Saturday, September 18, 2010

Netflix

I'm very envious that Americans can get that amazing deal with Netflix, tons of streaming content just included in the price.

But how the heck they can make money on it is a mystery. See this article for instance.
Lets say the average cost to stream and license a movie is $0.50. All it takes is one user streaming ten movies a month and Netflix's cost is five bucks. And with their cheapest DVD offering with unlimited streaming being $8.99 a month, how much can Netflix realistically charge for a streaming only service? Maybe $5.99? So far, the economics of a streaming only service don't work unless Netflix can get very good licensing terms and hope that users who don't stream a ton of movies each month make up for the ones that do.

If I had set it up, I would have charged at least a tenner more for getting the streaming. It would still be an excellent deal. As it is, I don't see what their strategy is.

3 comments:

Tommy said...

I think that it must work like the coffee maker business. Makers of coffee makers would gladly give your their maker, some actually do, and then sell you the filters.....If there are millions of people drinking coffee and each drinking lots each day. That extremely small profit on each filter grows into big money...

Anonymous said...

Similar to running an all-you-can-eat food buffet. Not everyone downloads more than their subscription costs *every* month.

As long as they make a profit on a large enough subset of the their subscribers each month, it doesn't matter if some subscribers are never profitable. Most likely, every subsriber is profitable at least once in a while.

And, I'm sure they monitor these statistics VERY closely.

Dave Nielsen said...

I wouldn't bother with Netflix as I can get most movies online for free.