How do movies earn money by releasing freely on Netflix instead of in theaters?

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P.S. – By Netflix, I mean streaming platforms be it Prime, Disney Hotstar, or any other.

We hardly see ads on some of these platforms, and a percentage of our annual membership fee seems insufficient considering how much some use it and share it with friends and family too, who otherwise would have to pay for the tickets if they were to watch it in the theater. I wonder how are they turning a profit or breaking even with this model

In: Economics

Netflix (or any other streaming service) pays the holder of the rights to the movie for the right to stream it. That’s really the long and short of it.

Netflix and other streaming services pay a fee to play that movie. Either a certain amount per viewing of the movie, or a very large sum of money up front to show it.

The film’s producers charge licensing fees to the streaming platforms in return for ability to stream the film. The streaming platforms pay the fee in order to have attractive content to draw in or retain paying customers.

But streaming rights to one platform is only part of their revenue stream. They may still release film in theaters at some point, can sell DVD/Blueray, international rights, cable channel (HBO, Showtime, etc) rights, etc.

Releasing first on a streaming platform may not be the most profitable way to release a film in normal times, but the need for funds to pay back loans and other contracted expenses sooner than later may trump maximizing profits in these times. $50m from Netflix is better than waiting another year to release in theaters and hope to earn $100m when bills are past due.

The streaming services pay for the movies, they aren’t free. Netflix will pay tens or hundreds of millions of dollars for a movie or show to have the exclusive rights to stream it. Disney outright owns what is shows on Disney+.

Neither Netflix or Disney+ or any other streaming service is free. You pay a subscription. When tens or hundreds of millions of people are paying $8 a month, that’s a lot of revenue. If Netflix doesn’t buy the movies or shows, then people will cancel their subscriptions. So, Netflix buys more movies and shows.

And even if you find a free streaming service, they almost always have ads. The ads pay instead of the subscription fees.