How Does Netflix Make Money

How Netflix makes money

Last Updated on 03/06/2021 by GS Staff

Q: How does Netflix make money?

Netflix makes money by providing a movie and television streaming service to approximately 200 million subscribers globally. They also offer an option to have DVDs mailed to the home (U.S. members only). Netflix makes money by charging a monthly fee for these services.

Streaming Plan Fees

Below are the fees in the U.S. as of March 6, 2021:

BasicStandardPremium
Cost (monthly)$8.99$13.99$17.99
Number of screens that can be watched at once124
Number of phones/tablets you can have downloaded on124
HD AvailableNoYesYes
Ultra HD AvailableNoNoYes

DVD Plan Fees

StandardPremier
Cost (monthly)$7.99$11.99
Discs out at a time (unlimited)12
Late FeesNoneNone
Shipping CostFreeFree
CancellationAnytimeAnytime

 

 

Performance Overview

The below tables reflects an overview of the revenue and income figures for global streaming memberships between 2014 and 2016. This should provide you with a snapshot of how much money is being brought in through their streaming service across 190 countries.

 2019 (Year Ended December 31)2018 (Year Ended December 31)2017 (Year Ended December 31)
Paid Memberships167,090,000139,259,000110,644,000
Average monthly revenue per paying membership$10.82$10.31$9.43
Streaming Revenues$19,859,230,000$15,428,752,000$11,242,216,000
DVD Revenues$297,217,000$365,589,000$450,497,000
Operating Income$20,156,447,000$15,794,341,000$11,692,713,000

Free Cash Flow

The company was burning through cash for many years. We are talking billions. However, the company has finally become cash flow positive. Free cash flow was $1.9 billion as of December 31, 2020.

This was due to a number of factors. One of those factors was subscriber growth. The pandemic helped a lot of people realize the need for Netflix in their homes. People who were delaying getting the streaming service opted for it sooner. Additionally, marketing spending was reduced since the pandemic naturally had people flocking to the service without having to be reminded to sign up for the service through advertisements. Finally, overall content spending was down in 2020 as production was challenging because of Covid-19. 

The company anticipates lower subscribers in 2021 compared to 2020. They are also going to increase production significantly as the pandemic concerns likely die out. It will be interesting to see if the company will maintain positive free cash flow in 2021 as they spend to keep and add to their number of subscribers. 

 

Image Credit: Sardayyy / flickr