Netflix: Business Model and Revenue Streams

This document provides an in-depth analysis of Netflix's business model and revenue streams. It discusses the company's key activities, customer segments, value proposition, channels of distribution, customer relationships, key resources, key partners, cost structure, and revenue streams. It also explores how Netflix makes money through its subscription-based model and discusses its competitors in the streaming industry.

University of Dhaka
Department of International Business
E - Business
Course Code: IB-404
Submitted To
Dr. AbulKhayer
Associate Professor
Department of International Business
University of Dhaka
Submitted By
Labiba Hossain
ID: SK-030-122
Background Information
Netflix, Inc. is an American subscription streaming service and Production Company.
Launched on August 29, 1997,in April of 1998 as one of the world’s first online DVD rental
companies, with a small and under 1000 titles. Their initial business was to send physical
copies of films, shows, video games, and other media through the American standard mailing
system, in a pay-for-use model. It offers a library of films and television series
through distribution deals as well as its own productions, known as Netflix Originals. In
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2007, Netflix grew its business by expanding itself with the introduction of streaming media.
Statistics say that on January 2016, Netflix was available in over 190 countries. Netflix
entered the film and television industry in 2013, debuting its first series called “House of
Card”. The company is releasing an estimated 1500 original series or films till 2021. Netflix
reported over 222 million subscribers worldwide.
Customer Segments
Netflix platform is designed to please a wide range of subscribers. For this reason, its catalog
covers the most varied titles, able to entertain fans of films, series, documentaries, and shows
of all genres, for all ages and preferences.Netflix has a diversified mass market. Its business
is worldwide based. The age range of the subscribers are usually 18 to 59 but recently it has
launched movies and series for kids as well, who are below 18. Basically Netflix covers all
age and rage of people from kids to the adult. It has a very dynamic field. The contents are
constantly changing. It also follows technology innovations and consumer behavior. In 2021,
222 million people subscribed to Netflix and spend 3.5 hrs.Daily on average.
Value Proposition
Netflix gives legal access to the rich movie database with more than 200000 episodes. It also
has customer ratings which is used for the recommendations. Rating enables a better use of
movies available on the website. It has one of the widest supported devices ranges like
mobile, computer, laptop, game consoles and etc. it is convenience and usability by the ease
that is having access to the service. Customized browsing gives customer full control over
their experience. Price is low relative to the billions of hour’s content that Netflix can provide
on their streaming service.
Channels of Distribution
Netflix is providing online streaming service since 2008, using the website for computers and
its application for smartphones, tablets, game consolers and other platforms. It also gives
DVD and Blue-ray discs rental by mail.
Customer Relationships
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Netflix is an online subscription based entertainment video service. It is a self-service
product. When a customer want to subscribe to Netflix than they need to download the app or
go to its website and subscribe itwith online payment. It does online advertising through
social media and web-browsing. Chances of reaching a potential subscriber are higher to
those specific people who already spend some of their time in the Internet. The value of no-
commitment efforts to continue bring exclusive original high-quality content to get
subscribers.
Key Activities
Netflix made contracts with major companies and production to show their movies and series
on Netflix. Netflix partners with content providers to license streaming rights for a variety of
TV shows and movies. It also produce in-house or acquire exclusive rights to stream content
such as Orange is the New Black, Stranger Things, BoJack Horseman, Unbreakable Kimmy
Schmidt, and many more. Netflix marketing is an integrated, agile approach to brand
development and customer relationship management, which works great in the digital age
thanks to innovation, adoption of the latest technology, creative advertising, and real-time
data analytics.Netflix does also use some traditional advertising, but does so in a big way,
such as with a full-page ad for its Marco Polo series or with a clever billboard backed a social
media campaign, like the one promoting Daredevil's popular second season in Canada.
Netflix also gives video on demand.
Key Resources
In addition to its own platform, website, and app, Netflix’s key resources are mainly human
and digital resources. Among them, there are: software developers, the content library, the
recommendation algorithm, filmmakers and producers, the brand, and the studios that Netflix
is developing to support its own creations.
Its mandatory requirement is top quality streaming media infrastructure. The stuff are also
well trained and able to function each duty. Customer’s subscribers to be given the license
required to stream on the multiple platforms.
Key Partner
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Netflix has a wide range of key partners. Among them, media producers and TV networks
stand out, which license their content to Netflix; consumer electronic producers such as Wii,
X-Box, PlayStation, which bundle Netflix with their systems; and Amazon AWS, since the
Netflix platform is totally hosted on AWS. Besides those, there are investors and regulators.
The internet providers are also the partner of Netflix.
Cost Structure
The cost structure of Netflix is really big and that’s why the company had a bad cash flow
during their first years because the new business model demanded a huge investment to reach
the position where the company has gotten today. This huge cost structure involves:
 Producing movies, series, and other new content,
 Purchasing content and rights,
 Providing recommendations through artificial intelligence,
 Platform maintenance,
 Data centers for streaming content,
 Research, patents and software development,
 Amazon AWS and technology,
 Marketing, human resources, and infrastructure.
 Administrative cost
 DVD warehouse operation
Revenue Stream
Since Netflix’s business model is grounded on subscriptions, it is simple to say that
its revenue streams are based on the monthly fees paid by its millions of subscribers.
However, as seen above, Netflix’s cost structure is also huge, which makes us question
whether the company is indeed profitable. Monthly no commitment membership fee62% of
the total revenue for domestic streaming, 23%of the total revenue from international
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streaming. Domestic DVD and blue ray service=around 13% of the total revenue. Declined
from 31.5% in 2021 to 31.9% in 2014.
How does Netflix Make Money?
As mentioned above, Netflix has a subscription-based Business Model. That means that its
main revenue stream is the monthly fees. It has over 180 million subscribers pay, all over the
world. There have been many analysts who suggested Netflix could enhance its revenue by
using advertisement, but the streaming provider reclined, explaining that this would lower the
customer experience, which is its main value proposition, after all.
Nowadays, Netflix offers three different plans of membership, which may be upgraded or
downgraded at any time. They are:
 Basic: for the lowest fee, you have unlimited movies and TV shows, and you can
watch the content on any device (laptop, TV, smartphone, tablet …), but HD is not
available and you can watch only one screen at a time.
 Standard: in this plan, you have HD available and you can have two screens on at
the same time.
 Premium: the top plan of Netflix offers content in Ultra HD and the possibility to
watch four screens at the same time.
Is Netflix profitable?
For sure Netflix has a huge cost structure and, at the beginning of the current business model,
the company had to invest a lot in order to accomplish the kind of video collection it wanted
to offer the customers.So, Netflix hasn’t always been a profitable business. But it is now. In
2018, Netflix generated over 1 billion dollars, and this was 116% bigger than the income in
the previous year. The following year, it generated over 1.8 billion dollars, an increase of
154% over 2018. And the expectation is that cash flow will only improve for the coming
years, moving to a positive. These days, Netflix’s valuation is 155 billion dollars… and
counting!
Netflix competitors
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Disney Plus: one of the top competitors, since it offers a wide variety of content, from its
animated masterpieces to Marvel franchises, plus Fox’s catalog. And highlights for its
classics since the 1950s.
HBO: with more than 40 years of experience and a great variety of original content,
including some audience’s favorites, like Game of Thrones and Friends.
Amazon Prime:The streaming service of the biggest retailing online platform in the world
offers a nice selection of award-winning movies and subscribers can download videos to
watch offline.
CBS All Access: with a long history, CBS offers an interesting selection of originals and
popular franchises, as well as football matches and shows like the Grammys.
Hulu: it enables access to shows on major networks and cable TV, exclusive rights to most
of FX’s original series, and some strong originals like The Handmaid’s Tale.
Apple TV: launched in 2019, it signed with some of the best directors, writers, and actors to
create new content, under the strength of the Apple brand.
YouTube TV: it has been increasing its content, thus offering more channels than any other
competitor, plus unlimited storage. It dominates 75% of Android phone usage all over the
world.
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