Apr 20, 2023

Netflix: How Does the Streaming Service Business Model Work?

Business Model Idea
by Stefan Lemmerer

The Beginning of Netflix

Netflix was founded in 1997 by Reed Hastings and Marc Randolph. At the time, Netflix was a DVD rental-by-mail service. Customers would browse a vast collection of DVDs on the Netflix website and select the titles they wanted to rent. Netflix would then mail the DVDs to their customers, who would watch them and return them via mail. Netflix's business model was based on monthly subscriptions, with customers paying a flat fee to rent as many DVDs as they wanted.

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However, as technology advanced and internet speeds improved, Netflix realized that the future of entertainment was online streaming. In 2007, Netflix launched its streaming service, allowing customers to watch TV shows and movies instantly on their computers. This was a game-changer, and Netflix's subscriber base grew rapidly.

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How Netflix Works

Netflix's business model is based on a simple concept: subscription-based streaming. Customers pay a monthly fee to access Netflix's vast library of TV shows and movies. Netflix has a wide range of content, from its original series to licensed shows and movies.

UK Netflix Plans

The streaming service operates on a subscription model, where users pay a monthly fee for access to the platform. Netflix offers three main subscription plans: Basic, Standard, and Premium. The Basic plan allows users to stream content in standard definition on one device at a time, while the Standard plan allows streaming in high definition on two devices simultaneously. The Premium plan allows streaming in 4K Ultra HD on up to four devices simultaneously. This tiered approach to pricing allows Netflix to cater to different types of users with different needs and budgets.

In addition to its subscription-based revenue model, Netflix also earns revenue through licensing agreements with content creators. Netflix spends billions of dollars each year to acquire the rights to TV shows and movies from studios and content creators. This allows Netflix to expand its library of content and provide users with a diverse range of programming.

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Netflix's Competitive Advantage

One of Netflix's biggest competitive advantages is its investment in original content. In recent years, Netflix has shifted its focus towards producing original series and movies, rather than relying solely on licensed content. This strategy has paid off, with hit shows like Stranger Things, The Crown, and Narcos drawing in millions of viewers.


By producing its own content, Netflix has greater control over its programming and can tailor its offerings to its subscriber base. Additionally, Netflix's original content is exclusive to the streaming service, giving it a competitive advantage over other streaming services.

Another competitive advantage that Netflix has is its user data. Netflix collects data on its users' viewing habits, which allows it to make data-driven decisions about its programming. For example, if Netflix notices that a particular type of show is popular among its users, it can produce more shows in that genre to meet demand. This data also allows Netflix to personalize its recommendations for each user, increasing the chances that they will continue to use the service.

The Future of Netflix

As the streaming industry continues to evolve, Netflix will need to adapt to stay ahead of its competitors. One of the challenges that Netflix faces is the increasing competition in the streaming industry. With the launch of new streaming services like Disney+ and HBO Max, Netflix will need to continue to invest in original content to maintain its competitive edge.

Another challenge that Netflix faces is the rising cost of content. As more streaming services enter the market, the cost of licensing popular shows and movies has gone up. This has put additional pressure on Netflix to produce more of its own content and to find ways to keep costs down while maintaining the quality of its programming.

Despite these challenges, Netflix is well-positioned for the future. The company has a loyal subscriber base, a vast library of content, and a proven track record of producing successful original programming. Additionally, Netflix has a global reach, with subscribers in over 190 countries. This global presence gives Netflix the opportunity to produce programming that appeals to a diverse audience, making it an attractive platform for content creators and studios.

Current Problems - Password Sharing

Netflix has announced that it will be taking steps to combat password sharing, a practice that has long been a thorn in the side of the streaming giant. The move comes as Netflix looks to protect its revenue and ensure that it is being compensated for the use of its service.

Password sharing is a common practice among Netflix subscribers, with many sharing their login credentials with friends and family members. While this has been a way for Netflix to expand its subscriber base, it has also resulted in lost revenue as users who would have otherwise paid for their own subscription are using the service for free.

To combat this issue, Netflix is testing a new feature that will prompt users to verify their account with a code sent via text or email. This feature will be rolled out gradually, and Netflix has stated that it is not intended to prevent password sharing entirely, but rather to encourage users to sign up for their own account.

Additionally, Netflix is exploring other ways to combat password sharing, including the use of artificial intelligence to detect and flag suspicious account activity.

The move to combat password sharing has been met with mixed reactions. While some applaud Netflix's efforts to protect its revenue, others argue that password sharing has been a way for people to access content that they would not have otherwise been able to afford.

It remains to be seen how effective Netflix's efforts to combat password sharing will be. While the company has stated that it is not intended to prevent password sharing entirely, it is clear that Netflix is looking for ways to protect its revenue and ensure that it is being compensated for the use of its service.

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Netflix has revolutionized the entertainment industry with its streaming service business model. By focusing on subscription-based revenue and investing in original content, Netflix has become the dominant player in the streaming industry. However, as competition in the industry heats up, Netflix will need to continue to adapt and innovate to stay ahead of its competitors. But for now, it is clear that Netflix's business model is a winning formula that has changed the way we consume entertainment.

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