How Does Netflix Make Money?

Netflix's primary revenue model is straightforward: the company charges a monthly subscription fee to access its library of streaming content. Subscribers choose from multiple tiers — Standard with Ads ($6.99/month in the US), Standard ($15.49/month), and Premium ($22.99/month with 4K and four simultaneous streams). Netflix generates approximately $34 billion annually from these subscriptions, with revenue growth driven by a combination of subscriber additions and periodic price increases. The company has demonstrated strong pricing power, raising prices multiple times over the years with minimal subscriber churn, as the perceived value of its content library and convenience keeps users engaged.

Netflix's content strategy is central to its revenue generation. The company spends approximately $17 billion per year producing and licensing TV shows, movies, documentaries, and games across dozens of languages and markets. Unlike traditional media companies that license content to multiple distributors, Netflix primarily creates and owns exclusive content that can only be viewed on its platform. This exclusivity is the fundamental reason people subscribe and remain subscribers. The company's investment in non-English content — such as the South Korean phenomenon Squid Game, Spanish hit Money Heist, and German series Dark — has been instrumental in driving international subscriber growth, which now accounts for the majority of total subscribers.

The introduction of the ad-supported tier in late 2022 marked a strategic inflection point for Netflix. Priced significantly below the ad-free plans, the Standard with Ads tier attracts price-sensitive subscribers who accept limited advertising in exchange for a lower monthly fee. Netflix earns revenue from both the reduced subscription fee and from selling ad inventory to brands. The ad tier has grown rapidly to over 40 million monthly active users, and Netflix is building its own ad technology platform (moving away from initial partner Microsoft) to capture more of the advertising value chain. With CPM rates (cost per thousand impressions) among the highest in streaming due to Netflix's premium content environment and engaged audience, advertising has the potential to meaningfully boost revenue per subscriber.

Netflix's password-sharing crackdown, which rolled out globally in 2023, has been a significant revenue tailwind. Previously, over 100 million households were estimated to be using Netflix through shared accounts without paying. By requiring users in separate households to maintain their own subscriptions (or pay an extra member fee), Netflix converted millions of free riders into paying subscribers. This initiative, combined with the lower-priced ad tier that gave cost-conscious users an affordable entry point, drove Netflix to add over 30 million net new subscribers in 2023 alone. Looking ahead, Netflix is also exploring live events (sports, comedy specials), gaming, and other engagement-driven features to further justify subscription pricing and reduce churn.