Industrial Business Model

What is Netflix? How does Netflix Work?

Written by kishan

This is the 21st Century and we are now in the Era of on Demand Video Streaming. There are several video streaming platforms wherein you can watch on demand videos. Such platforms are known as the OTT which stands for Over The Top Channels. In OTT channel, the videos are streamed via an internet connection rather than a Traditional Broadcast or Cable provider.

One such content provider is Netflix which was launched in 1997 by Reed Hastings and Marc Rudolph to use the internet to rent movies on DVDs. Bypassing all the traditional infrastructure like Cable connection providers, Satellite television, etc by directly uploading media content on their own applications for the viewers.

Benefits of OTT Media Service:

In the traditional advertising system, the advertisers couldn’t determine how many viewers viewed or heard their Ads. But with OTT media services, it has become easy for advertisers to show ads to their target audience and analyse them
With OTT, the Analog transmission is eliminated and with the help of Digital transmission, it is easy to communicate with the audience.
From a viewer’s point of view, OTT services are cheaper than the amount they used to pay for a bunch of channels which were most of the times unwatched.

Now let us know specifically What is Netflix and how does it work?

What is Netflix?

Gone are the times when we used to wait for the new movie premiers on TV. Now is the time when people in the fast-moving life choose to view movies and shows on demand.
Focusing on this mentality of people, Netflix came up with an idea of streaming their favourite shows and movies on demand on the wide range of internet-connected devices.

Netflix in simple language is an online movie and shows streaming company which has outranked the traditional Cable TV system. The company also provides monthly DVD rental plans where they show movies and shows on DVDs.

Netflix basically works on a subscription-based model where a user is supposed to pay on monthly basis and based on the subscription they choose the users are allowed to stream movies, shows documentaries and other contents that Netflix provides in all the video qualities SD, HD and Ultra HD depending on the user’s subscription plan.
Netflix during its peak hours utilizes almost one-third of the internet. Also by the end of the year 2019, Netflix according to a survey revealed that it will have 41 lakh paid customers. With these facts about Netflix, some obvious questions will definitely arise in your mind like how Netflix Earn money? How does Netflix work?

For the answer to all these questions here below is a deep explanation of the Netflix Business Model.

The Netflix Business Model

Netflix decides what content should be added to their application. Netflix either takes streaming rights and copyrights from the movie and show makers to show videos on their app or they make shows themselves and publish them as Netflix Originals. Netflix gives you legal access to watch all the movies and shows on it.

How does Netflix make money?

The only source of revenue for Netflix is Subscriptions. As in the year, 2020 Netflix provides four different plans:

  • Mobile Plan ₹199
  • Basic Plan ₹499
  • Standard Plan ₹649
  • Premium Plan ₹800

Netflix Subscription Plans

These are the monthly plans that Netflix provides and you can upgrade or downgrade the subscription plan anytime.

A similar working model was first introduced by Netflix for the DVD subscription. In this, they used to give a number of discs on the basis of the viewer’s subscription plan.

Netflix believes in the “spending money to earn money” model and tries to make its user stick to its services. If a Netflix user finds original shows and movies interesting they are more likely to suggest using Netflix to other users. With this Netflix had become an unbeatable leader in the on-demand video streaming services.

In simple terms, the subscribers pay for access to the media content on Netflix and hence it earns money. Netflix has also collaborated with Internet Service Providers(ISP) like Jio, Airtel, Vodafone, etc so that you can stream the videos faster directly from the ISP’s servers.

Netflix Cost of Revenue:

Before earning from the subscription fees that the viewers pay, Netflix has to bear several costs while bringing the shows to you.

  • First is the Licencing Cost. In order to show your favourite shows in a legal environment, Netflix has to bear the licence cost.
  • Secondly, in 2013 Netflix introduced the original series in order to stay away from the licencing cost and bring exclusive content to its users. This again required the Production costs.
  • Third, comes the Marketing Cost. In order to stay in the race with its competitors like Amazon Prime, Hotstar, etc. Netflix spends a lot on the Marketing efforts which includes several social media advertising costs, influencer costs, etc. Also
  • Netflix came up with an offer to give one-month free subscription to its users.
    There are several other costs included like the administrative cost, R&D cost and the Technology cost.

Netflix has indeed changed the way we spare our free time. From a small DVD rental company, Netflix now has 125 million-plus subscribers over about 190 countries. The reason Netflix stands out from all its competitors is Ads. There are no Ads in any of the Netflix videos and it gives you a non-stop entertainment experience.

Netflix in India

In 2016, Netflix CEO announced that ”the next 100M subscribers are coming to us from India ”. And that’s when Netflix made its grand entry in India. But when it started providing services in 2016 to India, they could achieve only 5M subscribers. The reason being the competitors like Hotstar, SonyLive grabbing Indian People’s attention because of the love of sports and multiple language support.

By the end of 2017, Netflix could get only 11M subscribers. Hence Netflix came up with the Original Series Sacred Games which was based on the Mumbai underworld & Lust Stories exploring Love and Relationships. These series created a great impact on the India users and made them wait eagerly for the Sacred Games Season 2.

What is the difference between YouTube and Netflix?

YouTube and Netflix both are video streaming platforms but the major difference between them is their business model. YouTube works on the Advertisement model and Netflix works on the Subscription model.
YouTube is hence open for all and anyone can upload and promote their videos on Youtube but that isn’t the case with Netflix. Only the paid users are allowed to stream videos on Netflix. Thus Netflix doesn’t show any kind of ads to its viewers as it’s motive is to earn from the recurring monthly subscriptions.

Conclusion:

Concluding how Netflix works and how it earns money, Netflix earns from its subscribers by giving genuine and legal access to its finely curated media content. Considering the Indian market, Netflix does face great competition from the India Video Streaming giants like Hotstar and SonyLIV.
Also, with the inclusion of cheap internet services in India, Netflix is still struggling to make India its priority in future.
Hope you are now aware of the tits and bits of Netflix. Do let us know about your views or doubts in the comment section below.

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