The economics of Netflix

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Like many startups, for years Netflix burned cash in order to grow faster. Now, ironically, it is in the opposite position — with a mature business that has stopped growing.

It's not all over

In Netflix's most recent financial year the company reported a healthy operating income of more than $6bn. That gives Netflix a decent amount of margin to work with as the company begins its efforts to get growth back on the right side of zero — if it can keep its huge content costs from spiraling higher.

Netflix sharers and ad-haters beware

The company did estimate that, in addition to its ~220m paying subscribers, Netflix is being shared in around ~100m households, alluding once again to the idea that the company might look to crack down more severely on account sharing.

The other avenue for growth is an ad-supported free (or just cheaper) tier. Historically Netflix has been strongly against the idea of advertising, but the company has had a change of heart — announcing this week plans to offer ad-supported options over the next few years. No ideas are off the table now.

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