Project Report

On

Netflix: Business Strategy & Market Analysis

By

UR23003: Abhishek Pattanaik

UR23049: Shivam Bhairu Talekar
UR23068: Abhishek Sreechandan
UR23075: Anusthita Roy
UR23098: Hemant Odnalwar

Mentored by
Prof. Priyaranjan Kumar

Report submitted to the School of Rural Management at Xavier Institute of Management,

Bhubaneshwar.

March, 2025
Netflix: Evolution from DVD Rentals to Global Streaming Giant
Founded in 1997 by Reed Hastings and Marc Randolph, Netflix disrupted the rental market
with a flat-fee DVD subscription model that eliminated late fees. In 2007, it transitioned to
online streaming, leveraging a personalized recommendation algorithm (Cinematch) to
enhance user engagement. Over time, Netflix expanded globally, becoming a leading SVoD
platform with 302 million paid subscribers.
Netflix’s model thrives on original content, third-party licensing, and direct-to-consumer
(D2C) distribution. Today, it remains a dominant force in entertainment, shaping viewing
habits and industry trends worldwide.
Netflix’s Market Expansion in India
Netflix entered India in 2016, bringing its extensive global content library to a country
dominated by local streaming platforms such as Disney+ Hotstar, Amazon Prime Video, and
JioCinema. However, its high pricing strategy initially limited adoption, as Indian consumers
were more accustomed to free and ad-supported content models. Recognizing this challenge,
Netflix adapted its strategy to cater to Indian users through:
 Affordable Mobile-Only Plans: Understanding the mobile-first nature of the Indian
market, Netflix introduced a ₹149 per month mobile-only plan, significantly lowering
the barrier to entry for price-sensitive consumers.
 Localization and Regional Content: Over 54% of India’s OTT content consumption
is in regional languages, and Netflix capitalized on this by expanding its Hindi, Tamil,
Telugu, and Malayalam content library.
 Investment in Original Indian Productions: Netflix has aggressively increased its
investments in Indian original content, releasing successful titles like Sacred Games,
Delhi Crime, and Kota Factory.

How Netflix Makes Money

Netflix generates revenue primarily through subscription fees, operating on a Subscription
Video-on-Demand (SVoD) model. It offers different pricing tiers, including mobile-only
plans, standard, and premium subscriptions. In 2023, Netflix's revenue reached $39 billion,
with India contributing ₹2,214 crore ($2.02 billion).
Additional revenue streams include:
 Ad-supported subscriptions (launched recently to capture budget-conscious users).

 Content licensing to third-party networks and syndication deals.

 Merchandising and gaming expansion, leveraging popular Netflix Originals
Challenges and Growth Opportunities in India
While Netflix has successfully grown to 10-12 million Indian subscribers, it faces several
challenges:
 High Competition: Netflix competes with cheaper alternatives like JioCinema, which
offers plans starting at ₹29/month.
 Subscription Fatigue: Consumers are becoming less willing to pay for multiple
streaming services.

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  Regional Language Expansion: Growth in India is increasingly driven by non-
Hindi, non-English content.

Business Analysis
Demand Strength
Demand strength is assessed based on subscriber growth, revenue per user (ARPU), and
retention rates. A higher retention rate indicates strong consumer loyalty, while ARPU
provides insights into revenue efficiency across different markets. A high retention rate
indicates strong consumer loyalty, while ARPU helps assess revenue efficiency across
different markets. The table below shows how Netflix performs across major regions. Netflix
ended 2024 with 301.6 million paid subscribers, a 16% YoY growth. However, market
penetration varies significantly by region:
Region Subscribers (M) Revenue ARPU ($)
($B)
US & Canada 89.6 17.3 16.30
EMEA 101.1 12.3 10.00
LATAM 53.3 4.8 8.00
APAC (India 57.5 4.4 8.26
included)
Creation
The ability to produce and license content plays a vital role in maintaining Netflix’s
competitive edge. The cost breakdown below highlights how much Netflix spends on content
production, technology, and marketing. A high percentage of revenue allocated to content
signifies aggressive content expansion, but it also puts pressure on profitability.
Netflix invested $17 billion in content in 2024, with the cost structure as follows:
Cost Component Expense ($B) % of Revenue
Content Licensing & 21.0 54%
Production
Technology & Development 2.9 7.4%
Sales & Marketing 2.9 7.4%
General & Admin Expenses 1.7 4.3%
Operating Income 10.4 26.6%
Delivery
The costs associated with delivery include streaming infrastructure, bandwidth optimization,
customer support, and offline viewing support. These factors contribute to a seamless
viewing experience and help reduce churn rates. These ensure a seamless viewing experience
and are key to reducing churn rates. The table below outlines the major delivery cost
components. Netflix leverages AWS cloud computing and proprietary CDNs for seamless
streaming while optimizing bandwidth costs.
Delivery Cost Breakdown Expense ($B)
Streaming Infrastructure 3.2
Bandwidth Optimization 1.5
Customer Support 0.7
Offline Viewing Support 0.3

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Distribution
The distribution strategy primarily follows a Direct-to-Consumer (D2C) model, which
helps maintain higher profit margins but also increases customer acquisition costs. Unlike
competitors, Netflix does not yet bundle services with telecom providers, which could limit
its reach. The table below summarizes the distribution channels and their respective strengths
and challenges.
Netflix operates a Direct-to-Consumer (D2C) model, but competitors use telecom
partnerships.
Distribution Channel Strengths Challenges
Direct-to-Consumer (D2C) Higher margins, global High customer acquisition
reach cost
Ad-supported Model Captures budget- Low ARPU compared to
conscious users premium tiers
Telecom Partnerships (not yet Potential subscriber Netflix lacks telco bundles
utilized) growth
Contribution Margins

Metric Amount ($B) % of Revenue

Gross Sales 39.0 100%
Discounts & Refunds (1.5) -3.8%
Net Revenue 37.5 96.2%

CM1: Product Margin CM1, or Product Margin, represents the difference between revenue
and the cost of goods sold (COGS), which includes expenses related to content production
and licensing. A high CM1 indicates that Netflix is effectively monetizing its content
investments.

Cost Component Expense % of Revenue

($B)
COGS (Content Cost) 21.0 54%
Gross Margin (CM1) 16.5 42.2%

CM2: Gross Margin After Delivery Costs CM2, or Gross Margin After Delivery Costs, is
derived by subtracting streaming infrastructure, fulfilment, and transaction fees from CM1.
This metric reflects Netflix’s efficiency in managing delivery-related expenses. This margin
reflects how efficiently Netflix manages the costs associated with delivering content to
consumers.

Cost Component Expense ($B) % of Revenue

Streaming 3.2 8.2%
Infrastructure
Fulfilment & Packaging 0.5 1.3%
Transaction Fees 0.3 0.8%
Gross Margin (CM2) 12.5 32%

CM3: Contribution Margin After Distribution Costs CM3, or Contribution Margin After
Distribution Costs, accounts for direct marketing expenses and provides a refined measure of

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profitability by highlighting the revenue retained after covering key operational costs. A high
CM3 means that Netflix is optimizing both content delivery and customer acquisition costs.

Cost Component Expense ($B) % of Revenue

Direct Marketing 2.9 7.4%
Contribution Margin (CM3) 9.6 24.6%
Business Positioning
Netflix remains highly profitable with an operating margin of 27%, but rising content costs
require optimization, Challenges include: Low ARPU in India, intense competition from
cheaper alternatives, and lack of telecom bundling partnerships.

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