation into 2,000 taste communities and used for future investment decisions into content among other

Technology staff:  technology is what made Netflix a streaming provider (they started as a DVD-mailing company) and you can see they are valuing their tech staff by their stock compensation schemes that go into this

Actors, writers, filmmakers:  Netflix often uses indie and newcomers across these activities and gives them more creative freedom. With many other streaming providers ramping up their content creation it will be interesting to observe the supply/demand shift in this area

Prices:  winning revered film prices is one of the best ways to promote their movies and platform, esp because this is exclusive content that people can only watch when they have access

Studios:  Netflix has started acquiring their own studios and hiring staff in support of content creation

Learn more about key assets & resources in digital business models here .

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Netflix’ key value propositions are based on providing engaging digital content (movies & TV shows) in convenient ways (TV, laptop, tablet, mobile phone) that can be consumed on-demand and that is not interrupted by ads. More recently Netflix introduced a cheaper layer for those who accept ads - but a majority of users are on the ad-free plans.

Content library: a huge content library ("Unlimited Movies, TV shows")

Exclusive content: the most important category of content is exclusive content. All content platforms aim to have highly-desired exclusive content. It is also the category that they will make the most advertising for. (The countervailing risk is that some customers will come only for one show, binge-watch and unsubscribe until new seasons are available.)

Convenience and mobility: ability to watch anywhere   and on "any" device. One of the advantages that Netflix has over many other (esp emerging streaming) competitors is their "installed--base" on a wide range of devices, such as "Smart TVs, PlayStation, Xbox, Chromecast, Apple TV, Blu-ray players and more."

No ads:  no ad interruption just when it gets interesting

On-demand consumption:  Unlike TV, one does not have to wait for a week for the next episode. Users can watch anytime

Ability to binge watch:  They can also binge watch. All episodes of one season of a series become available at the same time. This is a great stimulus for customer advocacy and word-of-mouth

Simple pricing:  Using a flat fee (3 plans to choose from) with unlimited access, no tiers, no premium content at additional charges, no pay-on-demand, etc

High-quality connection:  the  Netflix ISP speed index  has become a benchmark for measuring connection speed. Netflix uses pre-positioning of content during non-peak hours, CDNs and other ways to get their content to geographically close to their consumers

Free trial:  Free month to trial – in this period everything can be accessed (no premium content, features, etc that are excluded)

Easy cancellation: "Cancel at any time."

Personalisation:  through a recommendation system that takes into account what each individual has watched and liked before (rather than a static “if you liked this, you may like that”)

Localisation:  Increasing amount of localisation through translation (subtitles) not taking into account the fact it needs to ensure the meaning is translated (not just the words). Creation of international content (not just pumping out US shows)

Learn more about the value propositions of digital business models here .

Exclusive content plays a great role in competitive advantage & diversification from competition esp in the fast-growing space of ever-new streaming providers and rights holders entering this space

Micro segmentation  into  2,000 taste clusters  determined by viewing history

Macro segments  used for ad targeting (non-users), e.g.:

Demographic: family, individual, etc

Age bracket, gender, etc

Geo-demographic: country, city vs rural, etc

Language spoken, proficiency

and many others

User segmentation based on  usage parameters :

Technology:

Device type TV, laptop, Tablet

Screen size

Connection type/speed

Viewing behaviours, e.g. home, on-the-go, weekend/weekday patterns, binge watcher, etc

First show/movie watched after subscribing

Browsing behaviours: repeat watcher vs explorative

Learn more about the customer segments of digital business models here .

What’s new in Netflix’ Biz Model - Q3 2023?

Netflix uses (like many other digital tech companies) thousands of channels directly and indirectly with more or less control for customer acquisition, retention and value delivery:

Their value delivery channels include many types of  smart consumer electronics:

Those with a screen, connection and computing capabilities: Smart TVs, smartphones, laptops, tablets and more

And those with connection and computing capabilities, such as game consoles, set top boxes and more

Customer acquisition channels include:

Social media  for customer relations / promotion of upcoming shows/movies

Media outlets  to spread the word (magazines

Film festivals  for promotion

Learn more about the channels of digital business models here .

Netflix Business Model Canvas

Creation of original (exclusive) content: is one of the most important activities. As more and more streaming services emerge, one of the most important factors of competitive advantage is the exclusive content on each service

Sourcing of 3rd party content: While the share of 3rd party content has reduced over time, it still plays a role

Development of new offerings: developing new offerings, pricing tiers and revenue sources is very important as has been witnessed by the nose-dive ans somewhat-recovery of the share price in 2022/2023

Marketing: marketing will always play a huge role and is conducted via different channels & methods

Learn more about key activities in digital business models here .

Boost your knowledge

Netflix has an on-demand, self-serving relationship with their customers. No longer do people have to wait for linear programming to play the shows/movies that TV/cable channels do just to get interrupted by annoying ads every few minutes. Customers are empowered to watch anything, anytime without interruption. Add to this the ability to binge-watch entire seasons of TV shows. The times of cliffhangers followed by a week’s wait are gone. What’s more, the recommendation system suggests content that the user is likely to enjoy and may not have been aware of. All this leads to highly empowering customer relationships.

Ability to watch anything on demand and all episodes available at once gives a sense of  self-control 

The exclusion of ads reduces frustration and enhances loyalty

The  recommendation system : provides personaisation

The whole theme, voice and style: entertaining, relaxed, light-touch, friendly

Self-service through App:  basically all interactions are managed through the app and website, including help system

User support:  via live chat, call or call through the app

Social media:  Facebook and other for trailers and interactions

Learn more about the customer relationships of digital business models here .

The far majority of their revenues come from subscription fees at this stage. There are opportunities for other types of future revenues (incl tiers, premium content, licensing out their owned content, etc).

Netflix Revenue Sources:

Subscription fees:

International streaming (Europe/EMEA: 32% in 2022, LATAM: ~12% in 2022; APAC: ~11% in 2022)

US streaming (43% in 2022)

US DVD (insignificant)

3 different plans

Licensing revenues for Netflix-owned content

Learn more about revenue generation in digital business models here .

The remarkable thing about Netflix's cost structure is how large their cost of revenue is in relation to all other costs. It consumes 58% of their revenues (!) and is about 3-times as high as all other cost combined in 2022.

Netflix Cost Structure:

Costs of revenue:

Content amortisation (biggest cost in the business)

Payment processing fees

Customer service

Streaming delivery costs (e.g. open connect costs, payroll)

Operations costs (incl cloud computing)

Technology and development

General & admin

Learn more about the cost structures of digital business models here.

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Microsoft Office is a subscription service that provides access to their cloud-hosted productivity applications and is based on a Software-as-a-Service Business Model.

Learn about the latest in Adobe’s business model and all their AI-innovations…

The SWOT analysis is considered a strategic tool that can help with decision making and setting a direction or a course of action.

The Value Chain is the best method to show the core value creations steps from inputs to value proposition within the business model of a company and is also one of the most important strategy concepts

Understand the Business Model Canvas with types and examples tailored to digital businesses

Understand the Revenue generation section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Cost Structure section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Customer Segments section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Customer Relationships section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Channels section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Value Proposition section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Key Activities section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Key Assets & Resources section in the Business Model Canvas with many examples relevant for digital businesses

Understand the Key Partners section in the Business Model Canvas with many examples relevant for digital businesses

Amazon Biz Model Canvas

Biz models compared: booking.com, expedia, tripadvisor.

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Breaking Down the Netflix Business Model

Netflix is a major player in streaming services. What sets it apart, and how does its business model work? By understanding Netflix’s approach, we can see how it achieved success. Its subscription-based model and investment in original content are key factors in its business strategy.

Unveiling the Netflix Empire

Comprehensive history of netflix.

Netflix started as a DVD rental service and became a top streaming provider. They hit key points like launching subscription plans, creating original content, and making over $33.7 billion. Now, they focus on streaming and might add ads. With 260 million subscribers, they partner with media companies, offer great customer experiences, adjust prices, enter new markets, make local content, and use technology.

These moves helped Netflix grow and succeed, placing it as a big player in entertainment.

Examining the Netflix Business Model

The core framework: business model canvas.

The Business Model Canvas framework analyzes Netflix’s business model. It breaks down customer segments, value propositions, channels, and revenue streams. This visual tool helps understand the company’s strategic planning and how its components interconnect, enabling a comprehensive assessment of the business model.

Netflix targets different market segments based on age, region, and viewing preferences, tailoring content and user experience to each group. This approach has captured a broad audience, contributing to its success in the streaming industry.

Additionally, its focus on original content production, international expansion, and personalization has solidified its market position.

Netflix uses subscription-based and streaming revenue models paired with value propositions that challenge traditional entertainment, giving it a competitive advantage. Strategic operation channels, like partnerships with content creators and data analytics to understand user behavior, have been critical in sustaining its business success and leading the way in the streaming industry.

Primary Market and Customer Segmentation

Netflix’s primary customers are people who want affordable access to a wide range of movies and TV shows. The company divides its customers into groups based on age, how they consume media, and what they like to watch. These groups are then split into smaller groups, catering to people who want specific types of movies, languages, or original content. To reach these customers, Netflix uses data to customize its offerings, like recommending shows, special deals, and different prices.

This helps keep customers interested and staying with Netflix. The company also spends money on making its apps easy to use and advertising globally to reach more people and show local content. This helps users in different places get good value. These plans show how Netflix works to stay ahead in a growing streaming industry.

The Revenue Mechanism: Subscription and Streaming

Netflix makes money through its subscription and streaming services. They offer different plans to meet various user needs. This has helped them attract a large and diverse customer base. In 2023, they made over $33.7 billion in revenue and had more than 260 million global subscribers.

Their subscription and streaming revenue is a big part of Netflix’s success. It helps them stay competitive in the streaming market and adjust to changes. They’ve also focused on creating original content to compete with other big players. Plus, they’re considering adding ads to reach even more users worldwide.

Netflix is dedicated to growing and being successful in the long run, and these plans show that dedication.

Disruptive Value Propositions

Disruptive value propositions can challenge existing business models. They create a competitive advantage by offering unique, innovative, and more efficient solutions that meet customer needs. Traditional models cannot do this.

For example, companies that revolutionize entirely their industries have successfully used disruptive value propositions. They achieved this by adopting new technology, changing pricing strategies, or creating unique customer experiences.

Businesses can capitalize on opportunities by identifying market gaps, trends, and customer pain points. This helps them to create value propositions that resonate with customers and address their evolving needs.

This can be achieved by understanding customer behaviors, preferences, and expectations. Leveraging technology or strategic partnerships can also deliver new solutions that offer distinct benefits and drive market disruption .

Management of Customer Relations

Netflix wants to make sure its customers are happy. It uses data and analytics to learn about what viewers like and don’t like so that it can give personalized recommendations. Netflix also talks with its audience on social media to get feedback and have conversations.

To keep its customers happy, Netflix focuses on giving them a good experience. It offers accessible services, flexible subscription plans, and an extensive content library. Plus, it makes its original content to stand out and give value to its customers.

When customers have an issue, Netflix works to fix it fast. It makes it easy for customers to get help and listen to what they say. This helps Netflix improve and make sure customers have a good experience.

These strategies show that Netflix cares about its customers. This helps Netflix stay successful and be a leader in the entertainment industry.

Strategic Operation Channels

Netflix manages its operation channels strategically. It focuses on its subscription-based model and adapts to market trends. The key components of Netflix’s strategic operation channels are:

• Partnerships with media businesses
• Valuable customer experiences
• New market expansions
• Local original content
• Technology integration

By leveraging these channels, Netflix has expanded its market reach and maintains a robust global entertainment market position. For instance, in 2023, the company generated over $33.7 billion through a streaming platform, with over 260 million paying members worldwide.

Additionally, Netflix’s shift towards producing original content and potential transition to an ad-supported model demonstrates its pursuit of long-term growth amidst competition, further solidifying its position in the industry.

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Netflix - Explaining the Business Model and Revenue Streams

Uncover the inner workings of Netflix's business model and revenue streams in this in-depth article.

Netflix is one of the leading players in the streaming industry. With its vast content library and global subscriber base, the company has revolutionized the way we consume entertainment. In this article, we will delve into the intricacies of Netflix's business model and explore the various revenue streams that contribute to its success.

Understanding the Netflix Business Model

At the core of Netflix's business model is its subscription-based model , content production and acquisition , and data-driven personalization .

Netflix, the world's leading streaming service, has revolutionized the way people consume entertainment. With its vast library of movies, TV shows, and documentaries, Netflix offers a convenient and affordable way for subscribers to enjoy their favorite content anytime, anywhere.

The Subscription-Based Model

Netflix operates on a monthly subscription basis , offering unlimited access to a wide range of online streaming content for a fixed fee. This model allows subscribers to enjoy their favorite movies, TV shows, and documentaries without the hassle of commercials or strict airing schedules.

With a subscription, users can create individual profiles for each member of their household, ensuring a personalized viewing experience for everyone. This flexibility has made Netflix a popular choice for families and individuals alike.

By offering various subscription plans tailored to different needs and budgets, Netflix attracts a diverse customer base. From the basic plan that allows streaming on one device at a time to the premium plan that offers Ultra HD streaming on up to four devices simultaneously, there is an option for every type of viewer.

Furthermore, the company's user-friendly interface and personalized recommendations enhance the user experience, making it even more attractive for subscribers. Netflix's intuitive design allows for easy navigation and seamless content discovery, ensuring that users can find something they love with just a few clicks.

Subscription-Based Revenue

Netflix operates on a subscription-based model, where users pay a monthly fee for access to the platform's content. This steady stream of revenue allows Netflix to invest in original content and expand its library, keeping subscribers engaged and attracting new customers.

Key points:

• Monthly subscription fee
• Steady revenue stream
• Investment in original content

Content Licensing and Production

Netflix acquires content through licensing deals with production companies and also invests heavily in original programming. This dual approach allows the platform to offer a wide range of content while also differentiating itself from competitors.

• Licensing deals with production companies
• Heavy investment in original programming
• Differentiation from competitors

Content Production and Acquisition

Netflix invests heavily in content production and acquisition. By producing original series, movies, and documentaries, the company aims to create a unique and exclusive content library that sets it apart from its competitors. This strategy not only attracts new subscribers but also helps retain existing ones.

With an emphasis on quality storytelling and diverse representation, Netflix has become a major player in the entertainment industry. Its original content, such as the critically acclaimed series "Stranger Things" and the Oscar-winning film "Roma," has garnered widespread acclaim and a dedicated fan base.

In addition to producing original content, Netflix also acquires licensing rights for popular shows and movies from external production companies and studios. This ensures that its content library is constantly refreshed with a diverse range of high-quality content. From beloved classics to the latest blockbusters, Netflix offers a vast selection that caters to every taste.

Furthermore, Netflix's commitment to international content has made it a global powerhouse. By acquiring and producing shows and movies from around the world, Netflix has expanded its reach and gained a loyal international audience.

Data-Driven Personalization

Netflix leverages the power of data to provide personalized recommendations to its subscribers. Through sophisticated algorithms, the platform analyzes user behavior, viewing history, and preferences to curate a tailored selection of content for each individual.

By understanding what users watch, when they watch, and how they watch, Netflix is able to offer highly accurate recommendations that cater to individual tastes. Whether it's suggesting similar titles based on previous viewing habits or introducing users to new genres they might enjoy, Netflix's recommendation engine plays a crucial role in enhancing the overall viewing experience.

This data-driven approach not only enhances the user experience but also helps Netflix understand and anticipate customer preferences. By consistently improving its recommendation engine, Netflix maximizes customer satisfaction and engagement, which in turn drives subscriber retention.

Moreover, Netflix's data-driven insights also inform its content production and acquisition decisions. By analyzing viewer trends and preferences, the company can identify gaps in the market and develop content that resonates with its audience. This targeted approach to content creation ensures that Netflix continues to deliver compelling and relevant programming.

In conclusion, Netflix's success can be attributed to its subscription-based model, content production and acquisition, and data-driven personalization. By offering a wide range of content, tailored recommendations, and a seamless user experience, Netflix has become a dominant force in the entertainment industry, shaping the way we consume and enjoy media.

Revenue Streams of Netflix

Netflix, the leading streaming platform, has established multiple revenue streams that contribute to its financial success. While monthly subscription fees and content licensing are the primary sources of revenue, Netflix has also formed strategic partnerships with telecom and cable providers to expand its reach and accessibility.

Monthly Subscription Fees

One of the key revenue streams for Netflix is its monthly subscription fees. The platform offers a range of subscription plans to cater to different needs and preferences. Subscribers can choose from basic, standard, and premium plans, each offering various features such as streaming quality and simultaneous device usage.

These subscription fees play a significant role in Netflix's revenue generation. With millions of subscribers worldwide opting for the convenience and extensive content library offered by the platform, the subscription fees contribute substantially to Netflix's financial success.

Content Licensing

In addition to producing original content, Netflix also focuses on licensing popular shows and movies from external production companies and studios. By acquiring the rights to stream these licensed content, Netflix expands its library and attracts a wider audience.

Content licensing agreements require Netflix to pay royalties or licensing fees to the content owners. The amount of these fees varies depending on the popularity and exclusivity of the content. However, the revenue generated from licensing helps diversify Netflix's content offerings, making it more appealing to subscribers.

Partnership with Telecom and Cable Providers

Recognizing the importance of expanding its reach, Netflix has strategically partnered with telecom and cable providers. These partnerships allow Netflix to tap into a larger customer base and offer its services as part of bundled packages.

By teaming up with these providers, Netflix not only gains access to new markets but also attracts customers who may not have previously considered subscribing to the platform. This additional revenue stream strengthens Netflix's position in the industry and drives further growth.

Furthermore, these partnerships often involve revenue-sharing agreements , where Netflix receives a portion of the subscription fees from the bundled packages. This mutually beneficial arrangement allows both Netflix and the telecom/cable providers to leverage each other's strengths and expand their customer base.

In conclusion, Netflix's revenue streams are diverse and strategically designed to maximize its financial success. The combination of monthly subscription fees, content licensing, and partnerships with telecom and cable providers has enabled Netflix to become a dominant player in the streaming industry.

The Role of Original Content in Revenue Generation

Investing in original content has been a pivotal strategy for Netflix. By producing its own series, movies, and documentaries, the company not only differentiates itself from competitors but also creates additional revenue streams.

Netflix's commitment to original content goes beyond mere differentiation. The company understands that investing in high-quality, unique content is essential to attracting and retaining subscribers in today's highly competitive streaming landscape.

Investment in Original Content

Netflix allocates a significant portion of its budget to produce high-quality original content. This investment allows the company to attract top talent, produce critically acclaimed shows and movies, and build a loyal fan base.

With its substantial financial commitment, Netflix can afford to take risks and experiment with different genres and formats. This freedom allows the company to push creative boundaries and deliver innovative storytelling that captivates audiences around the world.

By owning the rights to its original content, Netflix can leverage revenue from licensing agreements with other platforms and broadcasters. This further monetizes its content library and increases overall profitability. The success of shows like "Stranger Things" and "The Crown" has led to lucrative licensing deals, allowing Netflix to expand its reach and generate additional income.

Impact on Subscriber Growth and Retention

Original content plays a crucial role in attracting new subscribers and retaining existing ones. Netflix's commitment to creating compelling and diverse original content has garnered a devoted following who eagerly anticipate each new release.

Exclusive shows such as "Stranger Things" and "The Crown" have become cultural phenomena, drawing in millions of viewers worldwide. These shows not only captivate audiences but also generate buzz and excitement, leading to increased word-of-mouth recommendations and social media discussions.

The popularity of Netflix's original content not only drives subscriber growth but also increases subscriber retention. Viewers are more likely to continue their subscriptions to stay updated on their favorite Netflix originals. The company's ability to consistently deliver high-quality content keeps subscribers engaged and satisfied, reducing churn rates.

Moreover, original content allows Netflix to personalize its offerings and cater to different audience segments. By producing a wide range of genres and formats, the company ensures that there is something for everyone, further enhancing subscriber satisfaction and loyalty.

In conclusion, investing in original content has proven to be a winning strategy for Netflix. It not only sets the company apart from its competitors but also creates multiple revenue streams and drives subscriber growth and retention. By continuing to prioritize original content, Netflix remains at the forefront of the streaming industry, captivating audiences worldwide.

Challenges and Risks in Netflix's Business Model

While Netflix's business model has been highly successful, it is not without its challenges and risks. These include the high cost of content production and acquisition, dependence on network neutrality, and competition in the streaming market.

High Cost of Content Production and Acquisition

Producing and acquiring high-quality content comes at a significant cost. Netflix's continued investment in original content and licensing agreements requires substantial financial resources. As the platform expands globally and increases its content library, the expenses associated with content creation and licensing may continue to rise.

Managing these costs while maintaining a competitive subscription price poses a challenge for Netflix. However, the company's strong revenue streams and commitment to creating compelling content help offset these expenses.

Dependence on Network Neutrality

Netflix's success relies heavily on network neutrality, which ensures that internet service providers treat all online traffic equally. The ability to stream content smoothly and without interruptions is crucial for Netflix's user experience.

However, changes in net neutrality regulations or the introduction of data caps by internet service providers could pose a risk to Netflix's streaming quality and user satisfaction. The company must monitor and adapt to any potential shifts in net neutrality policies to mitigate this risk effectively.

Competition in the Streaming Market

The streaming industry is highly competitive, with numerous players vying for subscribers' attention. Netflix faces competition from both established companies and new entrants in the market.

Rival streaming services such as Amazon Prime Video, Hulu, and Disney+ offer compelling content libraries and original productions that attract subscribers. Additionally, cable and satellite providers are launching their own streaming platforms, further intensifying the competition.

To stay ahead of the competition, Netflix must continue to produce high-quality original content, invest in technology to enhance user experience, and maintain a strong presence in both domestic and international markets.

In conclusion, Netflix's business model revolves around its subscription-based model, content production and acquisition, and data-driven personalization. The company generates revenue through monthly subscription fees, content licensing, and partnerships with telecom and cable providers. Investment in original content plays a crucial role in revenue generation, attracting and retaining subscribers. Despite facing challenges such as the high cost of content and competition in the streaming market, Netflix's solid business model and innovative strategies have propelled it to become a global leader in the entertainment industry .

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Netflix: Business Model, SWOT Analysis, and Competitors 2023

Inside This Article

Netflix has become a household name in the streaming industry. Since its inception in 1997, it has revolutionized the way we consume media. In this blog post, we will delve into Netflix's business model, conduct a SWOT analysis, and explore its competitors in the year 2023. As the streaming industry continues to evolve, it's important to understand the strengths, weaknesses, opportunities, and threats facing the company, as well as the competition it faces in the market.

What you will learn:

• Who owns Netflix and the history of the company's ownership
• The mission statement of Netflix and how it guides the company's decisions
• How Netflix makes money through its subscription-based business model and other revenue streams
• A breakdown of Netflix's business model canvas, including its key partners, activities, and resources
• The major competitors of Netflix in the streaming industry and how they compare
• An analysis of Netflix's strengths, weaknesses, opportunities, and threats through a SWOT analysis.

Who owns Netflix?

Netflix is a publicly traded company, which means that it is owned by its shareholders. As of 2021, the top shareholders of Netflix are institutional investors, including Vanguard Group, BlackRock, and State Street Corporation.

The company was founded in 1997 by Reed Hastings and Marc Randolph, who owned a majority of the shares in the early years of the company. However, as Netflix grew and went public in 2002, ownership became more dispersed among shareholders.

Today, Hastings remains a major shareholder and serves as the co-CEO of the company. Other executives and board members, as well as employees, also hold shares in the company.

Despite the dispersed ownership structure, Netflix is known for its strong corporate culture and commitment to long-term growth. The company has been able to attract and retain top talent, and its stock price has consistently outperformed the broader market in recent years.

In summary, while Netflix is technically owned by its shareholders, the company's success is due in large part to the vision and leadership of its founders and executives. As the streaming industry continues to evolve, it will be interesting to see how Netflix adapts and continues to grow in the years to come.

What is the mission statement of Netflix?

Netflix is a popular streaming platform that has taken the world by storm. The company's mission statement is "To entertain the world." This simple statement speaks volumes about the company's approach to content creation and distribution. Netflix believes that entertainment is a fundamental part of human life and that it has the power to bring people together.

The company's mission statement is reflected in its content strategy. Netflix produces a wide range of original content, including movies, TV shows, and documentaries, that are designed to appeal to audiences from all walks of life. Whether you're a fan of action movies, romantic comedies, or science fiction, there's something for everyone on Netflix.

But Netflix's mission statement goes beyond just providing entertainment. The company is committed to creating a culture of inclusion and diversity. This is reflected in the shows and movies that it produces, which feature characters from a variety of backgrounds and experiences. Netflix also supports a number of initiatives aimed at promoting diversity in the entertainment industry.

Finally, Netflix's mission statement is focused on innovation. The company is constantly experimenting with new content formats and distribution methods in order to stay ahead of the curve. From interactive movies to choose-your-own-adventure shows, Netflix is always pushing the boundaries of what's possible in the world of entertainment.

In conclusion, Netflix's mission statement is simple but powerful. The company is dedicated to entertaining the world while promoting diversity and innovation. And judging by the millions of subscribers who tune in to watch their content every day, it's clear that they're doing something right.

How does Netflix make money?

Netflix is one of the most successful streaming services in the world, boasting over 208 million subscribers as of 2021. But how does the company make money?

Firstly, Netflix generates revenue through subscription fees. Users pay a monthly fee to access Netflix's vast library of TV shows, movies, and documentaries. This subscription model is the primary source of income for Netflix, with different subscription plans catering to different needs and budgets.

Secondly, Netflix makes money through licensing deals. The company licenses content from studios and networks to add to its library. This allows Netflix to offer a wide range of content to its subscribers without having to produce it themselves. However, licensing deals can be expensive, and Netflix has been investing more in producing its own content in recent years to reduce its reliance on licensed content.

Thirdly, Netflix makes money through merchandise sales. The company has created merchandise for some of its most popular shows, including Stranger Things, The Crown, and Narcos. This merchandise includes t-shirts, mugs, and other items, which fans can purchase on the Netflix website. This generates additional revenue for the company and helps to promote its shows.

Finally, Netflix also makes money through partnerships and collaborations. For example, the company has partnered with telecom operators to offer its services to their subscribers. Netflix has also collaborated with brands such as Coca-Cola, Nike, and Uber to promote its shows and increase its reach. These partnerships not only generate revenue for Netflix but also help to increase brand recognition and awareness.

In conclusion, Netflix's revenue streams include subscription fees, licensing deals, merchandise sales, and partnerships and collaborations. These diverse revenue streams have helped the company become one of the most successful streaming services in the world.

Netflix Business Model Canvas Explained

Netflix is a leading streaming platform that offers a wide range of movies, TV shows, and documentaries to its subscribers. The company's business model is based on a subscription-based model, which allows users to access its content library for a monthly fee. In this section, we will explore the different elements of the Netflix Business Model Canvas.

Key Partnerships

Netflix's key partnerships are with entertainment studios and production companies. The company has partnerships with major players in the entertainment industry such as Disney, Warner Bros, and Universal Pictures. These partnerships allow Netflix to acquire a wide range of content for its subscribers and maintain its position as a leading streaming platform.

Key Activities

Netflix's key activities include content acquisition, content production, and content distribution. The company invests heavily in content acquisition to ensure that it has a diverse and extensive content library for its subscribers. Additionally, Netflix invests in content production to create original content that is exclusive to the platform. Finally, the company focuses on content distribution to ensure that its content is accessible to subscribers worldwide.

Key Resources

Netflix's key resources include its content library, technology infrastructure, and human resources. The company's content library is its most valuable resource, and it invests heavily in acquiring and producing content to maintain its competitive position. Additionally, Netflix has a sophisticated technology infrastructure that enables it to deliver content seamlessly to its subscribers. Finally, the company's human resources are critical to its success, and it employs a talented team of professionals who are responsible for content acquisition, production, and distribution.

Value Proposition

Netflix's value proposition is its extensive content library, which offers subscribers a wide range of content to choose from. Additionally, the company's recommendation algorithm ensures that users are presented with content that is tailored to their preferences, enhancing the user experience. Finally, Netflix's subscription-based model offers users an affordable and flexible way to access its content library.

Customer Segments

Netflix's customer segments include individuals, families, and businesses. The company targets individuals who are interested in streaming movies and TV shows, families who want to access a wide range of content for their children, and businesses that use the platform for training and development purposes.

Revenue Streams

Netflix's revenue streams are primarily from subscription fees. The company offers a range of subscription plans that cater to different user needs, including basic, standard, and premium plans. Additionally, the company generates revenue from licensing its original content to other platforms and merchandise sales.

The Netflix Business Model Canvas highlights the key elements of the company's business model, including its key partnerships, activities, resources, value proposition, customer segments, and revenue streams. By focusing on these elements, Netflix has been able to build a successful streaming platform that has disrupted the entertainment industry and changed the way people consume content.

Which companies are the competitors of Netflix?

Netflix is a household name when it comes to entertainment, but it's not the only player in the game. Several other companies are vying for a piece of the streaming market share. Here are some of Netflix's main competitors:

Amazon Prime Video: Amazon's streaming service offers a vast collection of movies and TV shows, including popular original content like "The Marvelous Mrs. Maisel" and "The Boys." Like Netflix, Amazon Prime Video is available on multiple devices and offers offline viewing.

Hulu: Hulu is a joint venture between Disney, Fox, and NBCUniversal. It offers a mix of current and classic TV shows, as well as a growing collection of original content like "The Handmaid's Tale" and "Little Fires Everywhere." Hulu also offers a live TV option, which sets it apart from its competitors.

Disney+: Launched in late 2019, Disney+ has quickly become a major player in the streaming market. With its extensive catalog of classic Disney movies and TV shows, as well as new original content like "The Mandalorian" and "WandaVision," Disney+ is a must-have for families and Disney fans.

HBO Max: HBO Max is the streaming service from WarnerMedia, and it offers a mix of HBO content, including popular shows like "Game of Thrones" and "The Sopranos," as well as new original content like "The Flight Attendant" and "Mare of Easttown."

Apple TV+: Apple's streaming service launched in 2019 with a small but growing collection of original content, including "Ted Lasso" and "The Morning Show." Like its competitors, Apple TV+ is available on multiple devices and offers offline viewing.

While Netflix is still the king of streaming, these competitors are quickly catching up. As the market continues to evolve, it will be interesting to see how these companies continue to compete and differentiate themselves from one another.

Netflix SWOT Analysis

When it comes to analyzing the strengths, weaknesses, opportunities, and threats of Netflix, it is essential to consider the current landscape of the streaming industry. Here's a closer look at Netflix's SWOT analysis:

Original Content - Netflix has invested heavily in creating original content, which has helped them stand out from the competition.

Large User Base - With over 200 million subscribers worldwide, Netflix has a massive user base that gives it a significant advantage over other streaming services.

Convenience - With a vast library of content available to stream anytime, anywhere, Netflix has made it incredibly convenient for users to watch their favorite shows and movies.

Data-Driven Approach - Netflix uses data to understand their audience better, which allows them to create more targeted content and improve the user experience.

Weaknesses:

Dependence on Licensed Content - While Netflix has invested heavily in original content, it still relies heavily on licensed content from other studios, which can be expensive and may not always be available.

Price Increases - Netflix has raised its prices multiple times, which can lead to user churn if the value doesn't match the cost.

Limited International Reach - While Netflix is available in many countries, it still has limited reach in some regions, which can impact growth potential.

Opportunities:

International Expansion - Netflix can continue to expand its reach into new markets, which can help drive growth and increase revenue.

Partnerships - Netflix can partner with other companies to expand its content offerings and reach new audiences.

Vertical Integration - Netflix could explore vertical integration strategies, such as acquiring production studios or partnering with content distributors, to control costs and increase control over the content it offers.

Competition - Netflix faces intense competition from other streaming services, such as Amazon Prime Video, Disney+, and Hulu.

Piracy - The rise of illegal streaming and piracy can impact Netflix's revenue and user base.

Content Costs - As content costs continue to rise, it may become more challenging for Netflix to continue investing in new original content and licensed content.

Key Takeaways

• Netflix is owned by a mix of individual and institutional investors, with co-founder Reed Hastings owning the largest share.
• The mission statement of Netflix is to "give people the power to entertain themselves, anytime, anywhere."
• Netflix primarily makes money through subscription-based revenue from its streaming service, as well as DVD and Blu-ray rentals and sales.
• Netflix's business model canvas focuses on key activities such as content creation and acquisition, technology development, and customer acquisition and retention.
• Netflix's main competitors include Amazon Prime Video, Hulu, and traditional cable and satellite TV providers. A SWOT analysis of Netflix highlights its strengths in content creation and customer loyalty, but also identifies potential threats from new entrants in the streaming market and rising content costs.

In conclusion, Netflix is a streaming giant that has revolutionized the entertainment industry. The company was founded by Reed Hastings and Marc Randolph in 1997 and is currently owned by its shareholders. Netflix's mission statement is to provide an affordable and convenient way for people to access the world's best entertainment. The company generates revenue through subscription fees and has expanded its content offerings to include original programming. The Netflix Business Model Canvas illustrates how the company operates by creating value for customers and stakeholders. Netflix's competitors include other streaming services like Hulu, Amazon Prime Video, and Disney+. Finally, a SWOT analysis of Netflix highlights its strengths, weaknesses, opportunities, and threats in the current market. Overall, Netflix's success can be attributed to its innovative approach to content delivery and its ability to adapt to changing consumer demands.

What is Netflix SWOT analysis weakness?

High Dependence on Content Licensing: Netflix relies heavily on content licensing agreements with major media companies. This makes them vulnerable to potential changes in licensing costs and terms.

Threat from New Competitors: Netflix faces threats from new competitors such as Amazon Prime Video, HBO Now, YouTube Red, and Hulu. These companies have larger budgets and huge libraries of content, making it difficult for Netflix to compete.

Difficulty in Monetizing Original Content: It is difficult for Netflix to monetize its original content, as the company does not have its own streaming platform or advertising capabilities.

Limited International Presence: Netflix has a limited international presence since it is only available in a handful of countries. This limits its potential customer base and restricts its growth.

What are some of Netflix strengths and weaknesses?

• Wide selection of content and genres
• High-quality streaming technology
• User-friendly platform
• Strong branding and marketing
• Easy to access and use
• Competitive pricing
• Extensive library of titles
• Lack of live sports and news programming
• Lack of original content compared to competitors
• Limited library of titles in some regions
• Slow release of current content
• Limited international content library
• Limited advertising capabilities
• Difficulty customizing user profiles

What are the opportunities and threats of Netflix?

Expansion into new markets: Netflix has the potential to expand into new markets and increase its customer base.

Development of exclusive content: Netflix has the potential to develop exclusive content that customers can’t find anywhere else. This would help to increase customer loyalty.

Increase in subscriber base: Netflix has the potential to increase its subscriber base by offering more subscription options.

Increase in revenue: Netflix has the potential to increase its revenue by offering additional services such as advertising and subscription upgrades.

Increased competition: Netflix faces increased competition from other streaming services such as Hulu and Amazon Prime.

Piracy: Piracy is a major threat to Netflix as illegal downloads of content can reduce its viewership and revenue.

Price wars: Netflix may be forced to reduce its subscription prices in order to compete with other streaming services.

Technology changes: Technology changes such as the development of virtual reality could cause Netflix’s business model to become obsolete.

What are some of Netflix weaknesses?

Limited Content in Certain Countries: Netflix’s content selection varies from country to country due to regional licensing deals, meaning that certain countries may not have access to the same content as others.

Lack of Advertising: Netflix does not have any commercials or ads, which means that it does not have a dedicated advertising budget to promote its content.

High Competition: Netflix faces stiff competition from other streaming services such as Hulu, Amazon Prime Video, and Disney+, which are all competing for the same content and viewers.

Expensive Fees: Netflix has high subscription fees compared to other streaming services, which can be a barrier for some people.

Increased Piracy: As Netflix’s popularity grows, so does the potential for piracy, as users may be more likely to access content illegally if they don’t have a subscription to the service.

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Business Model of Netflix – How Does Netflix Make Money?

June 9, 2023 | By Hitesh Bhasin | Filed Under: Business

The business model of Netflix is a subscription-based  model that makes money via basic, standard, and premium subscription plans while offering access to stream series, shows, and movies on the Netflix streaming platform. Its business model is quite innovative. A renowned OTT(Over The Top) content provider,  Netflix provides media through internet streaming.

Netflix is an American over-the-top content platform and production company . Reed Hastings and Marc Randolph founded Netflix in 1997 in Scotts Valley and it is now headquartered in Los Gatos, California. Netflix incorporates a subscription-based streaming service offering online streaming from a library of films and television series alongside those that Netflix produces itself.

Table of Contents

What is the Business Model of Netflix

As a streaming content provider that is specialized in entertainment has 209 million subscribers as of July 2021 of which 72 million users are from the United States and Canada. Netflix has its offices in Canada, India, Brazil, France, Netherlands, South Korea, Japan , and United Kingdom. It is also a member of the Motion Picture Association (MPA) that produces and distributes content from countries all over the globe.

To think of the company, it was founded in the year 1997 by Marc Rudolph and Reed Hastings. It was then known for providing the services which would be used by the people to rent some movies that they wanted to see on the DVD format. It would use the services of the Internet to make sure that happened without any trouble for sure. Netflix’s business model is profitable but it runs on negative cash flow because of the upfront cash paid for content licensing and original content production by Netflix.

The subscribers would be able to use the internet services and the services of the company to rent their movies as well as some of the online shows as well. The subscription base which is incorporated by the company is something which is considered to be very huge and it can be something that can be really helpful when it comes to the Netflix business model generating some money as well.

What does Netflix Business Model work?

To define Netflix, it can be said that it is a basic content provider which is used online and can be used properly to stream online movies and TV shows along with some of the other documentaries these days. This online streaming site has its own application and it can be accessible from some of the other connected devices as well. So, we can also say that it can provide all the services that people need to have.

Netflix defines its business model as-

Our business model is subscription based as opposed to a model generating revenues at a specific title level. Therefore, content assets, both licensed and produced, are reviewed in aggregate at the operating segment level when an event or change in circumstances indicates a change in the expected usefulness.

As an American Media Services Provider and Production Company, Netflix’s business model revolves around its subscription-based streaming service that comprises online streaming of a library of films and TV programs that also include those films that are also produced in-house.

The users will have to make sure that they are paying their monthly subscriptions to use the services which are provided to the people in the best way. Different types of content are provided on the online streaming sites and to access all of them, the users and the clients of Netflix will have to make sure that they can pay the money.

Also, there are the video formats that are available on Netflix such as HD and Ultra HD, and to access these video formats, some additional charges have to be paid to ensure that people can get the best options for Netflix.

Understand the Netflix Business Model Canvas

In the late 1900s, renting DVDs was a common business but was an expensive one too in the United States due to the high demands of the public.

It was in 1997 when software engineers Marc Rudolf and Reed Hastings realized that the charges demanded by the various companies for the DVD rental business were way too expensive. In 1998, they launched Netflix with the motive to deliver DVD by mail.

When only 2% of the Americans owned DVD players, the idea of delivering DVDs by mail became a game-changer in the business.

Netflix business model got expanded in 2007 with the introduction of streaming for binge-watching while retaining the DVD and Blu-ray rental business. The company expanded across the globe in 2010 with streaming available in Canada then Latin America and the Caribbean. In the year 2013, they entered into the content-production industry by debuting its first series House of Cards.

In the year 2020, they make US$25 billion in revenues. Let us now have a look at their business model canvas here-

1. Key Partners of Netflix Business Model

For channelizing its business model, Netflix depends upon different partners such as-

• Content Owners
• Internet Service Providers
• Filmmaker Guides and Individuals
• Cinemas and Theaters
• Prizes and Film Festivals
• Influencers
• TV Network Companies
• Google and Amazon
• Alliances with Smart TV Companies
• Alliances with the Gaming Industry

Netflix is one of the leading names when it comes to the platforms which provide online streaming services to people these days. To be honest , the company has managed to serve more than 190 countries in total.

The business model totally depends on the Target audience of the company. The more members are present in the company, the better it will be for the people for sure.

2. Value Propositions of Netflix Business Model

Having a huge customer base of over 195 million all over the world, Netflix’s business model idolizes some of the following points:

• The 24/7 streaming ability on the OTT platform with zero ads gives a superior edge.
• Unlimited access to HD and ultra-HD Tv shows, movies, and many other types of entertainment never fails to bore the users. Having a large number of partners allows the company to never fall short of content of any type.
• The contents can be accessed in any part of the world with the Internet. Though the membership is contract-oriented, it can be canceled at any point in time.
• Netflix has a very virtuous way of advertisements. It recommends content based on the ones the users have recently watched, which in a way compels them to view more movies and shows and eventually extend their plans too.
• Sharing of accounts is one of the rarest features provided by Netflix. The users share their accounts with anyone and entertain themselves simultaneously.

3. Customer Segments & Business Segments

Generally, the customer segments of Netflix include users who enjoy watching movies, TV Shows, and documentaries. Netflix also targets avid video content lovers who enjoy convenient delivery on their Smartphones and TVs .

Customer segmentation is done in three ways here-

• Micro-Segmentation- 2000 taste clusters
• User Segmentation (usage parameters)- Technology, Viewing behaviors, & browsing behaviors
• Macro-Segments/Ad Targeting (non-users)- Geodemographic, and other macros

More, the company has three business segments, which make them money in different ways. They are as follows:

1. Domestic Streaming

Having been found in the United States, this streaming plan is solely provided to the members of the States itself, and the revenues are collected from the monthly membership fees.

In 2015, the numbers went on to increase from 44,738 to 54,750. This indicated an increase in the costs too. The contribution margin, i.e., the variable costs subtracted from the total revenue, sky-scraped to 37%. Such a contribution margin was noted to be the most profitable plan as a short-term plan.

2. International Streaming

The revenues from this streaming plan are collected from the monthly membership provided to the patrons residing outside the United States.

As of 2017, the revenues were confirmed over $5 billion because of the international extension plan in 2015. The contribution margin was noted to be a positive 4%, which was negative in 2016.

3. Domestic DVD

Well, it is often said that we should never forget about the times when we started. The same has been done by Netflix.

Starting with renting DVDs, the OTT platform has not forgotten about its roots and still collects monthly revenues from DVDs by e-mail. Being the company’s oldest form of revenue, the rental DVDs still provide a considerable margin.

What’s more intriguing is that the platform has separated the movies, TV shows, and documentaries for kids and adults to promote a family-friendly environment.

We will discuss this in our next section while understanding the revenue stream that helps Netflix make good money-

4. How does Netflix Make Money? – Netflix Revenue Streams

The main revenue line of Netflix is its subscribed users who opt for different subscription programs for enjoying the streaming of Netflix shows.

In the year 2007 Netflix decided to convert its business structure from mail-in-system to streaming content based on subscriptions. Let us now understand how it has helped Netflix in making money-

1. Subscription-based Model

Netflix has more than 209 million subscribers from over 190 countries that have been one of the prime factors behind their revenue generation.

The three subscription plans that Netflix offers are-

In this plan, Netflix content can be enjoyed in the standard definition

Standard Plan

This Netflix plan lets users enjoy streaming in high definition

Premium Plan

By opting for this subscription plan, users can enjoy the streaming of videos in ultra-high definition

The pricing of these plans varies with the countries.

2. Important partnerships

Netflix also builds alliances with a wide range of movie producers, writers, filmmakers, and animators for receiving content and legally broadcasting the content. It also has partnerships with Internet Service providers and all of this helps it in making money.

In addition, owners of Netflix make money via licensing Netflix-owned content, product placement, DVD rental, etc.

5. Netflix’s Key Activities

Different activities that Netflix performs include hiring and retaining software and tech geeks, plus it is also involved in maintaining and optimizing its platform on the web, mobile applications, TV apps, etc.

• Netflix is also associated with producing, licensing, and acquiring its original content for expanding the Netflix video library. Netflix further develops a pricing business strategy for the Netflix subscription model to ensure cost-effectiveness and channelize new customer acquisition .
• It is involved in making a roadmap to enter into the new market and optimize user recommendations for retaining the existing customer base. Business model Netflix is additionally responsible for building local communities and economies to support the development of Netflix’s local original content.
• Building and securing a partnership with studios and content production houses, plus negotiating profitable deals with Studios, Movie production houses, and content providers are some other key activities that are not only considered as the value proposition of the brand but also understood as key resources to optimize revenue streams.

Finally, Netflix activities are also associated with complying with the laws as per the State or Region, or country to maintain compliance to censorship. Its business model is also involved in supporting disadvantaged communities and other ideological issues concerning their customers and society at large.

6. Building Unique Networks & Channels

Netflix has its own unique way of building and establishing long-term networks. Knowing about the desires of their customers, the company knows how to build an effective relationship with their patrons.

They provide customer support via e-mails, text, websites, and even through calls. It invigorates its networks with social media platforms like Instagram , Facebook , and LinkedIn to amplify its customer base and keep the target audience updated about the latest releases and promotions.

Besides these, Netflix also invests in online and offline advertising . The eulogization from their own customers attracts a lot of new ones as well and largens the numbers of users.

All in all, you can access Netflix from one or more of the following-

• Online streaming through the website
• Streaming through Mobile apps
• Streaming on TV Apps and Gaming consoles
• Mail delivery for DVDs

7. Customer Relationships of Netflix

Different factors upon which the customer relationships of Netflix is based are-

• Self-Setup Made Easy
• Exceptional Customer Experience
• Online Live Chat Services
• Social media
• Netflix Gift Cards
• Recommendation system
• Ensure transparency
• Guide through joining step

8. Netflix’s Cost Structure

Different elements that are integral to the cost structure of the Netflix business model are-

• Cost of purchasing rights establishment (TV shows and movies)
• Subscription maintenance cost
• Cost of producing movies
• Paid-Connection deal with Internet Service Provider (ISP) such as Comcast to stream Netflix data at high speed
• Cost for providing personalized recommendations, R&D, and artificial intelligence
• Infrastructure (data centers) cost of streaming content
• Employee salary distribution ( customer service , Engineers, etc.)
• DVDs and mail-related shipping costs, etc

9. Trends Driving the Exponential Growth

As of 2021, the number of Netflix users was 209 million, which is a rapid increase from 2015 (70.84 million users).

Nowadays, the craze of Netflix has increased in youth so much so that the ones not having an account of the same regret and become jealous of their friends.

Now, what are the trends that allow this OTT platform to grow so much? Following are some of the points: –

1. Technology

A wide variety of content is available to watch seamlessly on different devices concomitantly.

You can have a lavish time at your home watching any movie, web series, etc., sitting comfortably at your home with some popcorn and soft drinks. With Netflix, there is no need to go out and spend in theatres and cineplexes.

3. On-Demand

The feature of watch anytime/anywhere and cancel anytime provides the rostrum an upper edge over their rivals.

4. Low-Cost Subscription

The filmy geeks won’t deny that the subscription fee of Netflix is not a high one and a simple structure of payment. The company also looks after the privacy and security of the users.

5. Data-Driven

Netflix is not only used for recommendation purposes but is also used pro-actively to create content that fits personal preferences.

6. Uberization of the Service Economy

Uberization means benefitting more options on how to overwhelm the minds of the patrons. In the past years, especially in India, TV serials have fixed the schedule of the public on watching the same shows at the same time every day.

With Netflix, the case was reversed, having given the users to watch anything with great flexibility and optionality. The growth of digital nomadism and the self-employed/freelancer has transformed our habits and the way we consume media dramatically instead of the opposite. For media companies in this situation, on-demand has become a dominating economic strategy .

So, these are some of the important details that people need to know about Netflix. We hope that the business model can help you out in understanding how it can make money.

Netflix business has become the most prominent player in the media and video streaming industry which is also inspiring many other players around the world.

The innovative strategies of Netflix proved that just establishing a business model doesn’t help in monetizing those strategies too. It is more about the companies that allured their target audience with their content.

In fact, the more a company adds value to its business models, the more it creates an ecosystem for the organization to grow. Companies like Netflix create a user-friendly as well as a cost-friendly ecosystem with their business models paying attention to the fast growth of technology. The evolution of tech put to use in the right way has helped Netflix evolve in recent years in the most effective way.

What are your thoughts about the Netflix business model? Do you find the subscription business model the prime reason behind its success? Share your thoughts with us in the comments.

Liked this post? Check out the complete series on Business Models

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About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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What Comcast's new Netflix, Peacock, Apple TV+ streaming bundle tells you about the industry's economics

Peter Kafka , Chief Correspondent covering media and technology

• Comcast is selling Netflix, Peacock, and Apple TV+ for $15 a month. It'd cost $23 to get them separately.
• Where does that $8-a-month discount come from?
• Good question. The possible answers tell you a lot about streaming economics these days.

If you subscribe to Netflix's cheapest plan, and also get Peacock's cheapest plan, and also get Apple TV+, it will cost you $23 a month.

But if you get them all together, via a new package Comcast has started selling to its broadband customers, it will cost $15 a month — a discount of more than 30%.

This is one of several new bundles the streaming industry is trying out these days — and, like I've written before, it's not really a return to the bundles of the old cable-TV days. And you should be thankful for that .

But what's the math behind the bundle? There's $8 of discounts a month here, spread among three companies. Are all of them taking less than they normally do? Or is one company subsidizing the others?

Spoiler: I don't know. But I have heard two theories on the case.

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The first is the more obvious one: Netflix is a big, very popular service that many people have heard of. Peacock and Apple are much smaller. So Peacock and Apple would benefit more from being in a bundle with Netflix, so they are more likely to discount their rates to make the bundle work.

I floated that one to Netflix co-CEO Ted Sarandos last week after his company's "upfront" presentation to ad buyers. He told me he wouldn't comment about any of the economics behind any of Netflix's deals. But, he added with a smile, he appreciated the logic behind my theory.

But then there's the second theory I've heard floated — that all three services benefit from the bundle, so everyone makes some kind of accommodation. Part of that theory is one you've heard before: Bundles are easier/more cost-effective to market, and they reduce "churn" — people dropping out of services each month, which is a huge problem for the streaming business .

But another part of that argument was new to me: People who get streaming services by signing up via broadband companies like Comcast or Verizon are much less likely to stop and start their subscriptions. Which would make Netflix much more willing to take a discounted rate for this kind of bundle than it would be if it were part of a different bundle.

That's pretty intriguing, and it does make sense. Digital distributors like Apple have made it very easy for subscribers to turn their streaming subscriptions on and off. But if you're getting, say, Disney+ at a discount via a Verizon promotion, it requires several steps to turn that off. Just as important — you're much more likely to forget you're paying for Disney+ at all, since its cost gets buried in a monthly Verizon bill you may never look at.

Is that true ? Good question. Netflix, Comcast, and Apple all declined to comment about bundle economics. And it turns out that Antenna, the subscription-tracking service I often use to learn about this kind of thing, doesn't track subscriptions via wholesale deals like this.

But here's something that gives some credence to the notion: documents from Apple, unearthed via 2021 court proceedings , about Netflix's decision to stop selling subscriptions via Apple's App Store in 2018. Netflix, according to Apple executives who were discussing the move, was not just motivated to stop selling because of the fee Apple takes for each subscriber — but also concerned that customers it acquired that way were more likely to unsubscribe.

So maybe all streaming subscriptions aren't equal.

Disclosure: Mathias Döpfner, CEO of Business Insider's parent company, Axel Springer, is a Netflix board member.

Watch: Antonia Wade, PwC's global CMO, tells Insider how B2B spending changes in tough economic times

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Netflix Prospects Bright Thanks To Plan Changes, Live Content

A Wall Street analyst raised his price target on Netflix stock following positive results from subscriber surveys in the U.S. and U.K. Shares of the streaming video leader rose on the news.

Please watch the video at Investors.com - Cord Cutting Drives Media Shake-Ups — Why More Are Coming

Evercore ISI analyst Mark Mahaney on Monday reiterated his outperform rating on Netflix stock and upped his price target to 700 from 650.

On the stock market today, Netflix stock rose 0.4% to close at 649.

On May 20, Netflix stock broke out of a cup base at a buy point of 639, according to IBD MarketSurge charts. The 5% buy zone extends to 670.95.

"Netflix is in the strongest position financially, fundamentally and competitively that we have ever seen," Mahaney said in a client note. "And we see with live events and gaming two very promising long-term greenfield revenue opportunities. And of course, 'Squid Games 2' is coming soon!"

Netflix Stock On Two IBD Lists

Mahaney based his price-target increase on positive results from his firm's quarterly subscriber surveys.

He noted that Netflix should benefit from discontinuing its lowest-priced ad-free service, called the Basic Plan.

Also, the addition of live content such as comedy specials, WWE "Raw" pro wrestling, and NFL football games on Christmas Day should improve subscriber retention, he said. Some 60% of survey respondents said they are more likely to stay on the service is more live content is added, Mahaney said.

On Friday, CFRA Research analyst Kenneth Leon raised his price target on Netflix stock to 725 from 640 and kept his buy rating.

Netflix stock is on two IBD lists: IBD 50 and Big Cap 20.

Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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Comcast Plans Streaming Bundle With Netflix and Apple TV+

The bundle, called StreamSaver, is the latest joint effort from entertainment companies looking to woo price-weary customers.

By Benjamin Mullin

Comcast, the parent company of NBCUniversal, is planning to offer its streaming service Peacock in a bundle with Netflix and Apple TV+, Brian Roberts, the company’s chief executive, said at an investor conference on Tuesday.

Called StreamSaver, the bundle will be sold at a deep discount compared with subscribing to all three services separately, Mr. Roberts said. He didn’t specify a price for the service, which is expected to debut this month.

“We’ve been bundling video successfully and creatively for 60 years,” Mr. Roberts said. “This is the latest iteration of that. And I think this will be a pretty compelling package.”

Over the past year, several entertainment companies have joined forces to entice customers who are weary of signing up and paying for numerous individual streaming services.

Warner Bros. Discovery, Fox and Disney announced this year that they were teaming up to offer a streaming service with games from the National Basketball Association and the National Football League. Last week, Disney and Warner Bros. Discovery said they would bundle their streaming services, selling users a package that included Disney+, Hulu and Max.

Comcast has long offered its users a menu of streaming services on Xfinity, its package of services that includes cable television and broadband internet. For years, the company has offered services like Netflix and Apple TV+ as add-ons to its existing television bundle, acting as a vendor for those companies. This is the first time that Comcast will offer both services as part of a discounted bundle.

Comcast, which has millions of broadband and cable television customers across the United States, has different incentives to bundle streaming services than many of its competitors have. If Comcast can give its customers additional reasons to stick with the company, or persuade them to pay for more features through Xfinity, the effort to bundle services will have been worth it.

Many other internet providers have sold bundles that include streaming services. When Disney+ launched, Verizon offered a promotional bundle with that service. When the short-lived, short-form streaming service Quibi launched, T-Mobile offered to bundle its wireless offering with that service.

Comcast has been willing to spend big to gain a foothold in the competitive video streaming business. Peacock, which launched in 2020, lost $2.7 billion last year, Comcast said in a filing, but paying subscribers increased to 31 million. The company has said Peacock’s losses were narrowing as the service matured.

Benjamin Mullin reports on the major companies behind news and entertainment. Contact Ben securely on Signal at +1 530-961-3223 or email at [email protected] . More about Benjamin Mullin