Netflix (NFLX) is the dominant company in the on-demand media industry, with 233 million paying subscribers around the world. By creating compelling original programming, analyzing its user data to serve subscribers better, and above all, letting people consume content in the ways they prefer, Netflix disrupted the television industry and forced cable companies to change the way they do business.
It has certainly accelerated the trend towards cord-cutting. In Q1 2023, with the largest pay TV providers in the U.S. lost a record-high of about 2,215,000 net video subscribers, compared to a loss of about 1,850,000 in Q1 2022. According to a study conducted by Insider Intelligence, less than half of households in the U.S. (or 65.1 million) will have a traditional pay TV subscription by the end of 2023.
In the long run, Netflix's success may lead to the unbundling of cable. That is, cable customers may be allowed to pick and choose channels rather than pay for a whole batch to get what they want.
Key Takeaways
- Netflix has about 233 million paying customers globally.
- It has disrupted the television programming model and, to a growing extent, is doing the same to the cable industry.
- Netflix faces increasingly fierce competition from rivals including Amazon, Google, and Disney.
Undercutting the Competition
Netflix is essentially a storehouse of content, including movies, documentaries, and television series, both pre-existing and its own. For a flat monthly fee, subscribers can consume any program at any time on whatever device they prefer.
As of July 2023, Netflix had four tiers of monthly subscription prices: $6.99 for an ad-supported plan, $9.99 for the basic plan, $15.49 for its most popular HD-quality service, and $19.99 for a premium plan.
2.31 Million
The number of lost subscribers by all cable TV and live TV providers in Q1 2023.
The typical household pays $156.71 per month for a base cable television package, but with add-on fees and taxes, they wind up paying $217.42 per month.
How Netflix Got Started
It's a far cry from the company's humble beginnings. Netflix started in 1997 as a website that allowed people to rent DVDs online, get them delivered by mail, and return them the same way.
From the beginning, it competed with the networks and cable for people's entertainment time. But its real competition at that time was the established brick-and-mortar video rental business.
Streaming Begins
It was 2007 before internet speeds got fast enough, and personal computers got powerful enough, to allow streaming services to take off commercially. Netflix came out with a streaming service that year.
For the first time, customers could watch a TV show or movie on a computer, TV screen, tablet, phone, or gaming device. And consumers could watch what they wanted, when they wanted, and how they wanted it, without being limited to a schedule, interrupted by commercials, or even leaving home.
That last innovation pretty much killed the video rental business. Soon, cable companies and TV networks began offering on-demand content of their own.
The Move to Original Content
In 2013, Netflix began producing original content of its own, a risky and expensive proposition. At a time when the networks generally approved shows based on pilots that hit certain metrics, Netflix offered series producers and showrunners upfront contracts to create an entire season or two.
Soon, many of the most critically acclaimed and talked-about new series came out on Netflix instead of from the established networks, including "House of Cards," "Orange Is the New Black" and "The Crown." By creating a loyal fan base, original content has been a key source of Netflix's success and the appreciation of its stock price.
Birth of Binge-Watching
Around the same time, Netflix started uploading entire seasons of established TV series at once, essentially creating the binge-watching trend, in contrast to broadcast and cable TV's once-a-week installment model.
Netflix's production methods have forced TV networks to be more flexible and more aggressive in recruiting and retaining top talent.
Innovating to Stay on Top
Another innovation of Netflix has been to mine for user data aggressively. This data was initially sought to serve customers and help them find content that would appeal to them. However, Netflix now analyses this data to determine what genres and talents it should pursue in response to real demand.
Now, Netflix faces tough competition for programming and viewers from Amazon, Google, and Disney, among others. That's the price it pays for breaking the mold of how television is made and watched.
How Does Netflix Make Money?
Most of Netflix's revenue comes from streaming subscriptions, which equals $950 million a month. The DVD rental service brings in an additional $30 million a month.
How Much Does Netflix Pay for a Movie?
Netflix pays between $100 and $250 million to have the streaming rights for a movie.
What Was the Most Watched Show on Netflix in 2022?
"Stranger Things", with 52 billion minutes viewed.
The Bottom Line
Netflix's competitive advantage focuses on offering exclusive content that is not available on any other streaming platform. For this purpose, the company invests billions of dollars in creating its own shows and movies, allowing Netflix to differentiate itself from its competitors. Netflix also provides higher-quality streaming and offers an enhanced and personalized user experience through preview videos and an effective recommendation engine.
