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.

Meanwhile, heavy users, who consume more content, are served lower-cost, less premium shows like The Bad Guys and Our Little Secret.

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.

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/

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.

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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/

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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