Netflix Probed

With the growing consumption of online content in the past few years, the concept of physical DVD’s and rentals has phased out. In fact, Netflix has bought the business model of physical DVD rental stores online and it now has 118 million streaming subscribers (not counting the freeloaders) along with a market capitalization of more than $100 billion.

Netflix is an online streaming content provider that allows its subscribers to watch movies, TV shows, documentaries, etc. on internet connected devices. The company operates on a subscription-based model where the users select and pay for a monthly subscription plan and this gives them unrestricted access to the online content. The way Netflix operates is, it incurs licensing cost to acquire different content, the production cost for Netflix Originals, marketing costs to stay competitive in the market and this includes the cost of that one month of free Netflix we all get to enjoy guilt-free, along with various other costs that come with running a company. For all these costs the only source of revenue for Netflix is the subscription fee it charges its users. In this case, a big concern for the company should be the number of people who violate the Terms of Use and share their Netflix account.

However, the company is not concerned with nearly 25 million non-paying users, instead of coming up with more restrictive terms of use and putting an end to ‘account sharing’ they introduced family plans at a higher cost so that multiple users can have convenient access to one account. This move wasn’t the company being considerate, this was a way for Netflix to beat us at our own game by getting higher subscription fees from one paying subscriber by offering premium plans for 4 screen viewership. These higher subscription fees only act as a concession for the nearly $2 billion that the company loses out on due to account sharers. While account sharing hurts the pockets of the company which is $12 billion in debt, it acts as a source of marketing for Netflix and helps the brand compete against the aggressive marketing tactics of its competitors like Hulu (Disney, owner of Hulu, recently invested in Synamedia for its anti-sharing algorithm which can hurt the Hulu brand). 

Netflix can opt to hunt down these account sharers but that would lead to negative publicity for the brand and the company risks losing out on its existing subscriber base. The company has found other ways of cutting costs and staying ahead of its competition. One such way is shelling out money for its original produced content which saves the company licensing costs and now it acts as a differentiating factor for the company.

So while we think we are saving our money by mooching off someone’s Netflix account, the company has already lined its pocket with money.