How Netflix Makes Money
By Kavan Chan
In recent history, streaming services such as Netflix and Disney+ have completely transformed how audiences experience film. Originally, one would have to travel to a cinema and purchase a ticket to watch films or arrive at the Television at specific times of the day or week to watch episodes of TV shows. However, the invention and modernisation of streaming services transformed film— once bound to theatres and television screens— to laptops and mobile phones. This allows for absolute accessibility and availability by the general public, who can experience entire catalogues of entertainment from their handheld devices.
In addition to streaming films from other studios, Netflix has also produced globally renowned TV shows, documentaries and comedy specials such as Squid Game, Dave Chappelle-The Dreamer and Dahmer, which although extremely popular amongst social media users and critics alike, have to come with heavy, expensive costs. In 2018 alone, the company was estimated to have spent over $ USD 13 billion on their creations, yet through all of its costly choices, Netflix still survives as a multi-billion dollar company. So, how exactly does Netflix profit from its many productions?
History of Netflix— the pursuit of independence:
To understand the business’s economic success, we must understand how it came to be in the first place and why it produced its original works. Originally, Netflix stood as a competitor to Blockbuster, renting out content from other film studios before selling and lending DVDs to customers desiring to watch their favourite flicks from their home screens. But, as time went on, DVDs were becoming a figment of the past, as sales began rapidly declining in 2007. It was during this transitional period that Netflix began adapting its business model to the one we see today, a streaming service that featured the licenses of films from profitable, professional studios such as The Office and The Wolf of Wall Street.
Whilst streaming became a mainstay in the 21st century, their amount of subscribers began to exponentially rise, growing from $7M customers in 2007, to a whopping $33M in 2013, representing the changes that would inevitably occur following innovation in the digital age and providing them with the money to license their shows, stopping Netflix from being overly reliant on the successes of other companies. This chain reaction that led to Wednesday and Stranger Things originated with House of Cards, a political thriller with a star-studded cast that had a budget of around $50 million per season. Unfortunately for fans of television not originally produced by Netflix, shows created by other studios would gradually be dropped in a process that continues to this day. Netflix also continued to expand its catalogue to contain content from all sorts of genres, from K-Dramas to Animation and Reality TV.
An Infinite Money Glitch, or an Inescapable Chasm of Debt?
As stated earlier, Netflix was estimated to spend over $13 billion on its projects alone in 2018, which is a lot of money to be primarily carried by a cheap monthly subscription. Their spending becomes increasingly more severe in 2025, as it is estimated that over $18 billion will be spent on originals this year. Surprisingly, Netflix is making large sums of money from their hefty spending in 2024, where they earned a revenue of around $39 billion and a net income of around $8 billion, which was a 61% increase from their income in 2023.
Furthermore, Netflix commits to a process known as Amortization, where a product or project’s budget is spread across several years to lessen the upfront costs on its financial statement, and although it is a common business practice, it means that Netflix’s spending grows larger and larger every year. The statistic that defines Netflix’s profitability is Free Cash Flow, which compares the money a company is spending at the moment to the amount of money it's earning. In 2017, the business was -2 Billion dollars in the red, which although concerning to the average company, doesn’t affect Netflix due to their prioritisation of Monthly Subscribers and Users rather than direct income.
As of January 21st, 2025, Netflix has successfully crossed over 300 Million subscribers on the platform by reaching 301.63 million users. Netflix has to earn a lot of subscribers every month to justify its extravagant, ever-increasing spending habits. Even though the company is decades old, it is treated by investors as if it’s an up-and-coming start-up, and these investors ignore how their money is spent as long as that number begins increasing. As of now, the stock for Netflix has nearly doubled since April 2024, when the price per stock increased from HKD $555 per share to around HKD $1025 per share on February 7th 2025. This makes Netflix worth more than Disney, Apple and Nike, which are all renowned companies in their own right.
Conclusion
In summary, by paving the way for its independence as a company and creating a long-term investment strategy that allows for grander expenses and increasing profits, Netflix keeps itself afloat even under its hefty spending.