Everyone knows Netflix makes money from subscription fees. But giving paid access to movies, shows, games, and other types of content is not its only source of revenue.
In fact, before it became a leader in the streaming industry, Netflix was making money by mailing DVDs. And it still does.
So, how does Netflix make money now?
Read on to learn more about the latest changes Netflix made to its business model to maintain its position as a key player in the OTT Industry.
How Does Netflix Make Money?
Netflix makes over 90% of its money by charging subscription fees for access to its streaming services. It also relies on DVD sales, partnerships, and, as of recently, advertising. By caving into advertising, Netflix expects to increase its overall revenue base by around 10%.
Before we go into the most recent changes in the company’s business model, let’s talk about what happened with Netflix’s revenue streams in the past.
Originally, Netflix was a place to rent movies online. Its main source of revenue had nothing to do with streaming. It had a mail-in system and made money by sending DVDs to its subscribers.
In 2007, Netflix started offering some streaming content. But even then, it generated most of its revenue from DVD by-mail services. In fact, it wasn’t until 2013 that Netflix decided to introduce user profiles and make this feature available to all its subscribers.
When Netflix brought streaming into the picture, it not only changed its main source of revenue but managed to grow its subscriber base by over 100%. Now, Netflix has 230.75 million subscribers worldwide, each of which brings an average monthly revenue of $11.76.
The Netflix Business Model
Netflix has always had a subscription-based business model. The only difference is that after it fully transitioned to streaming in 2008, it introduced three different tiers: basic, standard, and premium, and kept its by-mail DVD rental business as a way to honor its legacy.
Thanks to these three plans and the quality of its content, Netflix’s number of subscribers spiked during COVID. In fact, it managed to grow its subscriber base from 151.56 million in 2019 to 192.95 million in 2022.
But then the company decided to raise prices on its membership packages as a way to boost revenue so it can produce more original content. And while this did give the desired effect in regard to revenue, it significantly affected the acquisition of new members.
To compensate and ensure it doesn’t lose traction, the Netflix revenue model had to change. Namely, for the first time in history, Netflix ventured into the ads business.
On November 3rd, 2022, Netflix officially introduced ads when it launched its first ad-supported tier in the US. Here’s a brief overview of how much each tier costs and how they contribute to Netflix’s revenue.
- Basic With Ads
It’s currently the most affordable plan and offers the option to watch Netflix content with ads. All content is available in HD though there are limitations on some TV shows and movies due to licensing restrictions.
The basic with ads plan costs $6.99 per month. It’s available in the US, Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, and the UK.
- Basic Plan
Provides access to all Netflix content for just $9.99 a month without ads. It also allows users to stream on one device at a time in HD quality or the same quality as a clear broadcast TV show.
- Standard Plan
For $15.49 a month, subscribers can access full HD content on two screens simultaneously and stream unlimited Netflix content on any device that supports it. The standard Netflix plan is traditionally its most popular plan.
- Premium Plan
An ideal option for anyone with a strong internet connection. It costs $19.99 per month, and it’s well worth considering as it offers 4K Ultra HD video. Plus, it allows you to stream on up to four devices simultaneously. This plan also includes Netflix spatial audio, which powers the sound experience without the need for any additional equipment like sound speakers or home theater.
- DVD Plan
This is an entirely separate service from the three plans we’ve discussed above. It has three different rental plans. The base plan allows users to get 1 disc out per month for $9.99. Two discs at a time cost $14.99, and three top-shelf discs at a time come at a price of $19.99.
Netflix Partnerships
The company also thrives financially through its lucrative partnerships with motion picture producers, writers, directors, and animation artists to acquire content that can be broadcasted legally. It’s one way Netflix makes money other than subscriptions.
Additionally, the company collaborates with ISPs from across the world to further strengthen its position in other markets. But both are included in the monthly subscription fee.
Netflix Revenue Breakdown
Over the past ten years, the company has seen its revenue increase tenfold – from $3.1 billion in 2011 to a massive $31.6 billion in 2022. But before we go into how Netflix made this amount let’s go over some basic facts.
First off, the content available for streaming is not the same everywhere, which means Netflix makes money off original content, movies, and popular TV shows differently. This is mainly because of geographical or licensing restrictions.
Second, there are some variations in Netflix’s pricing plans, mostly due to third-party operators and currency variations.
And then there’s also the DVD business which is only available in the US. That’s why Netflix organizes its revenue into three divisions, domestic, international, and DVD. Below is an overview of Netflix’s finances related to revenue:
- Domestic Streaming
This refers to the revenue generated from the content available in the US and Canada only. It includes the plans that are available to these households and the earnings originating from the monthly subscriptions paid by these users. At the end of 2022, it stood at $14.08 billion.
- DVD Rental
Compared to the domestic and international revenue streams, the earnings from the DVD business are insignificant – only $100 million in 2022. In fact, the annual revenue from the DVD segment in both 2020 and 2021 was only $200 million. And despite the 50% drop in revenue in 2022, DVD rentals still make an integral part of Netflix’s economics and participate in the overall company’s revenue model.
- International Streaming
This refers to all the revenue collected from non-US subscribers. And given that the number of international subscribers has been growing at a faster pace than that of domestic ones, this division has long surpassed the domestic revenue.
According to company reports, in 2022, the revenue generated from international streaming services amounted to $17.37 billion. Of this, $9.74 billion was earned in EMEA, $4.06 billion in Latin America, and $3.57 billion in Asia-Pacific.
How Much Money Does Netflix Make?
At the end of 2022, the total revenue of Netflix was $31.6 billion, a 6.7% increase compared to 2021, when its revenue totaled $29.6 billion.
Of this, $4.4 billion was Netflix’s net income. Also, this is the first time the company has reported a drop in this segment. In 2021, the company’s net income reached a record number of $5.1 billion.
Now that Netflix has finally introduced advertising into its revenue stream, hopes are that it will continue to deliver excellent results. According to the company, ad revenues are projected to be the same as or possibly higher than the ones of Hulu, which at the end of 2022 stood at $2.7 billion.
However, the fact remains that uptake for Netflix’s new ad tier is low at 14% of US users and ranges from 6% to 12% of total Netflix users in France, Germany, Italy, and the UK. So, for now, we wait and see how the changed Netflix business model will help the company make more money.