How does Netflix make money?

There are multiple things you don’t know about Netflix, but one question, which every Netflix member has is – How does it make money? Perhaps, it is not rocket science. But, the question has a legit answer, in any case.
Netflix disburses more money than you probably concede, and the company is still technically in debt despite being valued at over $100 billion.

Netflix is the premium online television streaming due to its lead on its competitors. This lead is helping Netflix to outpace Amazon Prime and Hulu in terms of growth in this sector.

Hulu and Amazon Prime have enhanced their plan to put Netflix behind the race. Moreover, all three of them offer original content in addition to exclusive movies, shows, and documentaries.
Ultimately, Netflix does make money. How? Let’s have a look.

The massive profit comes from subscription plans.

Netflix suggests three plans to its subscribers: $7.99/month for one screen of streaming a month; $10.99/month for two simultaneous screens of streaming; and 13.99/month for four shares.

If you have that basic streaming plan, don’t feel guilty choosing the inexpensive option because Netflix is drawing in $950 million per month on their subscription model alone.

Netflix’s debt is a part of the plan.

Netflix has gone through significant debts of $4.8 billion. That was huge because their Free Cash Flow (FCF) was nearly negative $2 billion that year.

However, the negative FCF is not a statement of loss as it shows that the company is expanding more on things that will add value in the long term.

When Netflix declared its third quarter for 2017, it disclosed its spending between $7 billion and $8 billion on original content in 2018.

Ultimately, the company’s belief was to spend more on providing quality content. If they offer more quality content, it will attract more subscribers, eventually more profit.

Barton Crockett, JP Morgan’s analyst, put out a statement in 2007, wherein he said Netflix, which pioneered online DVD rental and dominated the industry with over 6.8 million paid users, experienced competition from big players like Blockbuster that is much tougher than we had initially predicted.

He said that Netflix is going through a challenging competition by the back-then DVD rental – Blockbuster.

Because Netflix in 2007 was facing very peculiar crunch circumstances. Furthermore, after the news came out, the stock prices of Netflix went down by 5%.

Moreover, in general, the market became highly suspicious about Netflix’s future growth.
However, Netflix was so strategically competent to steer through this position that in the next 15 years, Netflix evolved as one of the best-performing stocks across the globe.

During the last few years, Netflix cultivated a return of 10,000% from 2017 to 2018.

In this aticle, let us decipher such an impactful analysis and the business model of the world’s largest OTT platform – Netflix. First, let us understand the business model of Netflix, followed by its strategies and money-magnet approach. Nevertheless, before we move further, let us take a bird’s eye view of how Netflix works.