The business model of online streaming platform such as Netflix|How does it make money?

What is Netflix and why is it popular? 

Long gone are the days when we all had to huddle around a big box. Netflix has now become the biggest online TV shows/movies online binging zone. Currently, everyone is thanking online streaming platform such as Netflix. People can survive this Covid pandemic at home— binge-watching. 

Although, do you know how it all started? 

Netflix started as a DVD-by-mail delivery company and reached on to become the biggest streaming platform in the world. Well, there are certainly many reasons for its success. 

 

Company Name	Netflix Inc.
Founder(s)	Reed Hastings, Marc Randolph
CEO	Reed Hastings
Founding Year	1997
HeadQuarter( HQ)	Los Gatos, USA

 

They kept making rapid technological changes to match pace with the fast-moving world. Simultaneously, they also kept changing the business model to remain in the race. Yet, their aim is the same since its inception. Netflix even now provides ‘entertainment from sitting at homes. But the company grew exponentially because of its foresight. They improvised and delivered movies and shows online.

In the Year 1997, the company made a humble start by providing physical copies of TV shows, movie shows, and other forms of media like video games, etc. After that, the revenue kept surging with the rise in households owning DVD players.

The biggest change in their business model was to turn its pay-for-use model into the subscription model. Through means of this same business model, they are still gaining huge profits.

But, why is Netflix inc still popular?

 Here are 3 reasons why:

• Original Shows/movies

Netflix releases some exclusive in-house movies and shows. They are available only on the app itself. People always get this as an extra choice as well as a reason to buy a Netflix subscription.

• No Ad Breaks

Advertisements always ticked us. That is one thing that TV shows have in abundance and we don’t like it. This is where Netflix played smart. They show no ads on buying a basic subscription plan. 

• Multiple Device Accessibility

Streaming content over your smartphones wasn’t easy. Neither that popular, until Netflix decided to create an ‘All of Netflix in your pocket’ deal. People with less money to spare on entertainment were also able to watch Netflix’s collection of movies and shows.

Netflix has very acutely researched the masses. With almost 100 million+ subscribers and an estimated worth of over 125 billion dollars, it is ruling the streaming world. 

Their secret lies in extensive market research. Netflix has very keenly researched the masses. Thereafter, they designed a business model canvas to lure them.

So, what features make online streaming platform such as Netflix so popular? 

The following 5 features set the Netflix OTT platform apart from its competitors.

1. The vast collection of movies and documentaries

Firstly, they made sure to include as many varieties of shows as possible. The show range had fictional shows, non-fictional shows, and documentaries. And they were all collected from around the world. A massive variety of genres, types of shows are made and uploaded on Netflix frequently. Thus, attracting subscribers to make their accounts on Netflix. 

Secondly, they made their original shows and released them worldwide. The best part is that it is easy to watch for even the laziest of people.

2. Easy to use 

The learning curve is as linear as possible. The User Interface(UI), has contrasting colors. In addition to that, the home page contains a recommendation section where specific genres that subscribers select, are present. Hence, It is friendly and almost flawless.

3. Titles updated daily

They have particular midnight, Pacific time at which they bring new updates and releases. You can even check the new releases lined with the dates till the next month. This way, the viewers will never lose interest. In fact, they have an ocean of options to choose from!

4. The user interface is easier to use than its competitors like Amazon Prime

Netflix has an easy-to-use UI. The consumers of this video streaming app find it easy to navigate through. The color set used in their branding is also visually attractive.

Amazon Prime is the next biggest competitor in line. (And there are more OTT apps in competition to Netflix). However, Netflix has easily beaten it. Very tiny details could also beat your competitors at it. Netflix has a responsive search. It has a set algorithm that offers you a collection of similar shows and movies that you’re looking for. On the other hand, on Amazon Prime, you have to get an extra click to find the same results.

5. Smart downloading option

Storage space management is indeed a thought-sparing process. These all applications on any Android device, IOS or Windows eat up a lot of space. Next thing we know— our phones and laptops are hanging. 

Accordingly, Netflix took out a smart solution for it. They delete the TV shows, movies, series, etc from the list as soon as you finish the whole video. In the same way, they also download the next episode in line, in advance. 

Revenue of online streaming platform such as Netflix: How Netflix makes money?

Considering the popularity of Netflix amongst youth and every demographic of people, it can be concluded that Netflix rolls out huge profits. 

Looking at the income in the first quarter of 2021, they earn an estimated 7.16 billion US dollars!. Though they captured the market world over, their biggest revenue comes from the USA, Canada, and Scandinavia.

How Netflix makes their cost structure?

To sum up their revenue structure, here is a list of the cost they bear to create and maintain the platform:

• Purchasing rights establishments( TV shows and movies)
• Cost of producing the TV shows/ movies
• Maintenance for the subscription cost
• Shipping cost (mails and DVDs)
• Cost for providing R&D, Artificial Intelligence(AI), and personalized recommendations
• High tech infrastructure for streaming the content(data centers)
• Employee salaries (customer service, engineers, technical staff, etc)

The business model of online streaming platform such as Netflix

Netflix has a vast number of resources. Together, they have formed this humongous entertainment mogul. 

Let’s look at what all resources they collected:

1. Customer Segments

Netflix has made sure to create shows, movies, and other forms of entertainment while keeping in mind all kinds of subscribers.
Offering different types of shows and movies to cater to the needs of kids, youngsters, middle-aged and even old-age people. 

With so many viewers in mind, they often create and release Netflix’s original movies and shows that are family-friendly.

2. Key Resources to Popularity

Software Development

The software development team with Netflix keeps doing constant changes, bringing out-of-the-box ideas.

Constant innovations with the UI, overall user experience, and simple applications make Netflix shine. A great software development company and the team can bring out the best of any idea or app. 

Nowadays, with so many services available. Anyone with a unique idea can make their on-demand applications.

3. Channels Netflix Provides

Subscribers and all users of Netflix can select different channels to select genres of their choice for movies and shows. 

What are those channels? 

Only a few but with many subscribers to all these channels:

• Streaming Netflix using the mobile application
• Website Streaming
• Using TV applications and game consoles
• Mail delivery of DVDs ( which they still happen to do!)

4. Revenue Flow

• Their revenue flow increased much faster than it did till 2006.
•  In the year 2007, they introduced online streaming services and created subscription plans for them. As a result, the company started gaining additional revenue. 
• Their revenue plan can be bifurcated as following:

Three different market prices for monthly subscriptions in the US market:

• Basic ($8.99 per month)
• Standard( $12.99 per month)
• Premium($15.99 per month)

• Apart from this, their global expansion has garnered an international customer base for them.
• Upgrading opportunities- From basic to standard to premium ( this helps in upselling their product)
• Bringing their original productions to return them huge sales profit. Till now they have produced over 1500+ original tv shows and movies of different genres. Some of the big hits include Queen’s Gambit, Stranger Things, and House of Cards.

How does Netflix make money?

Initially, Netflix was a DVD-by-mail delivery service. Up until then, Netflix had an approximate income of around $997 million per year. Thereafter, their income surged dramatically. 

Let’s look at how and what strategies favored Netflix and benefited the company:

Strategy 1: Subscription-based business model canvas

• The subscription-based model raked in the maximum amount of profit percentage. Other than the total collection from TV shows and movies they produce. 
• As of now, they have 203.66 million subscribers— almost 8 times than in 2011( 24.30 million subscribers).
• In 2020, 80% of the most-watched original series in the US belonged to Netflix.
• On average, a Netflix subscriber pays $10.82/month. And the subscription rate has been increasing continuously since the year 2016 because of the incessant increase in demand.

Strategy 2: Advantageous partnerships

• The company’s sharp business tactics should be learned by every business big or small. They started building associations and forming alliances with movie producers, bigshot Hollywood writers, filmmakers, and even animators. And they signed legal deals for directly releasing movies, shows, etc on Netflix.
• Recently, they have started hitting the local entertainment market by contacting even YouTubers, social media influencers, and stand-up comedians to generate more mass appeal.

Strategy 3: Technology architecture

• As they kept their software updated. In the same way, they changed their monolithic technology architecture to microservices architecture.
• And, so Netflix also became one of the first companies to switch from traditional to modern cloud-based microservices.
• It took the company two years. Consequently, Netflix inc. now has an OSS (Open Source Software Center).

Netflix’s essential partners

Building an entertainment empire would require some important partnerships. Netflix has at least 35+ different partners across so many different media houses. Netflix showcases several different types of genres for its subscribers. All this, to enrich their Netflix experience and built a trusting subscriber base. To name a few, here are some companies:

1. Joining hands with some of the major Smart TV brands like Sony, LG, etc. 
2. Netflix has also formed alliances with some companies in the gaming industry. Some big names like X-Box, Wii, and Playstation are already in partnership with Netflix.
3. Netflix had to join forces with some important technology titans. This came as soon as they transformed their main system to an online streaming system. Some important firms include Android, Microsoft, and Apple
4. Netflix partnered with a few TV networking companies also like Dish, Tivo, and some others as well.
5. They also had to connect with the data big data service providers. And, the two important ones were Amazon and Google. Yes, even Amazon is on the list( Amazon was roped in to help promote Netflix listings on Amazon selling websites and increase their subscription options).
6. Anime is the newfound trend spreading fast among the youth. Thus, Netflix also partnered with many Japanese anime creators to get those shows listed on the platform. Some such anime-creating companies that Netflix has partnered with include, Kindaichi Case Files, Mardock Scramble, CLAMP, Mobile Suit Gundam, and also Thermae Romae.
7. Netflix left no stone unturned to reach all corners of the world. It actively partnered with some West African TV  network companies to increase its presence in West African countries as well. One big name is Nigerian filmmaker Mo Abudu. He is the owner of Ebony Life TV. This partnership could fruit into expanding Netflix network and audiences inside the West African countries.

Financial benchmarks Netflix business model has accomplished

    Image Source: Statistica

Looking at the last year’s collection, region wise:

• 11.45 billion U.S dollars of revenue generation in North America
• 7.77 billion U.S dollars if revenue generation in Europe, Middle East, and Africa
• 3.15 billion U.S dollars of revenue collected from the whole of Latin America
• And, 2.37 U.S dollars of revenue earned from the Asia Pacific region

Who are Netflix’s biggest competitors?

There are so many online platforms such as Netflix in the market. However, some of them are more famous than others:

1. Amazon

 It is undoubtedly the second-largest online streaming platform after Netflix. Amazon has as many as around 150 million subscribers and could easily beat Netflix and bet the first position. The number of original and quality content produced by Amazon has increased substantially. This means tough competition.

2. Hulu

Hulu got a great kickstart when Disney and Comcast signed a deal. Disney bought stakes worth $5.8 billion of Hulu from the Comcast Corporation. In the same year that the deal was made(2019), Hulu managed to get 30.4 million subscribers.

3. Disney+ 

Disney has a rich library consisting of sets of movies of Pixar, Marvel, features of Start Wars creations, and some NatGeo program options. Not only this, but Disney also has the right to broadcast all the seasons of a very popular American adult cartoon show— The Simpsons, and the 21st Century folx films.

Together, all these companies give fierce competition from Netflix. Though, the ever-rising need and frenzy around online streaming platform such as Netflix and Disney+ are not stopping any soon. 

How to make a Netflix clone app?

Netflix has risen further after the pandemic. If you too are dreaming of creating your own online streaming application. Now you know the strategies that Netflix devised! 

The best way is to prepare a framework for your app. And then outsource it from a good app development company. There are myriad steps that go into the development of such a mobile app. Here is a detailed step-by-step guide to video streaming app development.

The right strategy to create an online streaming platform such as NetflixIf you want to know the basic steps that go into the creation of such apps, here is a brief outline:

1: Finding the niche

On-demand streaming services are a popular niche. But online streaming can also have a separate platform with some content that is still not available on the already existing platforms. What could they be? They could be anything ranging from a collection of your favorite 90s cartoon shows or live streaming of all sports tournaments.

2. Choosing the Operating Systems(OS)

An online streaming platform such as Netflix, that can also be operated offline on IOS, Android, and Windows. What a deal, right? Choosing the right app development company is a must. Because they can be trusted with your idea and bring out the best in it. We at Idea Usher believe not only in building strong web applications for you but also in winning the trust of everyone we work with.

3: Money making strategy

Different online streaming apps have different monetizing strategies. Some of them we have discussed above. But there are many more which are still used by other online streaming apps:

• Freemium: Many online streaming platforms like Disney Hotstar have made some content available for free online. But they charge a subscription fee for updating to a more standard account. 
• Placing Ads: Allotting certain available spaces on your platform could be an additional earning base.
• Ad Blocking: A few streaming apps ask their viewers to upgrade to their premium accounts for blocking ads. While TV still does not offer any such facility. Online streaming platforms do.
• Free Trials: Netflix had started a free one-month trial option a few years back. Many viewers tend to not buy a product out of doubt. A free-trial option gives them a peek into the product before buying it. 

4: Licensing content

Content Distribution has a huge profit margin. All creators of the content would mind if you don’t buy it from them. So, getting the content either:

• Directly from the copyright owner,
• Or, rent it from the owner and get proper licensing for its online streaming.

Buying exclusive streaming rights is also a big thing. If some content is only available on your platform, people will buy it.

5: Plan a streaming design

• The design, i.e, the UI and the UX should be carefully and aesthetically designed before launching.
• The UI (User Interface), should have attractive color, design, and ease of use. And UX (User Experience), should also be positive. Netflix has taken care of both these design elements.
• Works easily on all devices: Make sure to do tests and trials. The responsiveness of the platform should be the same on all the devices. 

6. Viewers’ feedback

Listening and replying actively to viewer’s feedback gives you a chance to reiterate your strategy. This way, you can find what areas can be improved.

A quick summary on the business model of Netflix inc

Uber-business model

Their business model is the same from the beginning. Only, the options have increased with the advance in technology. Netflix is the perfect epitome of ‘uberization’. They delivered your movies and shows in 1997 via DVD-by-mail option. Now, they are delivering the same set of content. Except only, the medium has changed.

Creating an ecosystem

Viewing the progress of  Netflix from outside will only show the four walls built around the entertainment giant. However, scrutinizing the inside built will portray the true picture. Their focus lay not only on single-handed monetization. 

The profit of stakeholders and alliances also created an ecosystem of growth. They brought so many individuals and organizations into the picture. Inclusion of technology stacks, producers, social media influencers, actors, writers, etc. They planned to bring together the masters of all the fields, and win a bigger game.

What Can We Learn from the Netflix success model?

Netflix, with its new generation-based shows and strong branding, has become one of the greatest symbols of current generation trends.

Like Television, it has become the necessity of every working-class person.

Competitors of Netflix are also on the rise. Therefore, it is pivotal to keep an eye on the shifting market trends and audience interest.

The other trick up their sleeves was to find benefits even in issues. For instance, some movies and shows belonging to other production houses were only licensed for a fixed period. After which, their broadcasting rights can be bought by other online streaming platform such as Netflix, and also say, Amazon Prime, Hulu, etc. To put a curb on this rising competition, Netflix started producing its shows and movies. 

Does Netflix show no ads at all?

Another intelligent move that Netflix made was to promote an ‘ad free binge experience’. But, why cut out on that profit that every other firm is leveraging? Because this ad-free idea became the USP( Unique Selling Proposition) for the company. And to top it all, they also give a free trial month to the delight of every movie lover on this planet.

Still, swiftly, Netflix does enjoy commercial advertisement earnings. Remember how two characters from the series ‘Stranger Things’ worked in a shop of ‘Baskin Robbins’? Well, they ad a cross-promo deal with the brand.

While the brand was given an important placement in the show. Consequently, Baskin Robbins created some unique ice-cream flavors based on the Stranger Things theme. 

It was the same as hitting two targets with one arrow. Not only did it helped the company in promoting its show. They also spread a positive environment with the production people. Creators were not forced to show unnecessary product placements in their shows. This provided creative freedom to the writers and directors of the shows.FAQs 

1. How Netflix’s recommendation system works?

Surprisingly, they have great algorithms which work on minute details like: 

• The live interactions ( what kind of shows you prefer to search the most on Netflix).
• What people sharing the account, search, and watch.
• Other relevant information like actors that you prefer watching, genres, release year, category, titles, etc.
• Personalized recommendations based on the time of the day, device on which you watch the most, duration of watching, etc. 

2. Does Netflix have a good collection of movies, shows, etc?

Netflix launches a number of movies, shows, documentaries, and also anime. They keep finding the latest trends and include them in their list. If you look at the latest June releases, they have so many shows in life. 

All shows are from different genres, cinema including Korean dramas, anime, horror, thriller, romance, etc. Some of the latest releases in the list could be names as American Outlaws, Black Hole, Sweet Tooth, etc.

3. Did Covid-19 affect online streaming consumption?

Firstly, the Covid pandemic had hit the whole world hard. People are working from home and trying to find sources of joy and entertainment. Netflix is an American brand. Naturally,  several Americans have bought its subscription. A study conducted on American audiences suggests that on average, Americans were streaming 8 hours a day during the lockdown.

4. Can we build an online streaming platform such as Netflix of our own? 

Nothing is impossible if we have the will to do it. And, fortunately, you have landed on the right doorstep! Idea Usher has a plethora of highly qualified team of software developers, UI/UX designers, and high-tech development experience. To know more about how to make an online streaming platform such as Netflix, contact us here.

5. What features can we include to create an online streaming platform like Netflix? 

Idea Usher offers as many features as you can name! Here are some:

1. Adaptive Video Streaming
2. Video Sharing
3. Subscriptions
4. View Offline
5. Quick Search and Filters
6. Watchlist
7. Notifications
8. Resume Videos
9. Like/Dislike videos

You can click here, and know about these services in detail.