Message from Adam Grant + The fundamental difference between YouTube and Netflix
What it means for the future of the internet
Idea in brief: Both YouTube and Netflix are content companies that make similar revenues. One is centralized, the other is open source. One lies on the creativity of celebrities, other creates micro-celebrities at scale. One spends a bomb acquiring/producing content, the other gets it for free.
Netflix was founded in 1997. Last year, it did $30 billion in revenue, +18% year-over-year. In 2013, the year House of Cards was produced, Netflix had 40 million users and spent more than $2.0 Billion on content. As of last year, it had accumulated 225 million users and spent $19 billion on content. In other words, its user growth increased 5X over 8 years whereas its cost of content almost 10Xd.
**If you are interested in learning more about how Netflix hyperscaled in the early days, we recommend listening to this Network Capital podcast by INSEAD Professor Erin Meyer who wrote “No Rules Rules” along with Netflix CEO Reed Hastings.
YouTube was founded in 2005. It also did $30 billion in revenue last year, +46% year-over-year, and has 2.6 billion users—but unlike Netflix, YouTube didn’t spend any money making that content. All of us created / consumed that content for free.
YouTube pays creators 55% of advertising revenue, which is effectively its cost of content. To understand how YouTube economics works out, check out our analysis on Cambridge doctor turned YouTube millionaire Ali Abdaal.