> on producing very good content

This is not necessarily true. Even moderately good content, catering to a specific audience will suffice.

IIRC, NF has loads of user data and behavioural data to help it guide in production.

Assuming an average, not fully satisfied consumer subscribes to NF for 1 year, that's 120 $ per consumer.

Assume a show that takes 100 million to produce, say 3 seasons. To make the production break-even, NF will need around 840000 paying subscribers (currently it has around 125 million subscribers, so about 0.672% of its total subscriber base) , who don't even have to watch it in the first place. Now that's a very small number compared to the amount of paying subscribers currently on it's platform.

To me it seems to be a very profitable model, at least for 10 - 15 years from now.

Edit : Updated the math.

Edit 2 :

An average episode costs between 3 - 5 million. Lets take 5 million as the cost per episode. With 125 million subscribers paying 120 $ per year, Netflix can produce 3000 episodes. That's just for 1 year. Also, in India, many shows cost way less than 5 million USD. But I have seen NF splurge of shows (it is hiring top notch actors in India for it's shows, where traditionally and culturally, a movie star playing in a "TV" series usually means an end-of-career move, so it's a big thing to work on a NF show here in India)

$10/month = $120/year, not $1200/year.

My Bad. Updated the numbers.

840k is also not 22% of 125 million

Again sorry. Reversed my division and messed it up. And I am an engineer for god's sake.

It's 0.672 %.

Updated my answer.

Your "Edit 2" math doesn't take into consideration any of the costs for Netflix's infrastructure or employees not related to content production, which is substantial.

Yes. With other operational expenses taken into account, maybe NF can produce 1000 episodes a year. That is a huge figure by any margin.

Divide by markets and genres and its not so much.

> it has not mastered this at all

This is incredibly subjective. They've definitely shown they can produce such content. They had more nominations than any other provider, including HBO for this year's Emmy Awards.

HBO and all of the pay channels survive off of $10 a month subscriptions. It doesn’t have to be very good content. It just has to be good enough.

The real issue with Netflix is that it has to fund all of its content via subscription revenue. The upcoming Disney service doesn’t. By the time it’s content hits the service, it’s slready made money from theatrical releases, pay tv services(?), video on demand, DVD sales, cable TV etc.

Having Disney content available on all those other distribution channels makes their streaming service less compelling though. Whereas if you want to watch a Netflix series, you sign up for Netflix.

Also, Netflix is building a huge content catalog that has value outside their streaming ecosystem if they decide to leverage it that way. They could do theatrical releases and let cable do reruns of their shows. Maybe they will some day. But for now I think they see the greater CLTV in keeping that content exclusive to drive (and retain) monthly subscriptions.

Disney's streaming can afford to be less valuable. It's just additional revenue. Netflix's total revenue for 2017 was 11.69 Billion. Disney's revenue was $45 billion. Estimated are that once they combine with Fox, it will have revenue of close to $75 billion.

Another thing that makes Disney's content more compelling is that it's "evergreen" kids can watch the same shows over and over again. They will watch the first Toy Story movie just as excitedly as the last Pixar movie.

It’s more like HBO, but yes, I agree. In fact, Netflix has largely become HBO while HBO was becoming Netflix, so they’re largely the same at this point.

VOD services are here to stay, and the catalog shifting will continue in order to maximize value. Netflix is doing it at least as well as anyone else.

Netflix has been losing third-party content very rapidly for a while now, but users seem to be sticking regardless. Scrolling through their front page right now I'd say a good 80-90% of shows I see are Netflix-produced, and it isn't going to be hard for anyone to find something that is good enough to watch.

Globally Netflix doesn't have much competition. HBO, Amazon, Hulu etc are America focused while Netflix has done a lot to cater to local markets.

Netflix has stacks of local market competition in every local market. They're just not companies Americans know of.

> Netflix has stacks of local market competition in every local market. They're just not companies Americans know of.

I'm in the UK and I can't really think of any serious competition they have here. Maybe Amazon, but I don't know anybody who's talking about Amazon Prime originals.