How Netflix Makes Money: 2 Key Ways (2024)

Netflix Basics

Netflix (NASDAQ:NFLX) is a subscription-based streaming service that has grown to become one of the world's leading media companies. As of 2022, Netflix has just over 200 million paying members with viewers from over 190 countries around the world.

Members use Netflix to stream or download TV shows, documentaries, and movies 24/7. Anyone with access to the internet and a device that can stream content can watch their favorite shows with no commercials. Netflix also continues to offer its DVD-by-mail service (its original service) in the United States.

Netflix, Inc. was incorporated in 1997 by American entrepreneurs Reed Hastings and Marc Randolph. Netflix streaming launched in 2007. Netflix has headquarters in Los Angeles, Los Gatos, and New York City. Netflix is also opening its first Canadian headquarters in Toronto, Canada.

Netflix Business Model

According to Netflix Inc Form 10-K, its "business model is subscription-based as opposed to a model generating revenues at a specific title level."

Netflix acquires, licenses, and produces content including original content. Netflix's core strategy is to grow its streaming membership business globally by continuing to improve the user experience and provide content that "delights" current members and effectively attracts new ones.

As of 2012, Netflix has operated as one global operating segment. Previously, Netflix was broken into three segments:

1. Domestic Streaming
2. International Streaming
3. Domestic DVDs

However, Netflix still breaks down its revenue according to four geographic regions including:

• US and Canada Europe
• Middle East and Africa
• Latin America
• Asia Pacific.

There is no shortage of competition within the streaming space. Some other big names in the streaming space include Disney+, HBO Max, Paramount, Amazon Prime, AppleTV+, and Hulu.

While Netflix acknowledges "other streaming services, linear TV, DVD or TVOD," as its competitors, it believes it can continue to differentiate itself from its competition by creating more original content. Because each of the competing streaming services offers different content, Netflix believes that "many people will subscribe to multiple networks, such as HBO and Netflix."

How Netflix Makes Money: 2 Ways

Netflix has two primary sources of revenue which are:

1. Membership Fees

Netflix's primary source of income is from monthly subscriptions. Netflix currently offers several different tiers of pricing, allowing customers to choose the plan that best fits their needs. The difference in price is based on the following criteria:

• Number of screens that can be watched at the same time

• Number of phones or tablets to download on

• HD available

• Ultra HD available

A basic plan costs $9.99 per month. With this membership, users can watch one screen at a time and can download to one phone or tablet. There is no HD available. A standard plan costs $15.50 and provides access to two screens at the same time and downloads to two phones or tablets. Users will also have HD available. The premium plan costs $19.99 and provides access to four screens and provides downloads to four devices, premium members also have access to ultra HD. Netflix does not currently plan to add additional tiers such as a premium content tier that would cost users more money per month.

2. DVD Rentals

Since 1998, Netflix has sent out over 5 billion DVDs to customers across the U.S. Netflix continues to make money by offering its DVD-by-mail service in the United States; however, sales continue to decline year after year.

Customers in the U.S. can log into dvd.netflix.com to browse a list of thousands of movies and shows. Customers then determine which content they want to rent following which the disc is sent out within two business days. Returns are free and there is no due date or late fee. The DVD service compliments Netflix streaming by offering content that is not available to stream in addition to shows from networks like HBO and Starz.

Netflix offers two monthly DVD plans. The Standard DVD plan is $11.99 per month allowing users to have 1 disc out at a time and an unlimited number of discs per month. The Premier DVD plan is $14.99 per month and permits customers to have 2 discs out at a time.

Researching Netflix on Seeking Alpha

Netflix is listed on the Nasdaq. Investors interested in learning more about Netflix' business or financials can find useful information and analysis at Seeking Alpha. Netflix's stock quote page alone contains company analysis, recent news, a chart and basic statistics, and a high-level review of the stock's Quant Ratings and Factor Grades.

Investors wishing to dig into the company's financials can do so from the menu bar as seen below:

Investors can unlock detailed stock information with a Premium Subscription.

Bottom Line

While there is more competition than ever in the business of streaming services, Netflix is doing its best to remain on top.

Jessica has over 10 years of academic and professional writing experience. She holds a MSc in Cognitive Research Psychology from the University of Calgary. Her work has appeared on Investopedia, The Balance, Money Crashers, Money Under 30, Scotiabank, and more.