How Netflix Makes Money

Subscriptions remain the company's main source of revenue, and growth has slowed

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Nathan Reiff
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Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.
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Updated September 26, 2023
Reviewed by
Thomas J. Catalano
Thomas Catalano
Reviewed by Thomas J. Catalano
Full Bio

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

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Netflix Inc. (NFLX) is a media company offering streaming entertainment subscriptions. Its digital platform allows subscribers to stream TV series, documentaries, and feature films on demand. The company also offers a range of mobile games.

Competition in streaming video entertainment has intensified in recent years with a number of media giants launching streaming platforms. Netflix's service faces competition from Walt Disney Co.'s (DIS) Disney+, Amazon.com Inc.'s (AMZN) Prime Video, Apple Inc.'s (AAPL) Apple TV+, and Peacock from Comcast Corp. (CMCSA) subsidiary NBCUniversal.

Key Takeaways

  • Netflix operates a subscription streaming service offering a wide range of licensed and original entertainment programming, including movies and serials.
  • The company generates almost 100% of its revenue from subscription services, with the U.S. and Canada accounting for the bulk of revenues while Latin America is the fastest-growing region.
  • Netflix suspended its service and production work in Russia after Russia's invasion of Ukraine.
  • In Q2 2023, the company rolled out its paid-sharing platform, whereby members who wish to share their account with people outside of their household must purchase an additional member slot to do so.

Netflix's Financials

On July 19, 2023, Netflix announced financial results for the Q2 2023 quarter ended June 30, 2023. The company reported net income of $1.49 billion, up 3.24% from the year-ago quarter. Revenue for the quarter grew 2.72% year over year (YOY) to $8.2 billion.

Netflix's global streaming paid memberships, a key metric, rose 8% YOY to a total of 238.39 million. Growth in the company's global streaming paid memberships has been consistent in the past four quarters from 220.67 in Q2 2022.

The company launched paid sharing in May 2023 in over 100 countries, representing more than 80% of the company's revenue base. Netflix expects to see increased revenues in the second half of 2023 as it fully realizes the benefits of paid sharing as well as growth in the company's ad-supported plan.

Netflix's Business Segments

Netflix does not sell its user data. Subscriptions are the predominant source of the company's revenue; however, now that the company has started a lower-cost membership that includes advertising, the company has been bringing in revenues through that channel. Streaming services are available in three tiers: Premium, Standard, and Standard With Ads.

Although the company operates as a single business segment, Netflix does break out its revenue into four broad regions: the United States and Canada; Europe, Middle East, and Africa; Latin America; and Asia-Pacific.

United States and Canada

Revenue from the United States and Canada increased 1.72% from the same period last year to $3.6 billion in Q2 2023. The region remained Netflix's mainstay, accounting for approximately 44% of the company's revenue.

Europe, Middle East, and Africa

Revenue from Netflix's Europe, Middle East, and Africa region grew 4.27% YOY to $2.56 billion in Q2 2023. The region generated about 31.4% of Netflix's revenue.

Latin America

Latin America revenue rose 4.56% YOY to $1.08 billion in Q2 2023. Latin America was the fastest-growing region for the quarter. It contributed approximately 13.2% of Netflix's quarterly revenue.

Asia-Pacific

Revenue from the Asia-Pacific region increased 1.2% YOY to $919 million in Q2 2023. The region accounted for approximately 11.27% of the company's revenue.

Netflix's Recent Developments

In early March 2022, Netflix suspended its service in Russia following Russia's invasion of Ukraine. The company reportedly had 1 million subscribers in the country, some of whom are now suing Netflix in Russia for withdrawing the service.

In May 2023, the country launched its paid-sharing service, which allows paying members to buy additional user slots to their accounts for users who do not live in their homes. Previously, anyone could share their Netflix account with anyone else; however, Netflix realized it was losing money this way and started to stop the process and monetize additional users.

Members will have to purchase an additional slot, the cost of which varies depending on the country and type of membership.

In April 2023, Netflix Co-CEO Ted Sarandos announced that Netflix would be winding down its DVD rental service. On September 29, 2023, they will be shipping out their final discs.

How Netflix Reports Diversity and Inclusiveness

As part of our commitment to diversity, we examined the data Netflix releases about the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Netflix discloses data about the diversity of its board of directors, C-Suite (top executives), general management, and employees overall, as denoted with a ✔. It also shows whether Netflix discloses data on those groups by race, gender, ability, veteran status, and LGBTQ+ identity.

Netflix Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 		        
General Management ✔ (U.S. only) ✔      
Employees ✔ (U.S. only) ✔      

How Much Revenue Does Netflix Generate?

For Netflix's year-end Dec. 31, 2022, the company generated revenues of $31.6 billion. For the six months ending June 30, 2023, the company generated revenues of $16.3 billion.

How Much Debt Does Netflix Have?

For the period ending June 30, 2023, Netflix has a total long-term debt of $14.1 billion.

Does Netflix Make a Profit?

Yes, Netflix makes a profit. For the fiscal year ending Dec. 31, 2022, the company had a net income of $4.5 billion, which was a slight decrease from the previous fiscal year's net income of $5.1 billion; however, a much higher net income than 2020's $2.8 billion.

The Bottom Line

Netflix was the pioneer in streaming services, changing the way in which people watch movies and television at home. As such, it commanded the market share of streaming platforms until competitors such as Amazon, Disney, and Apple got into the game.

Though growth has slowed, Netflix remains a leader in subscription video-on-demand (SVOD) with a 20% market share in the U.S. as of Q2 2023; second only to Amazon's 21%. The company has opportunities for growth in emerging markets but competition will continue to be an obstacle to overcome.

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Article Sources
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  1. U.S. Securities and Exchange Commission. "Netflix, Form 10-Q for the Period Ending June 30, 2023," Page 3.

  2. U.S. Securities and Exchange Commission. "Netflix, Form 10-Q for the Period Ending June 30, 2023," Page 4.

  3. Netflix Inc. "Q2 2023 Letter to the Shareholders," Page 1.

  4. Netflix Inc. "Plans and Pricing."

  5. Netflix Inc. "Q2 2023 Letter to the Shareholders," Page 8.

  6. The Hollywood Reporter. "Netflix Suspends Service in Russia Amid Ongoing Invasion of Ukraine."

  7. Variety. "Russian Netflix Users Sue Streamer for Loss of Service."

  8. Netflix Inc. "An Update on Sharing."

  9. Netflix. "Netflix DVD - The Final Season."

  10. U.S. Securities and Exchange Commission. "Netflix, Form 10-K for the Year End Dec. 31, 2023," Page 20.

  11. U.S. Securities and Exchange Commission. "Netflix, Form 10-Q for the Period Ending June 30, 2023," Page 6.

  12. U.S. Securities and Exchange Commission. "Netflix, Form 10-K for the Year End Dec. 31, 2023," Page 39.

  13. Statista. "Market Shares of Selected Subscription Video-on-Demand (SVOD) Services in the United States in 2nd Quarter 2023."