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The Math Behind Netflix’s Mediocre Content Strategy
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The Math Behind Netflix’s Mediocre Content Strategy
Netflix is known for its vast library of shows and movies, but not all of it is top-tier.
Some content feels mediocre, and there’s a reason for that. It’s not a lack of effort — it’s a calculated strategy to balance costs and user engagement.
The Economics of Netflix’s Content Creation
For instance, the popular series Squid Game cost approximately $21.4 million for just 9 episodes, totaling about 8 hours and 30 minutes of content. To understand the financial implications, we can calculate the cost per hour of content:
Cost per hour = $21.4 million / 8.5 hours = $2.5 million per hour
For revenue, assume a viewer watches Netflix for an average of 4 hours per week, or 16 hours per month.
Netflix subscription costs $9.99 per month. Let's round it to $10 per month for simplicity.
To find the revenue generated per hour of content watched, we need to do:
Revenue per hour = Monthly subscription price / Average viewing time per month = $10 per month / 16 hours per month = 0.625 = ~0.63 marginal revenue per hour
For a cost of $2.5 million per hour, you needs approximately 3.9 million subscribers ($2.5 million / $0.63) to achieve profitability per hour. If these many people saw a season, it breaks even.
But not all users watch the same amount. Some binge-watch, while others only watch a few hours a month. This creates a challenge: how does Netflix keep both types of users happy without breaking the bank?
The Buffet Model: Subsidizing Heavy Users
Think of Netflix like a buffet. Some people eat a lot, while others eat very little. The light eaters (or in this case, light viewers) help cover the cost of the heavy eaters.
If you’re a 6-hour-a-month user, you’re subsidizing the 20-hour-a-month user.
Netflix focuses its high-cost, high-quality content on attracting and retaining light users. Massive shows like Squid Game and The Crown are designed to keep these users engaged.
Squid Game S01
Meanwhile, heavy users, who consume more content, are served lower-cost, less premium shows like The Bad Guys and Our Little Secret.
The Bad Guys
This keeps the light users on the platform without requiring Netflix to spend excessively.
The Role of High-Cost Content in Retention
High-cost content isn’t just about attracting users—it’s about keeping them. Light users, who watch less but pay the same subscription fee, are more profitable. High-quality content keeps them subscribed.
Netflix generates only that much content at a high cost which will attract profitable users.
On the other hand, heavy users are less likely to leave, even if the content isn’t top-tier. Their high engagement means they’re less sensitive to the quality of what they’re watching. As long as there’s something to watch, they’ll stay.
"Due to Netflix's fixed fee, people who watch more are actually less valuable per hour. This implies light watchers are actually subsidizing binge watchers. Netflix has a strange incentive to make you watch just enough. Popular shows watched more than profitability are actually subsidizing niche shows. Countries paying lesser for subscription should be shown cheaper content."
The Long-Tail Strategy
Netflix doesn’t just rely on blockbuster shows. It also produces a lot of lower-budget, long-tail content. These are the shows and movies that don’t cost much to make but cater to heavy users who consume large volumes of content.
Heavy users will watch the long-tail, low-cost stuff, while light users stick to the premium content.
This mix allows Netflix to keep costs manageable while still offering something for everyone. High-cost content drives profitability by retaining light users, while long-tail content keeps heavy users engaged without requiring significant additional investment.
Top Tweets of the day
1/
Lots of alpha in being SF smart in LA.
Lots of alpha in being LA hot in SF.Market arbitrage.
— Beff – e/acc (@BasedBeffJezos)
5:50 AM • Nov 27, 2024
This applies to everything.
Lots of alpha being a software guy in a boring industry like construction. Lots of alpha being the only girl in a tech hub like SF surrounded by all men.
Being different stands out easily.
2/
Team came up with a very clever move:
- all the accounts with 1.5k+ followers gets twitter wrapped generated with Claude3.5Sonnet
- All the others get generated with gpt4o-miniThis keeps costs under control and also keeps the virality going 🧠
— Ishan Goswami (@TheIshanGoswami)
5:45 AM • Dec 28, 2024
Viral AI startups can optimized cost like this:
Use cheaper model like GPT-4o or free model like Gemini 2.0 for simpler queries
Use Claude Sonnet 3.5 or Deepseek v3 for complex queries
It saves cost.
Price discrimination happens in shops too. They sell a piece of clothing for a lot of money to rich people and charge a lot less for the not so rich.
3/
You should try to localize prices thought, once I adapted prices to the Indian market (went low, $1-$3) and went from 0-1 sales in a few months period to sales every week.
For Americans $10 might be nothing, but for countries with a weaker currency it might be a substantial
— Filip Kowalski (@filippkowalski)
11:50 AM • Jan 6, 2025
Some money is better than no money.
That's why X has now tiers for payments and localized currencies so they can atleast charge something.
When in doubt, follow big tech.
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Flowise AI: Create LLM Apps In SECONDS with NO Code FOR FREE! by WorldofAI
Second-Order Thinking: What Smart People Use to Outperform by Shane Parrish
Top Documentary Films in Psychology by Top Documentary Films
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