Netflix is a paid subscription-based ott platform. It is an online streaming media service that provides customers easy access to their favourite shows and movies on as many devices as they want. Its revenue model has produced a market capitalization of 150$ billion. It is also the world’s largest video selling platform.
In this case study, we shall study in-depth the business model of Netflix. To provide you with a holistic view of the business model of Netflix, we will cover topics such as marketing and advertisements strategies, marketing-mix, competitors and campaigns.
Let us know further about Netflix and its strategies
The media and entertainment industry are the leading growth sectors of recent times contributing billions of dollars every year. One of the main elements of this sector is the television industry. However, with the fast-paced nature of life, nowadays it has become impossible to watch one’s favourite shows at a particular time.
Netflix, an online streaming media service for all customers made easy access to their favourite shows and movies on as many devices as they want.
Let us know further about the history of Netflix
Brief History of Netflix
The history of Netflix dates back to 1997 when Reed Hastings of USA incorporated the idea and later on in 1999, he started the movie rental business. Initially, it was a subscription-based DVD mailing service, where a customer would pay an amount for renting and videos on DVDs for a stipulated subscription period. With time, the Netflix business model transformed into an on-demand internet streaming media available to the viewers in North America, South America, parts of Asia, Europe and Oceania. In 2012, they had over 120000 titles for online streaming and over 23 million subscribers.
Now let us start dealing with the crux of the matter, the business model of Netflix.
Business Model Of Netflix
The business model of Netflix started off as a brick and mortar store for DVDs, but now it is the world’s leading and well renowned OTT platform. Let us start learning more about their cost and acquisitions.
Content Costs and Content Acquisition
Netflix spent more than $8.9 billion cash on streaming content. It already spent $5.39 this year, expanding the library through acquiring and creating content.
The reason Netflix has a vast library is that they acquire content from distributors and studios. They do this using direct purchases, revenue sharing agreements, and license agreements. It pays back to the revenue, as 80% of Netflix’s revenue comes from licensed content.
The company puts a premium on the shows branded with the Netflix logo in their upper left corners—called Netflix Originals. In 2013, Netflix presented Originals as the way of filling up more content for the users. They spent $2.7 billion on content and will aim to have 1,000 original content by end of 2018.
It is expected that investments for original content can increase up to 50% of the budget, according to industry experts
Let us know further about the Netflix revenue model
Business Model Of Netflix – Revenue Model
Netflix is the current pioneer of subscription-based content. It runs on a Subscription Video on Demand (SVOD) model. Subscribers pay for a monthly plan and are given access to a vast library of media—any time, anywhere. Thus, subscriptions are Netflix’s main source of revenue.
It also has a DVD rental on a subscription basis.
Business Model Of Netflix – Key Partners
Netflix has even set an alliance with PlayStation, X-Box, and many other businesses in the gaming industry. It has developed partnerships with the gaming sector to cater and provide all its gamer subscribers with video games as per their needs. During the phase of converting the business model from mail-in-system to streaming platform, Netflix built a partnership with Microsoft, Apple, and Android. And now, after joining the network on the web, it has successfully established its relations with big data providers such as Amazon and Google.
Let us know further about the pricing of Netflix
Business Model Of Netflix – Plans and Pricing
|Monthly cost * (Indian Rupee)||₹199 INR||₹499 INR||₹649 INR||₹799 INR|
|Number of screens you can watch on at the same time||1||1||2||4|
|Number of phones or tablets you can have downloaded on||1||1||2||4|
|Unlimited movies and TV shows||✓||✓||✓||✓|
|Watch on your mobile phone and tablet||✓||✓||✓||✓|
|Watch on your laptop and TV||x||✓||✓||✓|
Netflix offers a variety of plans to meet your needs. The plan you choose will determine the number of devices that you can watch Netflix on at the same time.
With all of the plans, you can download the Netflix app on all your favourite devices and watch unlimited movies and TV shows.
Let us know further about the revenue of Netflix
Business Model Of Netflix – Revenue
For the second quarter of 2021, Netflix reported revenue of $7.34 billion. Net income came in as $1.35 billion for the quarter. These figures increased from the period in 2020—$6.15 billion in revenue and net income of $0.72 billion. The company cited three reasons for its financial performance for the quarter: 1) increased membership growth due to home confinement, 2) decline in international revenue due to sharply rising dollar, and 3) delayed spending on content development due to the production shutdowns.
|Netflix||FY 2018||FY 2019||FY 2020|
|Revenue||$15.8 billion||$20.2 billion||$25 billion|
|Net Income||$1.2 billion||$1.9 billion||$2.8 billion|
Let’s get to know further about the competitors of Netflix
Competitors Analysis of Netflix
Several different competitors threaten to take away the market share from Netflix, including Amazon, Hulu, and Disney+, as well as some of the cable channels’ subscription services with it.
The biggest competitive threat to Netflix is Amazon. As of the first quarter of 2021, Prime Video had over 175 million subscribers—a number that has been growing at a fast pace as the company has increased the production of its original content.
If you’re an Amazon customer, you’re going to benefit from the Prime membership, which offers free two-day shipping for purchases along with the streaming subscription. The cost for this membership is $119 per year or $12.99 if you pay monthly. The subscription costs much less if you are a student: $59 per year or $6.49 per month.
If you are looking at going solo and getting the streaming service on its own, you can expect to pay $8.99 per month—the same cost as Netflix’s basic plan, and less than the premium subscription.
The big news for Hulu came in May 2019 with the announcement of a deal between Comcast and Disney which had Disney purchasing Comcast’s stake in Hulu for a reported $5.8 billion. Hulu’s numbers are much less than those who subscribe to Netflix and Amazon. Hulu hit 41.6 million subscribers in May 2021.
Hulu offers a growing number of options and add-ons. Hulu offers four levels of subscription plans: basic, premium, basic and live TV, with premium plus live TV. Monthly prices start from as low as $5.99 monthly for Hulu and go as high as $70.99 for ad-free Hulu + Live TV.
Disney+ is an on-demand, commercial-free service that houses the entire library of Disney movies with the original Disney TV series. Included in the library are titles from Pixar and Marvel, features from the Star Wars franchise, and the options from National Geographic. Subscribers get unlimited downloads to watch wherever and whenever they choose.
To succeed, we must move one step ahead of our competitors. In the case of Netflix, we have 6 Reasons. Let us go through that one by one.
6 Key Lessons From Netflix Marketing
1: Use Multi-channel Marketing to Connect with People Online and Offline
Netflix was a delivery DVD service. Over time, the company has diversified to offer their products to people on a range of devices. Now, many Smart TVs have Netflix installed. You can watch Netflix on your TV or computer, smartphone, or tablet.
Netflix made efforts on several different channels to guarantee maximum audience engagement:
- Snapchat – Netflix paid for an interactive ad, offering Snapchat users an augmented reality experience.
- Word-of-mouth marketing – The shows became a huge hit on their own, purely by word-of-mouth
Today’s consumers use more than one medium to connect with brands. By implementing a cross-channel marketing campaign, you can reach people wherever they are, engaging them on multiple touchpoints to nurture more interest in your products.
2: Make Emails Memorable and People Will Talk
Netflix is one of many companies that are tapping into the present-day potential of email marketing, pairing with machine learning-based systems to get more from the consumer data
The Netflix marketing strategy incorporates email to introduce new users.
Netflix took a chance when it was were promoting its new show, The Punisher. They sent an email that looked like spam, and could easily have been rejected or thrashed by many people immediately. However, once the email was opened, a GIF began to play. Suddenly, The Punisher logo flashes up on the screen, advertising to encourage people to watch the show.
Email marketing isn’t dead. However, boring, unimaginative emails may as well be sent to the graveyard for all the hype they’ll create. Netflix seeks to find unique and innovative ways of leveraging this old marketing channel.
Providing emails are valuable and skimmable, you can hook the attention of your prospects with little outlay.
3: Offer Personalized Content to Keep People Hooked
The reason Netflix is so dominant boils down to its obsession with personalization. This is a core component of modern marketing success in every industry today.
Thanks to personalization, no two users will have an identical homepage.
By focusing on your customers, you can create tailor-made shopping experiences that cater for their interests, which ultimately gets more engagement.
A modern marketing strategy that focuses on personalization and the customer experience will help build trust in the company, which leads to stronger customer relationships.
4: Let Data Show You the Secrets to Better Customer Service.
The rise of marketing automation has paved the way for greater personalization, as it allows companies to analyze data, and react to it accordingly.
Better, automation can do this instantaneously.
One of the best modern marketing tips from the Netflix strategy is that we need to be proactive.
With better data analysis, you can understand what people are looking for, and you’ll be able to provide it before the demand arises.
Once it does, your product is the obvious solution.
5: Embrace Machine Learning to Enhance the User Experience
The order of the shows will be arranged based on the user activity. However, the order of the shows is not the only aspect that continues to evolve.
With two groups of about 100,000 people each – one control group and one test group – Netflix can offer varied cards and see if one version truly has an impact on engagement.
Machine learning is a game-changing tech that has already transformed marketing research in a big way.
With a tool at the core of your modern marketing strategy, you will be able to take personalization and automation to an entirely different level.
6: Make Interactive Products and Experiences to Generate a Buzz
Netflix’s popular and disturbing series, Black Mirror focuses on the warped possibilities of technology.
Personalisation helps you to connect to your audience and make them hooked to our content and this leads to a positive outlook of the brand.
Major Reasons for the success of the Business Model of Netflix
- Netflix is expanding internationally. Within 7 years, it has established its popularity in 190 countries across the world.
- The strength of Netflix is its original content. In 2018, Netflix released over 1500 hours of movies, TV series and other productions.
- Netflix provides a variety of shows in several foreign languages, thus attracting a huge number of subscribers across the world. It has expanded from three languages- English, Spanish and Portuguese to more than 20 foreign languages.
- Netflix does not show any commercials during video streaming.
- It provides reasonable pricing.
Customer perception towards a brand is built by the value of satisfaction that the user receives after paying for the product ad the benefits the user looks for. Netflix has a large customer base this is because of the content and the originality of the same and the reasonable price which is affordable to every individual.
Retention of customers is possible through customer satisfaction. This can be achieved through its content and pricing however, Netflix should not ignore its competitors and should try to do activities that will retain its market share otherwise, the market share of Netflix may be reduced and it can be challenging to regain it. Therefore, Netflix should try to always satisfy its customers.
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