How Netflix Makes Money

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Contributor, Benzinga
March 16, 2022

When a company's name turns into a verb, you know that it has cornered the market. While still not there yet, Netflix is closing in on such achievement.

Nowadays, the company rakes in billions in subscription revenues, specializing in online television streaming. However, it’s been expanding into new ventures while keeping the life support on for its original business.

Netflix’s Past

In 1997, Reed Hastings and Marc Randolph launched Kibble, a DVD sales and rental service. Operating from Scotts Valley, California, the company almost immediately shifted to the DVD rental business model. According to the story, Hastings saw an opportunity in physical advantages that DVDs held over the clunky and fragile videocassettes, making them suitable for post shipping.

Two years later, in 1999, the company started offering an online subscription service through the internet. Customers could choose from tens of thousands of movie titles sent from more than 100 distribution centers using mail delivery and prepaid return envelopes.

Yet, it wasn’t until 2007 when the company began offering streaming services through the Internet, quickly expanding through partnerships with companies that supported such infrastructure — from Blu-ray players to video game console manufacturers. In 2010, the company started expanding internationally and now operates in over 190 countries.

Netflix’s Present

While the tech sector has been under pressure for a while, Netflix was one of the companies leading the decline.

Over the last decade, the company returned average annualized returns in triple digits, yet it is now facing decelerating growth, as new subscriber rates keep stagnating.

The problem arose because of accelerating competition catching up to the market leader and punishing the valuation that seemingly got out of hand. At its peak, the stock traded at price-to-sales in double digits.

Yet, after a relentless sell-off, activist investor Bill Ackman took a $1.1 billion stake in the company. This action is a positive sign as investors expect Ackman to pressure management into more decisive actions.

Netflix’s Future

Hopes, dreams and activist investors might stir the interest, but only concise action will create a sustained recovery.

Facing slowing growth prospects, Netflix is exploring other markets. The company just acquired video game developer Next Games for 65 million euros. This Finnish studio is famous for its mobile game adaptations based on The Walking Dead TV series.

Furthermore, the company is looking for more film adaptations as they are partnering up with Take-Two Interactive Software Inc. (NASDAQ: TTWO) to produce a picture based on BioShock, a sci-fi game series that sold over 39 million copies.

Finally, the company is moving further into the interactive territory, planning to launch Trivia Quest on April 1. The series will have 30 daily episodes featuring 24 questions split equally between standard and hard. Viewers will select their answers on a multiple-choice basis.

From this standpoint, Netflix sees the future in blending the subcultures even more to expand the total addressable market while pushing the more immersive and interactive content.

How Netflix Makes Money

Netflix came a long way from the original movie-mailing business. Here is how the company makes money nowadays.

Digital Subscriptions

This segment is the primary revenue source. Netflix currently has 222 million subscribers who pay for one of three tiers:

  • Basic plan: $9.99 per month for one device.
  • Standard plan: $15.49 per month for two devices.
  • Premium plan: $19.99 per month up to four devices and Ultra HD quality.

While subscription fees vary by location, some content varies by location, too, as licensing might prevent the distribution.

DVD Rental Service

Surprisingly, the company still kept the physical movie rental service. They operate the service in tiers as well:

  • Standard: $7.99 per month for one title at a time
  • Premier: $11.99 per month for two titles at a time
  • Blue-ray: $14.99 per month

Although the number of DVD rental subscribers has been declining, by the end of 2020, it still had around 2 million subscribers in the U.S.

Interestingly, the company’s attempt to spin off the DVD service into a standalone business (Qwikster) failed in 2011.

Netflix Stock Price

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By looking at the Netflix chart from Benzinga Pro, you can see the velocity of the latest decline.


Netflix stock chart 2017- 2022, Source: BenzingaPro

It broke through two important support levels, essentially declining 50% from the top. Although there was a modest rally in February, that movement should not be classified as anything else than a dead cat bounce — a pullback after a severe decline.

Looking forward, it doesn’t seem the decline is over just yet, as the stock could decline for another 10% to 15%, especially if the broad market continues weakening. From a technical standpoint, a bullish thesis should restart once the stock closes above the $450 level.

Where to Invest in Netflix

Investing came a long way from its modest beginnings where you had to pick up the phone and hope your broker answered the call. Nowadays, you can easily invest through various online brokers’ web platforms or even your phone.

Here is a short list of online brokers that Benzinga recommends.

Netflix: The C-Suite

Behind a successful company lies successful management. These people are responsible for the inception and growth of Netflix:

  • Reed Hastings, Co-Founder and Co-CEO: A Stanford graduate and a former software developer, Hastings conceived a subscription-based movie-rental service after paying a hefty fee for a store-rented videocassette. He has served as a CEO since Netflix’s launch. You can follow him on LinkedIn and Twitter.
  • Theodore Sarandos, Co-CEO: Sarandos cultivated love toward the entertainment industry since early childhood, becoming a store manager of Arizona Video Cassettes West chain and later a vice president of West Coast Video. He joined Netflix in 2000, eventually becoming a Co-CEO and Chief Content Officer responsible for Netflix’s original content. You can follow him on LinkedIn.
  • Spencer Neumann, CFO: A Harvard graduate and a veteran of the entertainment industry, Neumann spent most of his career at Disney, eventually becoming a CFO and executive vice president of Walt Disney Parks and Resorts. Before joining Netflix, he held the position of CFO at Activision Blizzard. You can follow him on LinkedIn.
  • Gregory Peters, COO & CPO: A Yale alumni with a degree in physics and astronomy, Peters held various senior positions in the software and entertainment industry. He joined Netflix in 2008, overseeing product engineering and business development abroad in Japan before rising to the current position in 2017. You can follow him on LinkedIn.

Frequently Asked Questions


How many users can use Netflix?


The number of users who can simultaneously use the service depends on the subscription plan. The premium plan is likely the best choice for families as it allows four users simultaneously and offers ultra HD quality.


Can you use Netflix without a credit card?


Yes, you can use Netflix without a credit card by purchasing a Netflix gift card. Although these cards are not available worldwide, you can find them at major retail stores or online in the U.S.  Using this method, you can set your Netflix account as pre-paid, without perpetual recurring payments.


Is Netflix free with Amazon Prime?


Netflix is not free with Amazon Prime. Amazon is one of Netflix’s competitors with its Amazon Prime Video service. Other than sharing an account with a friend or a family member, the only way to get a free Netflix account is through a cable company or a cell phone provider that offers a free account with their service.