Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It

by Tien Tzuo

The business model for a new Netflix show is fundamentally more stable. It spends about $50 to $60 million on a new season of GLOW or Godless. So how does Netflix justify its spending on a TV show or movie that it doesn’t “sell”? Again, let’s return to that portfolio effect. Regardless of whether a show is successful or not, investing in sharp new content helps Netflix to both (a) attract new subscribers and (b) extend the lifetime of its current subscribers. Those shows don’t go away! Together, they’re increasing the overall value of the portfolio. They are instrumental in driving down customer acquisition costs (as more subscribers sign up) and increasing subscriber lifetime value (as more subscribers stick around for longer). Netflix knows exactly how long it takes for a subscriber to flip from unprofitable to profitable. Spending tons of money on new shows means Netflix is happy to take a hit on the books in the short term in order to increase their profitability in the long run.