How Do Netflix And Other Streaming Services Earn Money
Netflix and Amazon’s Prime Video are always at loggerheads as the streaming giants fight it out to get the most number of subscribers, the best shows and the most eyeballs. Some of the biggest shows from all across the world are either on Netflix or Prime Video. These services disrupted many industries – CD/DVD renting, music and even the film industry itself – giving viewers the opportunity to watch the best movies and tv shows from the comfort of your home.
So, how did they do it? How did they take over the experience of going to Movie theatres and watching movies on a big screen with a bucket of popcorn shared between the group of people.
What Is A Streaming Service?
A streaming service is a website that allows you to view content online for a fixed charge. This can be on a monthly, yearly or even a per show price. These streaming companies sign contracts with different production houses to get exclusive access to content. This allows for a viewer to get a unified content experience vs browsing the internet for different types of content. It also aims at stopping piracy which was prevalent before companies like Netflix showed up. In other words, “What Apple did with Apple Music, Netflix has done with movies and TV shows” which refers to the stopping of piracy in the entertainment business.
The World Before Streaming Services
Viewers like you and I have grown up watching movies at the cinema. Once the movie had run its natural course in these cinema theatres, the work on DVDs would begin. This was approximately five months post the movie release. If someone missed the movie during initial release , they would wait about six months for the movie to hit DVD production. Some preferred to wait for months more to watch the movie when it was eventually broadcast on television. Some even rented movies from places like Blockbuster(R.I.P.) or, in India, local renting stores.
Change In Business
Content production companies, traditionally, have had a business model that likes to control distribution. They wait for as long as they can before releasing a new format. For example, when they release a movie they wait till the vast majority of people who were willing to watch a movie at the cinema has watched it. Then they release other formats one by one. In the earlier days, they used to have different formats released one by one, which included DVD, CD, VCR, PPV and BlueRay. TV broadcasts were usually saved for last as it was reserved for people who wanted to see the movie, but were not willing to pay for it. So the production companies earned from TV sales and ad revenues.
But things have changed now and many production and distribution companies understand the importance of giving viewers options . The number of movie releases have also increased tenfold and a viewer does not wait for six months to watch a movie. Piracy has also been a concern with camera quality improving drastically, pirated versions of a movie have become very good in quality. The production companies were losing money in trying to control distribution. That is where streaming services came in.
Streaming Services Revenue
Many viewers think that Netflix is being paid by the production companies to list their movies. But in actuality it is the other way around. Netflix pays producers of movies to have content on their website for a set period of time. Once the time has expired, they choose to take it down or if the viewer count is more then they can extend the period by paying more.
In fact, Netflix’s entire cash flow comes from subscriptions. They have different plans for different countries which has options based on the number of screens. If you are subscribing for more than one screen so that two people from your friends or family can watch simultaneously. Amazon Prime which also earns from subscriptions as well but they have a one person one account policy and everyone has to subscribe to Prime separately.
Even though Netflix earns a lot from the subscription, they spend a lot more in advertising, marketing and overhead as well as operating cost. They also invest a lot on what they call Netflix Originals which are movies and TV shows produced by Netflix themselves. Prime Video have also heavily invested in originals but Netflix has had more hit titles like Stranger Things, Brahman Naman, Narcos, Little Things and so on. The new Black Mirror Bandersnatch and a movie called Bird Box saw rave reviews.
In a developing country like India with immense growth potential , streaming services like Netflix and Prime Video are producing Indian content and focussing on the Indian market by reducing subscription prices. The competition has just begun in India and it will be interesting to see if other players like Hulu see India as a possible expansion strategy in future. Till then, get your blankets and popcorn out, sit back, relax and stream.