Topic: Netflix Streaming Services

I. Background

 Netflix is an American media-services provider and production company headquartered in Los

Gatos, California, founded in 1997 by Reed Hastings and Marc Randolph in Scotts Valley,
California. The company's primary business is its subscription-based streaming service which offers
online streaming of a library of films and television programs, including those produced in-house.
- In 2007, Netflix expanded its business by introducing streaming media and in 2010, expanded
internationally with streaming available in Canada, Latin America and the Carribean.
- In 2013, Netflix entered the content-production industry with the debut of its first series,
House of Cards.
 Netflix operates through the following segments: Domestic Streaming, International Streaming
and Domestic DVD. The Domestic Streaming segment derives revenues from monthly
membership fees for services consisting solely of streaming content to its members in the United
States. The International Streaming segment includes fees from members outside the United
States.
 Source of revenue. The only source of revenue for the company is its subscriptions, divided into
the domestic streaming; international streaming and domestic DVD subscription services, with
domestic streaming comprising two-thirds of profits.
- In 2019, domestic streaming grossed $3.3 billion, international streaming with $1.6 billion,
and domestic DVD subscriptions with $174.0 million.  
- International streaming memberships were the company’s fastest-growing category in 2019.
 As of April 2020, Netflix had over 182 million paid subscriptions worldwide, including 69
million in the United States.
 Netflix officially entered the Philippines market in 2016 as announced by its CEO Reed Hastings
on January 6. Monthly rates were priced at P370 (basic), P460 (standard) to P550 (premium),
depending on the plan the consumer wants.
(https://www.philstar.com/business/2016/01/06/1540163/streaming-service-netflix-enters-ph)
- On June 24, 2016, Globe announced its partnership with Netflix making it the first
Philippine mobile and broadband to offer Netflix on its mobile/broadband platform.
(https://manilastandard.net/mobile/article/210572)
- According to the Statista Research Department in 2016, it was estimated that the number of
active streaming subscribers to Netflix in the Philippines would be 296.1 thousand in 2020.
(https://www.statista.com/statistics/607624/philippines-netflix-subscribers/)
II. Content acquisition of Netflix

 Content acquisition is an important part of Netflix business. Netflix obtains content from studios,
distributors, and other suppliers through direct purchases, revenue sharing agreements, and
license agreements.
 However, Netflix has started increasing its own original and exclusive content as it faces growing
competition from a large number of large streaming service rivals, such as Disney+ service and
Amazon Prime.
- The company’s cash spending on content is growing fast, rising from about $9 billion in 2017 to
$14.6 billion in 2019. In comparison, the amortization of content has been relatively lower,
growing from $6.2 billion to $9.2 billion over the same period. Netflix says that about 90% of the
value of a show is expensed within 4 years of its debut.
III. Netflix in the Philippines
- House Bill (HB) No. 6765, or the “Digital Economy Taxation Act,” was filed on 19 May to
capture into the tax system the value created by the digital economy. The bill seeks to impose a
12% value-added tax (VAT) on digital advertising services (such as those on search engines and
social media platforms), subscription-based services (including music and video streaming
subscriptions), services rendered electronically, and transactions made on electronic commerce
(e-commerce) platforms.
- Moreover, the bill would require suppliers of digital services, network orchestrators, and
ecommerce platforms to establish a resident agent or representative office to act as a withholding
agent in the Philippines.

For content delivery, Netflix utilizes its own content delivery network (known as Open Connect) and
third party content delivery networks.

Netflix Streaming Rights

Netflix partners with content providers to license streaming rights for a variety of TV shows and movies.

We also produce in-house or acquire exclusive rights to stream content such as Orange is the New Black,
Stranger Things, BoJack Horseman, Unbreakable Kimmy Schmidt, and many more. These productions
are called Netflix originals.

1. I’m looking for a TV show or movie, and I can’t find it. Why doesn’t Netflix have what I'm looking
for?

Netflix works with content providers, distributors, producers, and creators to acquire licensing for TV
shows and movies to stream on our service. When content is not available to stream, it can be for a few
different reasons, including:

 The content rights are currently exclusive to another company.

 The streaming rights are not available to purchase from the content provider.

 Popularity, cost, seasonal or other localized factors, or availability.

  Use of a VPN limits access to only those TV shows and movies available to all regions globally.
For more, see Watching TV shows and movies through a VPN.

2. Why is a TV show or movie available in one country but not another?

There are many reasons a TV show or movie may be available to audiences in one country or region but
not another, including:

Regional tastes

We do our best to shape our service by region. For example, some TV shows and movies that are
popular with our members in the United States may not be desirable to members in the United
Kingdom, even though they're both English-speaking regions.

Multiple rights owners

More than one studio or distributor may own regional rights for a TV show or movie. For example, we
may sign an agreement with a distributor to show an American-made movie in Latin America before
we've signed an agreement with the studio that made that movie to show it in the United States.

No rights available for a region

Sometimes a TV show or movie simply isn't available in a particular region. We can't buy a TV show or
movie license for a specific region if no one is selling it.

3. Why are some Netflix original TV shows or movies available in one country, but not another?

With most Netflix originals, we own all the rights to the title and can stream it anywhere in the world.
Originals we can stream anywhere include Narcos, BoJack Horseman, Master of None, Beasts of No
Nation, and more.

Some Netflix originals are not available in all regions, for the following reasons:

 When some Netflix originals were created, Netflix was only available in a small number of
countries, so we did not secure the licensing rights for all global regions.

 Despite a TV show or movie being a Netflix original, other companies may have the rights to
stream it in a particular region due to content deals made before Netflix was available in that
region.

 Depending on the region, Netflix may not be able to obtain the licensing rights for an original
series for many years.

Some Netflix originals that we do not yet have global licensing for include Orange is the New
Black, Arrested Development, and Lilyhammer.
Source: Netflix (https://help.netflix.com/en/node/4976)

Netflix buys shows at a rate of the cost of production plus about 30 percent of production costs, but it
retains most of its future licensing rights. Also known as the “cost-plus” model.

Netflix’s deals with production companies are ownership deals which means the latter signs away the
majority of future revenue opportunities to the company for a larger cut up front.

Although Netflix buys the show, it typically deducts a fee for distributing the show and bakes this cost
into the contract as an “imputed license.” For many productions in the first season, this offsets the 30
percent premium over production costs that Netflix pays up fron

This is different from how networks typically license shows, often only covering 60 to 70 percent of
production. However, the production company retains the majority of the rights, giving them the
opportunity to make money through licensing deals, syndication and other opportunities, in the future if
the show is a hit.

Still, many people are lured by Netflix because the company has treated its producers well and lets them
make the show they want without interference.

Pros:

These change the model of how shows are typically licensed and offer way more money up front than
networks usually pay to have these shows on their channels. Plus, because Netflix does not have to
worry about upsetting advertisers, the streaming giant can give show creators more freedom to creat

Cons:

Source: https://www.cnbc.com/2018/08/15/netflix-cost-plus-model-tv-shows-revenue-upside.html