Streaming is a perfect example of this, as people don’t seem to realise just how expensive it is to maintain the infrastructure for it compared to traditional cable infrastructure
Much of the cost of streaming for platforms like Netflix, and especially YouTube, are due to the need to centralize it to allow for more data collection. The cost of streaming also gets overblown, by a lot. Companies like Google and Netflix are spending huge amounts of money trying to build out new features and offerings, like games, that make it look like maintaining the streaming service is far more expensive than it is
But that price was also only possible because of various venture capitalists investing heavily in Netflix
Netflix has never needed to rely on venture capital for their streaming platform. Netflix has made a gross profit every quarter since 2011 when this data starts. They have also had a net income all but one of those quarters, which is absolutely insane for a new tech company investing that much in R&D + licensing
The recent hikes (all the way up to what, $20?) are the result of venture capital drying up
No. They’re the result of perpetually increasing profit margins. They were very profitable before the price hikes. Their expenses have gone up far slower than their revenue. It’s simply extracting more wealth without providing additional value
as Netflix went from a market-shaker startup to revenue generating machine
It’s a bit pedantic, but Netflix wasn’t a startup when they got into streaming. They were an existing business that was profitable to fund their pivot to a technology platform
So how do you offset these increases?
Netflix has had an operating income (revenue - operating expenses) of $12.6B over the past 12 months. With ~300M subscribers, that’s about $3.50 per subscriber per month. Subscription prices are much lower in most countries than in the US. For the ~80M US subscribers, that is probably $6 in profit. The $5 cheaper ad tier is probably about what we’d expect their prices to be if they had simply continued to make a couple billion a year in profit. Also keep in mind they would probably get and retain more subscribers with a lower price, and their increased operating expenses includes them building out tons of stupid mobile games most people don’t want, and one-off necessary expenses like building out their original content capabilities
Note: This last bit is doing some napkin math and is subject to error. I didn’t feel like digging deep enough into their financials to get more exact numbers (such as the average subscription price for the rest of the world)
TL;DR – Much of the price increases and addition of ads can be attributed to increasing profit margins, not increased operating costs
Much of the cost of streaming for platforms like Netflix, and especially YouTube, are due to the need to centralize it to allow for more data collection. The cost of streaming also gets overblown, by a lot. Companies like Google and Netflix are spending huge amounts of money trying to build out new features and offerings, like games, that make it look like maintaining the streaming service is far more expensive than it is
Netflix has never needed to rely on venture capital for their streaming platform. Netflix has made a gross profit every quarter since 2011 when this data starts. They have also had a net income all but one of those quarters, which is absolutely insane for a new tech company investing that much in R&D + licensing
No. They’re the result of perpetually increasing profit margins. They were very profitable before the price hikes. Their expenses have gone up far slower than their revenue. It’s simply extracting more wealth without providing additional value
It’s a bit pedantic, but Netflix wasn’t a startup when they got into streaming. They were an existing business that was profitable to fund their pivot to a technology platform
Netflix has had an operating income (revenue - operating expenses) of $12.6B over the past 12 months. With ~300M subscribers, that’s about $3.50 per subscriber per month. Subscription prices are much lower in most countries than in the US. For the ~80M US subscribers, that is probably $6 in profit. The $5 cheaper ad tier is probably about what we’d expect their prices to be if they had simply continued to make a couple billion a year in profit. Also keep in mind they would probably get and retain more subscribers with a lower price, and their increased operating expenses includes them building out tons of stupid mobile games most people don’t want, and one-off necessary expenses like building out their original content capabilities
Note: This last bit is doing some napkin math and is subject to error. I didn’t feel like digging deep enough into their financials to get more exact numbers (such as the average subscription price for the rest of the world)
TL;DR – Much of the price increases and addition of ads can be attributed to increasing profit margins, not increased operating costs