How Does Netflix Make Money? Netflix Business Model Explained

Netflix has been around since 1997 and has taken the streaming market by storm. Founded by Reed Hastings and Marc Randolph, the company shifted to streaming in 2007 and currently boasts hundreds of millions of subscribers worldwide. It’s one of the most popular subscription services in the world, so it’s no surprise that Netflix had a net worth of $15.85 billion in 2021.

But how does Netflix make money? And where does all that money go? This article will look at Netflix’s business model and explore how it makes money from its subscribers.

Netflix Business Model

Netflix has a relatively straightforward business model. The majority of the Netflix revenue comes from its subscriber base. The company makes money from its subscribers by charging them a monthly fee for the service.

Other ways Netflix makes money include DVD rentals (yes, people still rent physical media) and licensing deals. So how much does Netflix cost per subscription and for DVD rentals? Let’s see!

Subscription Plans

Netflix’s cost per month varies depending on the subscription plan. As with other subscription streaming services, Netflix offers a variety of monthly subscription plans to suit every budget and viewing preference. Unfortunately, there’s no Netflix yearly subscription as of yet.

However, no matter which plan you choose, you’ll have access to Netflix’s vast library of TV shows, movies, and documentaries.

So what’s the difference between the plans, and how much is Netflix a month?

Basic

The Basic subscription plan is the cheapest way to watch Netflix. You can watch movies and shows on one screen at a time in standard definition (SD). The Basic plan costs $9.99 per month. And if you want to upgrade to a higher quality plan, you can always do so later.

Standard

This plan is the company’s most popular subscription, and for a good reason. The Netflix Standard cost per month is just $15.49, and you get access to all of Netflix’s vast library of movies and TV shows in HD — and you can watch them all on two devices at a time.

It’s also perfect for families or couples that don’t want to pay for multiple accounts. And if your partner ever dumps you, don’t worry — you can dump them from your Netflix and reclaim your subscription.

Premium

The Premium subscription plan is the most expensive way to watch Netflix. For $19.99, you can watch movies and TV shows on four screens at a time in Ultra HD (UHD).

Is Netflix Premium worth it? Yes, we can assuredly say it’s the best option for families who watch a lot of Netflix at the same time. That way, you’ll avoid kids fighting for a device.

Netflix DVD

Netflix has started as a DVD rental service. But does Netflix still make a profit from DVDs? The company has kept its DVD rental throughout the years, but it has moved the service to a separate website and split it from the streaming subscription. There are two tiers:

Standard

This plan will cost you $9.99 per month and allow you to rent one DVD or Blu-ray at a time. The USPS shipping and returns are completely free. There are also no late fees, but you will be charged if you end your subscription without returning all your DVDs.

Premier

Netflix Premier DVD plan costs $14.99 per month, and you can order two DVDs or Blu-rays at a time. The same rules regarding additional fees apply to this plan.

Netflix Originals and Licensing

Lately, Netflix has been on a roll, snatching up licenses to popular shows left and right. For example, Breaking Bad was just a small show airing on the fledgling AMC cable network before Netflix took the syndication rights and essentially saved the show from tanking.

Netflix has acquired and produced high-quality original content (both movies and shows), such as Stranger Things, Orange Is the New Black, Red Notice, Money Heist, The Witcher, etc. Did you know that Red Notice sits comfortably on the top of the list of the most watched Netflix original movies during the first 28 days of showing? According to the company, subscribers had spent 364,020,000 hours watching it within that time (148 million hours in the first week alone)!

But how does Netflix make money on Originals if they don’t license them to other networks yet?

For every show or movie that Netflix buys, it retains almost all future licensing rights. So, whenever Netflix starts licensing Originals to other TV networks, it can expect to make top dollar.

How much does Netflix pay for movies and shows, you ask. Reportedly, it buys the movies and shows at the rate of production cost plus approximately 30% of the cost of production. Meanwhile, regular networks usually license shows for only 60–70% of production cost. Yes, Netflix spends big time, but the sum it stands to make is much higher.

Want to sell your script to Netflix and wonder how much you can get for it? According to the Writers Guild of America West, the median guaranteed payment for a screenplay deal is $375,000, with the maximum being $3.5 million.

Ads on Netflix: The Dreaded Future

In light of a recent revenue drop, Netflix executives are planning to start showing ads on the platform as early as the last quarter of 2022. The co-SEO of Netflix, Reed Hastings, indicated that this streaming platform would test ad-supported plans during the next few years. Still, the anonymous sources among Netflix employees claim the change may happen even sooner.

We don’t know how this will pan out, but it’s indicated that the new plans will be introduced at lower prices. Also, Netflix is planning to put an end to password sharing among subscribers.

How Does Netflix Make Money? In Conclusion

Netflix is a company that’s been successful in part because it managed to capitalize on the fact that people love to watch TV and movies. And it seems likely that this trend is only going to continue. We may see Netflix arranging licensing deals with other companies or introducing ad-supported subscription tiers in the future to increase its budget. For now, though, it has a fairly straightforward business model that has allowed it to achieve great things in recent years.

How Does Netflix Make Money? FAQ