Q1 2020 Earnings Call
I can say against an actual results may vary with that let me turn it over to my first question.
Thank you Spencer and good afternoon.
Glad to see you all safe and healthy and take us opportunity to extend my best wishes to our viewers.
Your letter had a lot of detail about the impact could be environments, but I'd like to hear directly from you. Some some key thoughts and then we can dig in more deeply into a few topics. So we just start with the impact of cobot to changing consumer behavior read your thoughts on both the sort of.
Sustain strategic impact of the of the change and I didn't change in behavior and then maybe for each of you. If you could highlight the most significant thing thats changed for you and how you're thinking about permanent answer or how to work through that.
The coming weeks and months.
Sure Mike I mean, it's an incredible tragedy for the world.
Everyone. This wrestling with the implications both us on health hunger poverty.
And we too are.
Really unsure of what the future brings.
It's super hard to say, if there's no strategic long term implications because we've just been scrambling to keep our service running well keep the content post production Doug.
Our small contribution to the difficult times is to make home confinement, a little more bearable and where you take that seriously will work in super hard on that.
And you know and a couple months, we'll all be able to grapple with the long term implications, but right now we're just focused on getting our content out getting the dubs and I'll, let the other team members talk.
Sure I don't know if maybe we will go to Greg first and then it's had interest here your high level Fox. Please.
Yes, it's been humbling to be a place that people around the world in time like this turn to for some entertainment for escape and I think just reiterating what read was saying our real focus at this point in time has just been to keep our service operating at as high quality as possible and available when our.
Members need us and turned to us.
Yes equity in the same which is the.
It's been really amazing is the grow the Netflix is played and all this which is too.
People connected keeping people as some people run around the world who are incredibly lonely connected do storytelling on Netflix certainly a distraction and certainly a big source of entertainment pure second home. So it's really tough work most of getting a lot of folks doing work they've never done before from places they never done it before.
So our productions are post productions, our offices are now distributed into People's living rooms, and bedrooms and kitchens around the world.
And it's just an incredible testimony to the innovation.
That within a few literally within a few hours, but within certainly within a few days of the shutdowns, we had production up and running remotely post production up and running remotely animation up and running remotely.
Pitch meetings happening.
Virtually writers rooms, assembling virtually it's been really a remarkable thing to watch the creative community come together to entertain the world through Netflix.
Great and spent sensor from a financial side anything.
Efficacy right now.
The top of mind for you relative to where we where this time last quarter.
Yeah, I think I would echo what.
Redone, and Greg and headset and it's so much and when we're focused on right now is is system.
However business, ensuring that run smoothly be fortunate that it is running smoothly.
And making sure as best we can at our employees and and production crews are safe and healthy and taking care of so that's been our primary focus I think the long terms impossible to predict in terms of what is what the impact of this to our business, but we suspect that the long term trends we've talked about for me.
Any quarters now in terms of the shift from linear to streaming on demand entertainment is.
Is consistent so there may be some timing impacts year, but overall have long term trend is is really unchanged. So we're really trying to do is as Ted and other said is.
Trying to make something it looks relatively easy and smooth operating but in reality is really hard work for a lot of folks thousands of employees and a lot of challenges throughout our company that we're doing our best to do that well for our members in our community.
And for me by speaking specifically for Finance Department I'd say, we're just trying to work hard to really support.
The other business units like has organization Gregs organization the marketing team.
To get through this process as you know as easily as possible.
And.
Understanding that it's very difficult to predict what's going to happen I am curious read if you could share anything that you look at it sort of key indicators externally.
As you try to plan for the business going forward and also I'm curious if there any internal data points given that you do have that relationship with your consumers that could help you out with the with the planning process and how to progress from here.
I think have a planning model you have to have model of coded and whether certain treatments coming online how broadly are they distributed lennar vaccines coming online how quickly can they be manufactured and we don't know anymore than anybody else those big elements in that.
You know is the most significant aspect so.
Think about is whereas in the same uncertainty that everyone else is the things where you are certainty.
Is the Internet is growing.
Bigger part of People's lives Thankfully at that people want entertainment, they want to be able to escape and connect whether times are difficult to join us.
That's pulling up we had.
An increase in subscriber growth in March.
Essentially a pull forward of the rest of the year. So our guess is that subs will be light in Q3 Q4 relative to prior years because of that.
But we don't used the words guests and guesswork lightly we use them because it's a bunch of us feel in the wind the.
It's hard to say, but.
But again, we'll internet entertainment be more and more importantly over the next five years nothing's changed in that.
Great. So we have had a number of questions about the member growth and the topic of pull forward that you just referenced read I get to the extent, we can understand anything about the composition of influx of subscribers. They came and we can ceasing the geographic split which is of course very helpful and I think theres a pretty fair conclusion.
But I'd be interested and you sort of them.
Addressing which has that clearly the hardest hit markets by coated were those that saw the greatest change in subscribers beyond that I'm curious if you could talk at all about the sort of composition even in that you can region.
Whether its multi person households, or whether it's a different.
Income strategies or anything like that that you feel that could give some insight into who who's a part of that ramp and members.
Sure, it's really more at the same.
Theres nothing that separates the people just joining.
From anybody else.
And then our job is to do the same things we've been doing to retain them that is have incredible shows make it very easy to choose help.
The recommendations all the things that we give that to make the experience so wonderful.
So.
Again in terms of usage in terms of viewing patterns, it's all pretty consistent with.
Matt.
Families that have been numbers for.
While we're short time.
And there are some questions on the pricing side that.
I sort of pre date, that's right. This is all intertwined at this point, but we have lapped. So we're getting close to lapping some of the significant prices you did it especially in the U.S market last year, we had subscriber impact.
So I guess.
Puts his question, Greg, but also more broadly.
Number one how do you feel in the absence of the current situation with the way that process played out I know we saw some elevated churn how was that progressing and if you look at the sort of end result are there things that you would have tweaked about it and then I think theres a follow up question just about the economic sensitivity, perhaps going forward, but let's just start with that type pricing question.
Yes, I would say just one comment which is in January and February we were seeing in you can return to pretty much normal pre price change our churn levels.
But really at this point.
We're not even thinking about price increases that obviously, what's going on around the world is dominating our thoughts on our considerations and we just want to stay Super focus at this point in time and making sure that we're continuing to be there have a great service make sure that we're able to provide entertainment in the scape for our members around the world. So we're really just focus on that for this period.
Has the potential to to be the first time, we've seen.
Our significant global economic impact similar to what we saw 12 years ago, perhaps and not comments per se, but there is some sensitivity there and I guess my question is when you think about pricing and pricing levers and packages. How do you think about approaching perhaps a weaker global.
Consumer spending environment, where do you see your price point and your value proposition has very attractive and potentially softer consumer environment.
Spencer and they're going to.
I mean, it really built on what Craig Craig said right now, we're really not thinking about some really time for us to be thinking about.
Can you just so we think about recessionary impacts. It's it's so hard to you can read re even setting this is a little bit of guesswork right now in terms of what the future looks like.
Obviously past recessions.
Folks tend to spend more time at home and with home Entertainment it's like.
And they watch their budget in those times and pay TV over decades has been more resilient and a bit counter.
Cyclical and that way and even even Netflix in recent history has has been more resilient, but this is very different we haven't lived through anything like this so it's it's so hard to tell them.
The one thing we can control, which we've talked about here as we can control the quality of the service that we provide to our members and so we're just really just prioritizing that number one is improving the product improving the content, making sure. We have a strip steady stream of titles and and we don't take it for granted that we are.
Providing this entertainment in People's homes, and they're choosing us we want to lead would that value and me where price points that started $9 in the us as you know and in other parts of the world's lowest $3 for mobile so we're focused on maintaining that accessibility, but really delivering value.
That's a good segue on a constant side into some of that things are happening on the pipeline are you spoke tend to give us a little bit of an overview. You also spoken a letter, but maybe you talk about how the production stoppage I will impact the release schedule, let's just start with that Adams within that is how much confident in the pipeline. That's a lot of the question.
How you might.
Strategy strategize spacing that we're not facing on in the future.
Yes, well the one thing Thats, maybe not widely understood as we work really far out relative to the industry. Because we launched our shows all see all episodes of wants and we're working far out all over the world. So our 2020 slate of series and songs are largely shop.
And our in post production remotely in locations over the world, So and we're actually pretty deep into our 2021 slate. So we're not we don't anticipating any moving big things moving things around and give you. Some examples the crown is fourseason, our big fourth quarter animated release over the Moon. This are.
Shot productions, and our and been in finishing stages right now to release later this year as plan. So we don't anticipate moving to schedule around much.
Certainly not in 2020.
Okay, I think that answers the question, but we didn't have it come back up asked a couple of quick.
Whether this impacts your interest in revisiting, perhaps more spacing of releases versus a pretty consistent stacked one strategy that you input. So far you mean the episode spacing correct. Yes, we've experimented when we continue to experiment with all kinds of different release strategies and our by way of example on our comps.
In addition shows we had an enormous success last quarter with love It line.
And with staggered release.
And then we just released.
Too hot to handle which is on track to be probably our biggest competition show ever and it was released all at once so I think it's the consumers I think our we're trying to it we believe that consumers like the control of all at once and they could watch it they are on pace, but we keep testing it to see our people if it impacts the viewing one where another or more importantly.
Satisfaction, one way or another and customers are spoken loud and clear they really like the options. The all at once model for us So I don't see as moving away from that meaningfully.
And so the process of getting back to production very helpful to understand what your pipeline looks like right now what are some of the key milestones and get getting back to production and different genres or different sort of.
Intensities of productions are they going to vary as we look forward.
Yes, although it will vary by geography, it'll vary by type of production certainly first and foremost we want to make sure that it is an unbelievably safe working environment.
We've always been focused on workplace safety on our setting and our offices and we definitely want to will definitely keep focused on that a series of things have to happen before we get in production anywhere.
Putting the kind of.
The the shelter at home orders being relaxed, but.
But even in that environment, we're going to make sure that there's testing that has to be able to be done we have to be able to look our employees and our casting crews in the I'd say this is up they place to work before we do that and we're going to.
We're going to be working very closely with our production partners with local governments to make sure that we can do that we were currently in production in Iceland and in Korea, and we're taking some of those key learnings about how we run those production today and applying that to our.
Our plants, it's our to prove up our productions around the world.
Any specific highlights of those two markets.
You could share are very much it's very fluid. So it has taken were taking the learnings as learnings and on face value now and seeing how they scale out.
But it's very important those are two countries that were very aggressive about testing and tracking early so I think it's probably lays out a good a good framework for future rollout. Okay. I definitely want to talk about on scripted which was a big big story in a quarter, but before we do spent I want to ask you about the financial implications.
What's going on with the production process right now how to think about sort of the cash flow that you've talked about in the letter, but maybe if you could lay that out for us a bit.
And then also if the amortization schedule does that change at all as a result to more viewing a more consumption or should we think of that as a pretty consistent process.
Sure. So in terms of cash flow first as you saw we are positive free cash flow in the quarter that wasn't.
Kobin related.
To be clear I mean, we would have been positive free cash flow without the recent coated and then so there were some pushing of spend in Q1, but most of what we talk about in terms of.
The impact of slower.
Kind of cash spend this year some push content spending is really a full year impact on the Q1 impact.
Yes, when we think about the full year. There is there is we you've heard because a pause productions theres going to be some pushing ahead of that span.
It's we talked about the fact that we plan previously to have about negative 2.5 billion of free cash flow in the year now it's less than 1 billion. So you can do the math on that.
I think it's important to highlight that over on a roughly 15 billion dollar cash content and that's a minority of our spend it's also a minority of our titles.
Small minority of or titles as pushy. So we'll actually have more branded Netflix originals on our service. This year than we had last year, even with what's planned for pre spend so so we will be.
Obviously, much improved free cash flow profile this year as productions ramp that cash and will increase again so.
As we talked about in letter, it's still a multi year path to sustain sustained free cash flow positive. It's just can be a little bit choppier getting there and 2019 will still be our maximum negative year.
Thank you that's very helpful.
So Ted coming back the topic of unscripted, though that we've talked about film water over the last the last several years actually not spend really the key incremental topic, but unscripted hit a huge huge try here I think at least in public view. So tiger can I just first asking about that I mean were you surprised by.
The public perception of Tiger King I pointed you know that that was that was the hit that it ended up being.
We've had a lot of kind of buzzy unscripted and non fiction.
Joe that Netflix and they feel like it's yet to have built building on the on the heat that started way back with no pun intended with the fire documentary that.
That kind of exploded at the level that we've seen with Tiger King and we knew kind of right out of the gate and you can feel that in the social media excitement and it turned out to just to be such an unbelievably well timed distraction for what was happening in the world that gave some people something to talk about there wasn't necessarily in the headlines.
Which was really great and I think that team has just been exceptional at tapping into the design guys than coming.
Shows like Tiger King.
And as you look at where Youve, where youve kind of cut through the quarter. I think are really really excel. We've have these competition shows as you refer to them. We've got some of these true crime shows I think those are two of the areas that really have standout in people's mind.
Hernandez, most recently and they can the true Graham space was phenomenal as well yeah exactly are there other as you think about the progress. There are other you think about unscripted. There is some actual breadth to the type back the different genres subcharters within there.
Are there other areas that youve that are important to push into.
I don't know Theres like more lifestyle travel those types of things on their sports and I want I want to talk about the laughed at the moment, but how are you thinking about sort of the rep.
[music].
Push into that area.
Our goal is that we want to make your favorite show.
For some people Thats, hi, pad, that's big pedigree drama and for other people that's home improvement shows and we want to make your favorite version of that so we're been pushing out into each of those verticals beyond the true crime space and the competition space. We've done we've done that cooking shows like with nailed it and chef's table and we've done.
Now pushing into more of that kind of into the home improvement and.
Real estate space, which is also quite popular with our members and continue to push out that as well. So I think it's you should think about the the full complement of unscripted programming as we keep expanding into it and similarly, how we pushed out into film.
Previously into.
Animated series, an animated feature film as well just as a not a continuing expansion of trying to get to your favorite Joe and if you're houses anything like mine that is not the same show for any to people that alone the whole world. So we think does keep us on our toes and.
And it keeps it they kind of what kind of feel like we're in a state of perpetual improvement in each of these new content areas and we've been really happy with the progress.
Okay I want ask you about the last dance, which is Michael Jordan Chicago Bulls documentary at it came out any SPM over the weekend started with the first two episodes very well received from a linear ratings perspective, I know, it's something that you have partnered or have partnered with them on so can you remind us what youre relationship is there in terms of of ownership and.
Right.
And kind of how you think about I think that that was established several years ago when perhaps.
Your business models were a bit more complementary versus competitive so maybe you can address side as well.
Yes, Theres still it was.
Michael Jordan and their creative team behind the film we're very excited for it to have Netflix involved in it.
Encouraged DSP end to open that those conversations up with us, which we were happy to do expand has been a great partner on this project begin working on to for years back to its two years ago at the all star game that.
Jimmy and I got up with with them silver and we introduced the first look at the dock.
Together.
And and so they are premiered the film over the weekend Fianna We premiered the film on Netflix the same two episodes.
And we similarly saw enormous feeling around the world on the first two episodes of glass Dan. So it's been a win win for for Us and and DSP and a great win for basketball fans, who have been very hungry for new programming and the end the show at the docket self is just phenomenal and because of the unique connection between.
In the MBA any ESPN and the complexity of the rights and the footage and would have been very difficult for university without each other so.
Okay I question for either Gregor or you Ted with respect to the top 10 less.
Which really kind of the.
The coldest this quarter and how again I know everything is a little bit upside down because the circumstances, but how impactful influential do you think that has been and in sort of keeping members on board.
Keeping members streaming and that's where they can you tell from that like I feel like we're.
Lastly tried to help people find things are going to lab.
Greg and his team do an amazing job doing that on the side one of the things that people year the to pick what to watch is popularity.
Don't think that's the only thing and we don't believe and we'd give them lots of tools to do this with but one of its popularity. So it's very helpful revealed to want to be part of the conversation are part of the of theirs I guys again with what are the things that other people are watching and using that has nothing to help that make decisions. So we looked at it at the top 10 list as adding a new.
New decision, making tool for people, who are looking for something great to watch Greg would you at anything.
I think that covers it well I mean I just it's.
Yes, some folks are very very interested in being part of that social conversation that happens early cycle. This is just a really nice shortcut help people choose what to watch based on whats.
Buzzing into social conversation.
Okay. A couple more on content just it's such a huge focus how does that either read or Ted yes, and that's really about how you're viewing third party content, where clearly we had seen a shift as you've been very clear about.
In terms of Youre focused on your owned content versus license, but in the current environment. There are a number of factors that could perhaps play into that dynamic changing one being the ability to acquire more content production. Its shutdown on a prolonged period also some of the studio companies.
Yes are struggling themselves under the same circumstances and would be more willing to be sellers of content. I'm curious if you could talk about what you're seeing in that environment and whether your view there has changed at all.
I think one of the thank you mentioned that in the top 10, which kind of gives you the first kind of snapshot into.
How prevalent our original branded programming has become on Netflix.
And so thats continuing to push into that both because.
We believe that our core suppliers.
I will increasingly become competitors and not be as anxious to sell us content as they used to be long term.
But to your point there are some things in the short term dynamics, but when we look at that look at our 2020, and our 2021 slate and we're really happy and grow the with it and we get the up we can look to.
Work with some of our partners to enhance that a little bit with things like that we put in letter.
I can see Lovebirds NOLA homes on this big jump from Korea call time to Hunt that's coming out this week.
There were so we've been able to do that and enhance that in the short term in the long term, we think it our push into the program that people love is what we're trying to do and we're trying to make that more frequently than we buy it.
And so thats kind of an ongoing trajectory towards owned original.
And but that same time, we're still doing a lot of life third party licensing, which you see pop up in the top 10 list things this week like the Green Horn it.
Despicable me boasts pop up in the U.S. top 10 list.
My last question on that has to do with the feature film side, especially given the disruption in the theatrical part of the business.
The risk of something opportunistic on the situation, but but still understand is there has been a secular shift in terms of People's behavior is this something you can lean into a bit more in terms of your own spending and investment in films just given that this might accelerate that consumer behavior into sort of capital flow.
Reiterate my gut were really thrilled with our slate and that this year. So what's the things that are coming up well that we're looking at them every one of them, but we're looking at the same discipline that we do all of our other licensing original opportunities.
Okay, Great I want to talk a bit about some of the product and distribution strategy and Greg a couple of changes that we took place in the quarter, having to do with free trials in particular markets, how your onboarding folks, who maybe reducing the number of markets. Your free trials available and also your mobile plan, which I think expanded to a couple of markets during the course.
As well so can you talk about both of those decisions and.
Again trying to isolate maybe the core trend versus the the kobin driven trend if at all possible.
I understand how that's impacting the business.
Sure on your first point, we have a whole range of marketing promotions that we sort of use in different ways.
In different countries at different times and like most things we do on the service, we're constantly trying to improve those and figure out.
New and better ways to introduce the service new members to give them an easy on ramp and we're just going to continue to seek to test and refined and improve that ranges or promotional strategies.
And then on mobile.
It's a plan that we've tested for while we rolled it out now and a bunch of countries, India, Malaysia, Indonesia, Thailand, Philippines.
And it's consistent with sort of this broad theme and abroad goal that we have which is we're seeking effective ways to make the Netflix service more accessible to more and more people around the world.
And it certainly has been performing the way that we've sort of seen in expected which is that is.
It's a significant increase an acceleration in being able to add new.
New members, which is great, but also that it's doing it.
In a way, which is you know from a revenue perspective neutral to positive, which we think is it's a really great position to be in long term for the business.
You referenced India, we talked about a bit on every on every call because of the size of market of course, and I guess two quick.
You are all about whether that market has behaved, perhaps typically if you will.
And with respect to the unique situation. We're in right now and then secondly, Dizzy plus did launch in the market.
Partnership with Hotstar, clearly gave him a great advantage and ramping the business can you talk about the competition, there with that service and their ability to partner.
With that with that.
Service, it's already established at the live offering how does that competitive dynamic for you.
Yes, I would say personally I wouldn't draw any strong contrast between India and other countries around the world. So fairly similar in that regard and we've been working really really hard to do a lot to try and make our offering in India more competitive more attractive.
Two members and members to be in that it's a bunch of different product features we've been doing any on partnerships and payments integrations and obviously this mobile plan is a recent one and nine Ken I'll throw to you to on a bunch of work, we've been doing or on the content side, there as well yeah. We've been we've seen.
Growth in viewing in India and have had great success on our local originals there as well just most recently with she and guilty and few others that have really been driving a lot of engagement in local content on R&D service and they also are big fans of our our global original content like capacity up about the huge had in India.
As well as when a bus boats or other originals that of the U.S. So we're growing the business.
Licensed original international domestic across the board in terms of content in constant taste.
Mike we have time for one or two more questions. Please.
Okay, let's let's hit two more questions then I'd like to go back to the topic of competition, which is clearly taken aback seed during this quarter, but I do want to bring it back up again I think the importance our directed to read fairly open ended question right, but this concept of streaming wars that all time high intensity, especially in the US what have you.
Learned sort of over the last three to six month, if anything and perhaps.
As you expected, but and what would you point to if anything that should be more evidence that investors and the public about how this process.
Migration to streaming consumption is playing out.
Yes, I mean, so impressed with the business plus execution.
You know over 20 years of watching different businesses incumbents like blockbuster as Wal Mart and all these companies I've never seen such a good execution.
The incumbent learning, the new way and mastering yet.
And then to have them achieve over 50 million.
Six months, it's stuff so to see both the execution on the numbers lineup.
My hats off to a.
We taken up our kids and family content and animation you bet and.
We're both can that do great work.
But it's awesome to see a bunch of that so I was it a lesson out of that is great execution clarity around brands and focus.
Really makes a difference.
And then there's a bunch more services coming to market I think it's great obviously for the consumer to be able to help all these options.
There's nothing we can do about any of them nor about video gaming or about you tube or any of the other competitors for time. So what we do it just try to figure out.
How do we had the best service we can.
Kind of steady everyday solid execution.
And then we'll get part of consumers viewing no month kind of get at all and it's working out very well for us. So honestly internally, we mostly say don't focus on the competitors focused on our service.
How do we make it better and better and that's served us very well.
Okay.
Great. So lets wrap it up its I'd like to do asking each of you a question.
At this time I really want to focus on on the content coming out given that many of us you're doing a lot more streaming and we always love recommendation. So we're going to we're going to come to the prior so I'd like up to two recommendations.
One would be something new coming out I'd love to hear what you're most excited to see to seeing and having me and the rest of the World C.
We havent seen yet and the second would be something already on the service you really enjoyed that maybe hasn't quite hit that popularity graphs.
Do you think it deserves that we should be diamond back into so I'll start with Spencer as I like to do and then since you've been grandfathered into going second.
Well I would say for me I'll take two to shut that this number one I have had a chance that given the early preview of extraction, which is our new action film coming out later this week, Chris I'm, not really delivers for people, who love that genre super exciting with reaction sequences.
Number two I will say I have really enjoyed the first three episodes of to how to handle.
My second recognition.
One.
Oh boy.
Okay.
Let's see so.
I will say in terms of things that I've watched recently.
I thought unorthodox was a terrific story and and one that I really enjoyed and.
And just shed light on a whole culture that I didn't really have a whole lot of visibility into so but that was a real treat and special.
And I'd say in terms of things I'm looking forward to there's a whole bunch and I just started watching black half, which I, just think is brilliant and and fresh and new and then I'm really looking forward to the end of the year with things like over the Moon and just the next big chapter in <unk>, and our kind of animation journey.
Well the shows why spends that I get along so well as unorthodox and black half were also biotech.
But in obscure little one is our Indian Phil gave ballet.
Just.
Great Willfulness and street dancers in Mumbai.
Trying to make it into the world the balance.
As into the I. I cant allow you to hold me to to the it has entered relationship implications of I think there.
We're going to give you a lot of the longest list since people are looking for things to lots of things that are coming up in the quarter.
Spent ventured extraction, there's a phenomenal action movie with Chris EMS worth.
The the writer director producing stun coordination team from the of injuries movies, instead pull to and have come together with this movie that really really delivers.
Last week, we have.
Big animated feature for the for the whole family caused the Willoughby is.
We have a movie from Adam Sandlers production company called the wrong Missy coming up sorry, David Spade, It's really fun as a big Korean movie called time to Hans and then Greg Daniels from the off this new showed space for us as deep Corral.
The second season of afterlife second season, the debt to me I knew see that 13 reasons why a third season of dark from Germany, the finale of cable girls from Spain.
And it goes into shelf from Japan, New animated series launching next week.
Okay.
Greg Good luck, having anything argument.
I mean, you guys are still in everything I would say I'll just double going on on Super excited about extraction Ghost Michelle amazing definitely that for a leverage benami got to check that out and then I would say unorthodox I was blown away by just incredible story and the one that hasn't been mentioned, which is certainly known but I.
I was it again, just really impressive story, telling is those are and man that last episode Wow I don't even know today.
Okay.
Actually I want to night outer banks as you see thats, how its tearing up the top end unless it's a nice nice breakout this color.
Thanks, Mike for doing this from your home and look forward the talking with all of you investors over the thank you very much.
Good afternoon, and welcomes and Netflix Q3 2017.
The earnings interview I'm, Spencer long, Vice President of Investor Relations and corporate development, joining me today, our CEO Reed Hastings CFO, David Wells, Chief content Officer, Ted Sarandos, and Chief product Officer brand Peters, our interview or this quarter is Doug mitchelson from you'd be us before we begin we will be making forward looking statements and actual results may vary.
With that let me kick it over to Doug Force first question.
Thank you Spencer good afternoon, everybody I'm going to answer the question for each of you and then we'll start rotating by topic read for you to start it was another strong third quarter do you feel like we're hitting some sort of inflection point with streaming video you have your digital peers soon perhaps competitors pivoting to Hollywood video, we have a slew of asphalt services that we launched.
Over the next couple of quarters, you add the traditional media companies thinking about.
Diving into direct to consumer themselves do you see a real sort of inflection point the marketplace well wall Street loves inflection points. So I'd love to say, yes, but no I think is pretty much steady growth I mean, we've seen new competitors increase streaming around the world new devices, new formats, as just spend a continuous ever.
Solution you know we started streaming 10 years ago now.
We're now completing our 11th year of streaming so I'd say overall more at the same and continued great success for streaming.
Ted takeaways for you from the third quarter, what surprised you what was better what was worse than expected well, Doug I was pleasantly surprising relieved dennard kind of continuing expansion of our original programming verticals, including releasing a.
Adult animated comedy.
Big Mouse, a big feature films like Meyerowitz, it's being getting worked very well received critically and being watched by led by and big numbers all around the world.
David Fincher as New series mine Hunter and an Italian original Savoro that we shot in Rome, I'm going to tie in for for for China European customers, but also for Netflix users around the world. So it just kind of continuing breadth of things that are working well for our subscribers I'm excited about.
Great for you to set the table any learnings from your timing.
Asia, specifically, the Japan launch and how that's informing your strategy as you.
It started in the early days here as global product manager.
Sure I spent a lot of time, there I was trying to grow the service producing and launching new content and that experience allows me to bring those lessons back to the work that we do and product. So I'm looking forward to putting more investments and how we support content, how do we invest in technology to improve the efficiency and effectiveness of team.
The work that Ted seems doing producing great content scale also to change the product experience that we have to do better job at promoting content that has little built in awareness. So we can sell those new original series and films more effectively but then also to continue to evolve the product experience that we have today to be affair.
Active that meeting the needs for the next 100 million 200 million members. So it can be as compelling as it is for the 100 million members we have today.
I think we'll talk through some of that as we get deeper the QNX and Spencer to combine the last question between 10 and you on Miller Worlds first company acquisition, However, keep Scott the strategy and how we should measure ROI on that deal.
Sure Doug with respect to mill, our World a couple of things to highlight for you. The first is I think you can tell from our track record. We just a first acquisition we've done in our 20 year history. So I think from that you can take that we have very strong bias to build over by.
Secondly, we remain very very focused so we're not looking to diversify into new businesses, but rather looking opportunistically.
Intellectual property and other content assets that can help enhance our content library and also accelerate our growth.
So overall I think you should expect us to be selective, but opportunistic as it pertains M&A.
Yes, I'd say, mark and while our world had incredible concentration of original projects that we were already kind of circling on the TV side and on the feature side and so we just we were.
How does look deeper into their track record of original content creation in the roles. They played in creating really iconic films and dealt it said that we think we can continue to build on so we're excited about it.
Do you see.
Series of other acquisitions that have similar characteristics.
But obviously, we're looking at a lot of thing so and when there can be these kind of efficiencies, meaning that much creativity under one roof will that they want to explore that.
And so I wanted to switch to the third quarter, a little bit more and I think David This one might be for you, but perhaps had as well it was a relatively content like quarter not that a lot of content wasn't release, but when we compare to the third quarter of last year. It looked a little bit lighter in terms of important original exclusives yet the results were very strong again I know.
In the second quarter, you talked about some uncertainty as to how much was driven by content versus just growth in the overall streaming marketplace and it seems a third quarter. The answer is really it's the streaming marketplace am I reading that right.
I think so I mean, I've been pretty consistent in the quarter after quarter. The base force that really is the strongest force is the continued adoption of Internet TV and entertainment.
And that tends to drive the lions share of our net additions when we try to explain the quarter to quarter perturbations or some of the lumpiness in our net additions we tend to use explanations that sort of focus on the incremental which could be contents later or particular title that had some some notable strength, but I think in general.
It is the continued adoption of Internet entertainment that is driving our growth and it's really helped more and more by the increasing strength of our content slate, notably our global originals are helping drive that and you saw that show up in the second quarter with all of the growth that we we saw on the international line over above what we thought we might do.
Do but that was continued momentum carried forward from the second quarter as well.
It's interesting because I think we've been wondering for a while the last few quarters, you've talked about having some content strength or some titles that were surprised that perhaps pull forward growth, whereas maybe you're getting to the critical mass where instead there is a key.