How does Netflix make any money?

[stormkeeper_lovedoris]

I love Netflix. I don't get what their business model is though or how they make any money. They only get 5 bucks a month from me, and I don't see how that can even cover the costs of shipping me 2 DVDs a month (paying for both sending a DVD to me and my return of the DVD), let alone paying for the actual DVDs themselves, paying staff at their distribution centers, website upkeep, etc. How do they do it?

I realized one reason I love Netflix so much -- I associate having the time to watch DVDs with very happy times in my life. I tend to watch lots of DVDs around the holidays when I have some time off work, and I also watched several during my sabbatical. Movies = time off from work = happiness for me. Seriously, just thinking about having the time to sit down and watch a DVD makes me smile.

Comments

[sarahetc.livejournal.com]

I'm so glad you're enjoying it. How big is your queue?

[stormkpr.livejournal.com]

63

Yours?

[sarahetc.livejournal.com]

47 with two saved for when and if they come out on DVD.

[stormkpr.livejournal.com]

So, do you know how they make their $$? I am really wondering about that.

[sarahetc.livejournal.com]

I always assumed it was from people like me who go through feat and famine periods with them. Right now we give them $14/month, or whatever, and probably get 12-15 discs per month. For awhile though, we gave them that same amount of money every month and just hung onto the same three DVDs, never watching or returning. That made our account almost 100% profit for that period of time. There are probably plenty of people out there who pay for the service but don't use it to its fullest extent. And those people in the highest service tiers-- how many movies can you possibly watch a month? 28? That's if you do one every day. So they're paying for 18 out at a time and maybe using half of what they could get for a month, which is more profit for Netflix.

I also think they've probably got some serious bulk mail and volume distributor discounts. And they sell used discs, plus the insides of the sleeves are covered in ads, and that's probably a good amount of money there.

[stormkpr.livejournal.com]

Thank you - that makes a lot of sense. I get it.

[zooey-glass04.livejournal.com]

Netflix make their money off people like me (I have Amazon home rental, but it's the same principle). I love getting the DVDS - I rent TV shows, mostly - but I suck bigtime at remembering to return the DVDs. So at least every other month, I forget to return my DVD and they still get my money, without any pesky providing a service. So they win, and I also win, since if I rented a DVD from the video shop, I'd rack up a lot more than £4.99 in late fees. I'm betting that the majority of people who use these services are much like me, and we subsidise the people like you who actually use the service to the full.

[stormkpr.livejournal.com]

*nods* Thanks for the explanation - makes a lot of sense now.

[sesana]

I know that Netflix buys their DVDs in massive bulk (like, over a million copies of certain movies), which means they probably get great discounts there. But yes, I bet most of their profits come from people who don't fully use their plans.

*whispers* My queue has 94 items at the moment.

[stormkpr.livejournal.com]

94? Awesome!

I am really loving Netflix. Right now I've returned my 2 movies for the month and am looking at the calendar to see when my next one will be shipped to me. I like a lot of obscure movies that my local rental place never has but Netflix does...why on earth did it take me so long to join it??