Netflix VOD Giant Business Model Revealed & Why You Should Create Video Streaming Services - StreamHash

Netflix wasn’t started in an arbitrary manner. In its near twenty years, a lot has changed for this Video on Demand (VoD) giant. It started as a DVD and Blu-Ray rental service and in 2007, Netflix made its foray in streaming media market. The year 2013 can be considered a breakthrough year for Netflix because Netflix made two important developments: Apart from adding television and film production, it looked set for online distribution of video content. Today, Netflix stands as an epitome of timeless Video on Demand (VoD) service. Netflix is a venture like no other; its presence in 190 countries with over 85 million paid subscribers speaks volumes about its success. As a matter of fact, Netflix competitors do not consistently record huge revenues. Amazon Prime is a first class exception though. Truth be told, Netflix Business Model and Netflix business plan are perfectly imitable and if anything, imitation is the greatest form of flattery.

Netflix Business Strategy:

Legend says that the CEO of Netflix, Wilmot Reed Hashtings, approached BlockBuster in 2000 for a partnership. BlockBuster denied the offer and as it panned out, BlockBuster was annihilated completely by Netflix in 2005. While it has been a sorry state of affairs for BloackBuster, Netflix has been trumping almost every video streaming and video on demand service with its best of the class business strategy.

Netflix business strategy can be broken down into three simple points:

Produce: Invest in producing awesome content

Purchase: Purchase and acquire licenses of popular TV series and movies

Leverage: Leverage content distribution benefits   

Netflix, being the undisputed kingpin of the Video on Demand market, has the courage to start its own “Netflix Originals”. And guess what, House of Cards and Orange is the new Black have mustered enough audiences and became crowd pullers. As far as its external funding is concerned, Netflix raised approximately $200 million through equity financing. Debt financing is the sister of equity financing and Netflix raised $1.8 billion through debt financing.

Netflix Business Model:

Popular content studios such as Warner Bros, Fox Studios etc., produce very good content and quite obviously, they look for distributors who can distribute the content to massive audiences. Now, Hollywood is a huge industry which hinges predominantly on two distribution partners: Movie theaters/multiplexes and DVD selling companies. Not so long ago, Hollywood industry added another distributor partner- Online paid subscription sites. This is where video on demand sites such as Netflix, Amazon Prime, Hulu etc., come into the picture.

Video Streaming Services

The interplay of licensing deals and rights purchase is often much talked about. Here is a brief on how licensing works:

  1. Assume that I am a content producer. Naturally, I invest a substantial amount to produce super fine quality content.
  2. I strike deals with movie theaters and multiplexes and subsequently sell premiering rights.
  3. A clause on commission i.e., the percentage of box office revenue to be collected should be clearly detailed out.
  4. I also make money by striking deals with DVD selling companies. Of course, my earnings are in the form percentage cuts.

According to The Wall Street Journal, Netflix is the single largest purchaser of licensing rights. It is followed by Amazon.com and Hulu.

Netflix’s Subscription Business Model:

Netflix Subscription Model

Netflix business model entails its subscription based business model. Here is a brief on the same:

  1. To begin with, Netflix buys content from content publishing and content producing studios.
  2. Netflix streams content. Users who wish to view the content should purchase a monthly subscription plan. There is another alternative available to users- Pay per Use
  3. Netflix tries to increase its subscriber base through cautious and enchanting marketing efforts.
  4. Money received from subscribers is used to buy more and more content.
  5. After gaining immense popularity and stardom, start producing own content. Strike licensing partnerships with other media channels such as Colors Infinity. For your information, House of Cards and Orange is the New Black is being aired on Colors Infinity.
  6. To tap the non-subscriber market, rent out DVDs. Rental money is a source of income not only from non-subscribers but also from one-time users.
  7. Streaming formats are not uniform. Netflix is known for converting one streaming format into multiple commercial streaming formats. And interestingly, Netflix makes BIG money through this model.
  8. Another inherent element of Netflix’s revenue model is strategic product placement. For instance, season 1 of House of Cards had a plenty of product placements featuring Play Station 4, car rental ads etc.

Thanks to its superior video streaming services, Netflix has an estimated revenue of $8 billion and not astonishingly, the video on demand giant spends a significant chunk on content acquisition.

Why You Should Create Video Streaming Services:

In the earlier paragraphs, I have quantified the earnings of Netflix. I would like to substantiate my point with yet another interesting estimation – the market for subscription based economy tools is touted to touch $100 billion. When I mean subscription based services, many things such as subscription based auto insurance, car rental services etc., come under its umbrella. For all intents and purposes, subscription based video streaming business model is recession free. This is because people do not buy the complete package in one single payment. If anything, they enjoy the flexibility of turning off and on a service.

Remember, it is not possible to get instant brand recognition. You should be sure that you have a significant chunk of audiences ready to consume your content. Also, you should procure rights to all the content you wish to stream. After ticking these two checkboxes, you should definitely then think of starting a Netflix clone.

So, what do you require to start a massive Video on Demand (VoD) site like Netflix?

  • Content Distribution Network: A content distribution network stores all your video content on servers spread across various geographical points. CDNs are scalable. In other words, if traffic to your website is high, CDNs will be capable of handling it with ease.

  • Payment Gateways: Popular payment gateways such as PayPal, Stripe, Braintree etc., should be incorporated to handle billing and subscription based payments

  • Data Analytics: Presence of this module is incredibly imperative. This module throws insights on who is watching what, how often and how long are audiences watching, etc. Such insights help you plan and promote your programs. You should take all the insights into consideration before producing or purchasing new content

  • AdManager: Proper ad positioning is important. This module categories ad based on their performance- high performing, non-performing and medium performing.

  • Data Hosting: If you are embarking on a video streaming service business, it is important to have a place to host content.

  • Admin Panel: You cannot do away with this module. This module helps you grant and revoke viewing permissions to paid and unpaid subscribers.

  • Multiple Monetization Channels: The very purpose of running a Netflix-like business venture will be defeated if there aren’t any monetization channels. Apart from having an avenue for subscription based viewing, there should also be an avenue to facilitate pay-per-view schemes. Another monetization feature is the presence of banner ads. If viewers click ads, you make decent money.

  • Encoder: This module is required to convert information or data into one format to another format.

  • Search Engine Optimization: To get ranked in search engines, digital marketing efforts should be exemplary. A built-in SEO module will ideally help admin control and set SEO setting for keywords.

StreamView

Well, the list goes on. The job of building a Netflix clone site from scratch is tedious. Most importantly, it is extremely difficult and to be upfront, very expensive. It therefore makes a lot of sense to go with a turnkey software solution like StreamView. StreamView is equipped with the following three channels that let you upload videos in bulk:

  • Amazon S3 bucket
  • YouTube Links
  • Normal Uploads
  • Website Links

Yes, there are several other options available in the market. But not every option is known to minimize your content distribution efforts like how StreamView does. Please visit StreamView for further details.

We can help you reach the pantheons of glory and success. If there is anything troubling you and your venture, do not hesitate to drop a line or two in the comments section. We shall help reply in a day or two. Subscribe to our newsletter. Keep watching this space for insights on video streaming business. Cheers!