Q3 2020 Netflix Inc Earnings Call
Looking statements and actual results may vary with that let me turn tucannon for his first question.
Thank you Spencer.
Rapidly Spencer if you could start expenses liquid stuck with you given the subscriber numbers in our display you're cautioning us last quarter about growth all of us can get it.
Concave ourselves from getting enthusiastic every quarter about your subscriber trends.
Maybe might be useful to just contextualize you. Another group the net add number this quarter could you help us understand how the gross add growth.
Gross additions are trending.
From Q2, Q3, and that would you expect gross adds to come down a bit sequentially and how much of this is on account of John. So if you could just break down the quarterly sub numbers anywhere then give us some color that might be useful.
Yes, sure John Thanks, So so first sort of stepping back if you think about the Q3 subscriber numbers. It was really very much as expected for the quarter.
Tend to look at Q3 is the biggest impact was really the first half of the year and that giant pull forward and subscriber additions in the first half of the year with with co, but when we have that much pull forward. We we expected a new there'd be some level of slow down and we we tried to projected as best we could but its super super difficult to Fourq.
Yes, with perfect present precision given all the unknowns and factor. So we actually came pretty close to land within 300000 members on a member base of roughly 195 million Thats, that's pretty much forecast noise and theres, a number of ins and outs, but you know that the general.
The general underlying metrics as you say are very healthy so retention remains.
Well, yes, and very healthy levels better than we were a year ago acquisition remains strong. So you're just seeing some kind of a natural kind of because of that pull forward effect, some slowdown, but don't want to lose sight of the fact that you have to measure our business. It's really not based on any single quarter of growth fluctuation, it's really about.
It should be measured and multi quarter and multiyear trends and so if you look at the past three quarters now year to date through Q3, we've grown by little over 28 million members, which is more than we grew all of last year, So super healthy growth and the underlying both topline and bottom line.
Growth in retention trends in our business are healthy.
Okay, maybe if I can just add.
With respect to more contacts on the subscriber trends. That's been said, we just really don't over focus on any 90 day period and just to give you. An example in the quarter was 48 hours longer we would have come in slightly above our guidance forecast. So again spends characterize it I think really just forecast north more than anything else.
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And.
Looks like organic ARPU in Latam was particularly high I know you had some price increases that are going to get at the next back to I mean did that have any impact on growth because that was one of the regions, which seems to have come in a bit lower.
And I guess also if you could contextualize guidance for next year, you did point out that.
Net adds would be it'd be down next year first half at least based on your expectations.
So how are you thinking about the impact of pull forward.
While modeling.
Next year's numbers could you give us some color around that might help us understand a bit better.
Greg you want to take the Latam price question and then ill take the next year and then pass it over to Spencer Yes.
Sounds good and I think going on it's again, when it's easy to over rotate on what were seeing specifically quarter to quarter and if you look at sort of the nine months on we see 5 million no pay debt at inland and which is a very healthy growth for us on that curious I wouldn't over read anything specifically asked more I think the pull forward effect and then over two years.
Good.
You know we've been doing.
Hi, twenties net.
Net adds per year for four years.
And this year you know on guidance was 34 million. So is that all kinds of new records. This year.
So the pull forward into next year is relatively modest it's sort of that five or 6 million delta as opposed to the second half of this year again, where the pull forward effect from the first half is very strong. So it was probably a little bit of the effect in Q1 from the pull forward.
Maybe a little bit less in Q2, but it'll it'll wash out it's not a permanent or long term. So I think in terms of modeling. It there is the underlying quality of the service you know how many hours do we generate how much word of mouth and thats improving at some relatively steady rate.
And then our growth sort of see saw us around that number depending on the particular condition is going on in tech quarter, but year. After year. It's fundamentally follows that improvement is the service growth curve.
So.
I think you I think you both hit on most of it I would just emphasize that in the letter can on we're really talking mostly about the year over year comparison for the first half of 21 versus the first half of 20 and Thats because of the dynamic that read was mentioning if you look at the first half of this year again, we grew by.
26 million members in the first two quarters of 2020, that's more than twice the level of growth. We had in 2019. So again, we're just we're sort of growing through that peak acceleration in our member base. So we shouldnt expect year over year first half to be comparable.
Just trying to temper that enthusiasm can on that.
[laughter] that's fair.
So I guess you know.
One component, which can help us understand that a little bit better maybe engagement levels and obviously because of.
The work from home environment, there was an engagement lift across the board.
On streaming services in general but.
But in some ways you know you guys are able to benefit from almost a pure.
Pure experiment in some ways as different countries reopen at different times and are able to see what that does to engage much levels. So.
So as this process plays out at around the world.
Any structural lift and engagement you gave that seen in markets that have opened upwards as markets that may not be open and how much of a tailwind could that be structurally longer term or how much of that could become a tough comp next year.
You know, we do look at some of this but we try not to get overly focused on the coal that effects because.
Because they're very one time in nature.
And by and large now engagement churn all of those metrics are like we would have expected from a year ago.
So.
Think of that as.
A minor background effect and there was the temporary learning when there is no sports, but it cycle, it's not really that interesting finding is it's just not relevant to the world now we're back in a world with partial sports.
And it's fine they weren't growing so.
Again, you know we compete so broadly we compete for time against TNS pick talk into those well as each deal as well as fortnight, so really the limit or for US is you know what's the quality of our service.
How often how many nights you selling out I want to go to Netflix and and watch the next show.
And then I guess from one of the comments.
In that he leads with the goal of shooting hundred 50 productions by year end.
So how does that compare to what your initial plans may have been because the free cash flow number. This quarter was really strong, which which tells me that this probably a lot more content you would immediately planning versus what's happening. So if you could just give us some color around the cadence like we pointed out since the cobot shutdowns. We've completed production on over 50 productions and we expect another 150 over the years.
Over so all that the ramp up that puts us back to nearly fully operational in most parts of the world.
Those productions May go a little slower than they than we had planned but materially we are back and we're back in business and production in most places in the world, including in North America that have come on slower so we've got.
So I think what we were looking at the 2021 slate.
Everything that we forecast for 21, we expect to hit in 21 with a few minor exceptions and some maybe a little more back weighted than they than we had planned for early last year.
What we pointed at all coming out I think.
I think the thing that we have really been amazed by has been the activity of our production communities.
Step up to the plate in these new covert protocols and get and get the work done in such an incredible way and it's so safely. We've had a couple of shutdowns and I really think that we're in a place right now where we should expect that to happen.
That built will have production shutdown in the art of it is how quickly and safely can you reopen and we've been going through that and.
In different parts of the world everyday so, but right now I'd say that we're back to near steady state in physical production.
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And good from your perspective, when you think about the pricing piece decision recent.
Recently, I think there was a price increase in Canada and Australia.
Is this based more on on.
Some kind of an algorithm around content for lease fleet and subscriber momentum on it that's based more on the strategic goal of where you want to be with respect to our pools would have given same thing.
So how should we think about that.
The cadence of price increases going forward given that productions starting now.
No no no magic algorithm, but.
Our model. We have is you know and we think really our responsibility and our job is to take the money that our members give us every month and invest that as judiciously as smartly as we can and creating new amazing story.
We got titles that are coming out across an increasing rain range of genres amazing movies like old guard and extraction and more animation like over the moon and will be used in cloud and so just basically delivering more value.
For our members that are product experiences and if we do that well and we seek to basically everyday be better at pretty much every component of how we're investing not and make that efficiency and effectiveness better.
We will deliver more value to our members and will occasionally go back and ask those members to pay a little bit more to keep that virtuous cycle of investment in value creation going and as we said before we look at every country independently. So that so instead of an algorithm. We're just basically assessing okay. How many new popular titles have we delivered where local language.
Adults in that particular country looking like what's the slate that's coming looking like what is the fundamental metrics rate engagement in churn what do those look like and then we just we do an assessment and we say we believe that we're really delivering more value to our members.
And if so do we think it's the right time to go back and ask them to pay a bit more. So we can you can keep that cycle going and I think the one other important thing to note here, assuming north star that we hold close to our hard in this whole process is we think that we are just an incredible entertainment value and we very much want to remain an incredible.
You as we continue to improve the service Brock.
And now they do it in a more nor.
Normal pricing environment.
And some of the metrics that you mentioned just now in terms of engagement levels and so on and so on I mean venue analyze different markets is there room for the recent price increases in a couple of markets expand.
As we go forward.
Over the next few quarters.
Yes, I think I am.
I won't comment or speculate any specific changes, but that basic model that we just described if we continue to do a great job and investing and we feel like there is ample opportunity to deliver more value and you heard from Ted the sort of the number of original productions that were doing increasing even under these conditions that number and if we do that.
No then we feel like there is that opportunity give occasionally go back and then ask for members, where we've delivered that that extra value in that in those countries to pay a little bit more.
Got it.
And in the U.S. I mean, you've also done away with the free tier.
Again, I think us as one of the last markets with their you've done that.
It does because most of the new additions and the U.S. and now people who already have been subscribers in the past I mean could you help us understand the decision to walk away from the free tier.
Yes.
Like most things that we do we're we're constantly assessing and testing and trying to understand whats working whats working best how do we improve and we do that with our marketing and promotion tactics as well one of the most effective ways to introduce Netflix to people in different countries around the world and based on that testing and that actual performance weve.
Shifted those tactics as you note in many many countries, including the United States, but we also see to innovate and come up with what our new ways that we can use to introduce Netflix new members and so an idea that we're excited about and we'll see how it goes but where we think that giving everyone in a country access to Netflix.
Next for free for a weekend could be a great way to expose a bunch of new people to the amazing stories that we have the service how the service works really creating event and hopefully get a bunch of.
Those folks to sign up so we're going to try that in India on we'll see how that goes not just an example of the kind of innovation that we seek to do in this space.
That's interesting so I guess that dovetails.
A question I had for Ted which is more around some of the shows that have been licensed borderless licensed if I can use that term to cable networks as well as that was like Google and obviously some of these NRT on production paid owned by somebody else, but is this.
Is this a bigger opportunity in general with Yodle originals and.
The opportunity to stream Netflix so free EBITDA as an event or even as a stopping theater as.
As a means team product with your licensed content I'm as audio legacy content, which may not be as productive anymore. We've got existing base is that something that you are willing to explore in a big.
In a bigger way.
Yeah, I think we're looking we're always looking at new different ways for people to get a sample of the content that everyone's talking about including try and the service out here and there in different ways I think licensing our content to other people are the most mostly I think it's helpful for us to keep our original content on Netflix so people understand the value proposition of Netflix.
And we have seen our ability.
Our ability to grow a show that was on other network or a smaller outlet pretty much.
Pretty meaningfully I would not necessarily seen it the other way around what we've experimented admitted in the past where things like actually with Argos when we license it to Univision in the past it try to try to get people to try to sample. The show we don't own that show command does and the deal that they did.
It was something that would be interesting to see out of it lifts the awareness and interest in our goes but it's on a relatively small platform relative to Netflix.
Got it.
And.
And read from your perspective there.
They have been.
I guess Ted this is for you as well, but there's been a bunch of management changes recently or over the course of last years, starting with spends of course, but they've been changes in marketing in the marketing leadership and that he simply on the content side.
And then 100, each and like you point out in your book keeping voluntary churn at Netflix is really low compared to other organizations that feels a lot more deliberate in some of these choices that you're making so could you help us think through what drove these changes and these changes more or less done and organization will be better right now.
Well I can start to wonder about what are the major changes that we're really excited about which is I was restructured the content team to be more like our film team at more like our animation team and have one global organization and to run that I'd have to deleverage ARIA is done with Netflix for long time has came into it still.
Our our unscripted and group.
Brought in that team from scratch and they developed this incredible scripted outlet slate.
Slate that we have today moved over to our local language original team usually successful. These are two areas of the business that are going to grow three or four times over the next three to five years or so.
So I thought that she was really well suited to take on that organization.
And she and in that English language scripted series business. She joined US from Paramount are from Universal television, where she was the president I had brought US such shows is unbreakable Kimmy Schmidt the master of none.
And she also orchestrated the to bring you onto the Netflix original and delivered that first great season of which are so I think bill is going to be phenomenal running that group and then there are some changes after that that whenever you put new change at the top there is some downstream effects as well.
Thanks, John to your broader question.
Yes, we're always trying to broaden our talent as we take on bigger challenges. So.
Greg took on head of product about a three or four years ago.
Spend CFO about a year and a half ago Spencer Iowa.
Our about eight years ago.
And they all are grown into those roles, but you know it's a normal model no one gets to keep the cap rate.
Earn it every year.
Which is intensely challenging and we all love that part of it.
Got it.
And Spence My next question May make his school im a little bit.
Im a little bit better.
[laughter] read last month in an interview I think you said something there at least I Hadnt realized was essentially a deeper test move which was.
Which was the change in the upper left in it and you mentioned it was deliberate and you needed in entertainment company's CFO.
And they put it was time for the change.
So to me the change at that level to deliberate PC could see a couple more accuen Julien what end.
What an entertainment company it looks like it seems like a fish shift in how you think about the company about what Netflix today is worse is maybe a decade of goes is that the right way to think about you know or interpret that comment.
Yeah, I think so broadly I mean, we've been moving towards you know being an entertainment company for many years.
And our former CFO, David Wells really extraordinary human being and a great CFO and we offered the chance to move to L.A. into really lean into that.
And he demurred.
And he has done.
He has done so well as a generalist 10 tech CEO CFO he wanted to stay with that.
And then we felt super fortunate to recruit sports Newman, whose unlike the dream CFO for Netflix so it could not be better and so super fortunate.
That's great I thought I was going to go to keep or test revenue.
[laughter].
So I would have been 11.
Alive.
[laughter].
Uh huh.
And one of the things I guess.
Which has surprised me over the course of the last year is that the way.
Most of you have spoken about the impact of content on growth rate.
Great and I think that started around Q2 of last year. When there was a big mess and one of the reasons attribute third was the contents lead to that point and now.
And now we increasingly talk about comps versus last year. When you have big she will expand to thing.
I would have expected the uplift to be honest I mean, when you have 200 million subs and content sleep is so big content singular pieces of content should NPD become smaller parts of overall consumption, but seems like it's starting to have a bigger impact could you help us think through.
The contents in consumption.
It is that skew more or less overtime and why is that seemingly having a big effect, but that just means reading too much into some of these comments.
It's just a little bit of math, so, let's say, there's a 5% variation because of content you know on the margin.
And 5% used to be a small part of the growth. So then if you really didnt notice it that much and now 5% might be half of the annual subscriber growth. So you noticed that much more I don't think it's particularly changed we are little more sensitive to it again on the growth remember that if you have a.
Local business you have up year down here.
Creationism revenue in our case, the revenue is going up and up but you know there is a little bit of wobble in that direction. So I think thats, what I would I don't think it's particularly more sensitive like you say weve got lot of hits and we that we have.
Crown coming out this kind of big returning series.
Which are coming out so there's a lot of big things.
Got it and so it's fair to say I get that when you have a show like the crown or the richer or stranger things coming on every year that goes by the impact of the.
These shows overall growth on a normalized basis keeps coming down but on an absolute basis. It still has an impact so that basically the way to read some of these core.
Correct and because the growth rates been steady, let's call that $30 million era.
First.
Percentage on the base is a bigger fraction of that so you'll see a lot more so or practical standpoint as investors. It's a it's a bigger deal but remember its its variations in the growth and the spending thing is just big picture outside of coal that has any of the growth has been a year after year after year back to this Andre.
Airline growth models like diffusion of word of mouth, Netflix is a better way to go and you capture a little more of that when you have that they show and then you have a shadow under that so think of it as like a big General diffused model and then you're just seeing a little surface variations that are happening.
And then in terms of the total number of titles. If I have this right I think the total number of shows that you have a metrics today is actually significantly lower than what you had.
When Netflix started screaming.
More than a decade ago.
Well I don't know if that's true I mean, if that is true and is that delivered and how do you determine optimum volume I guess, that's the broader question how much is too much it is.
It is true that there is less because in the earlier days of Netflix remember, we were trying to figure out what.
What we can stream and we were licensing in bulk and volume just a lot of content just to see what worked well.
So today were much more deliberate about the programming and.
And we really don't focus that much on the title count remember in the early days of streaming of on was that was the mark.
The marketing war was how many titles you had but it turns out that does isn't that meaningful if people don't watch them. So what we've really done is concentrated on the titles that have a lot of impact and can aggregate big audiences and move the business forward and add a lot of value for our members. So we really don't focus on the title count, but you are correct that significantly lower than it was.
When we first started streaming.
I'd say more 10 years ago, where we used to license the entire library of 800 films from somebody and nobody watched any of them. So it's really not a judge a chase for how many titles, but are they at the titles you can't live without God.
And then I guess that in one of your recent interviews you indicated that the goal was to scale up to six animated feature films a year.
And if I'm not trying I think you hit that already doing more movies than the Gulf Hollywood Studios put together. So when you think about that and that's key to build content.
If it's quality a tradeoff I mean, how do you mean beam that balance between building.
Building scale and originals versus quality I'll tell you the thing that we've been working on and try and doing if you think about how many more original series. We produced today than we used to and how many more were producing relative to everybody else in the industry around and around the world.
And yet last year, we had 160 Emmy nominations for our television slate, which is the most honored single season of television in the history of the Emmys.
That kind of quality attracts more quality.
We're doing that today and how we are building up renovation slate.
Last year, we released two.
To feature films that were nominated for the Academy Award for Best animated feature both are pretty popular Klaus was extremely popular also won the Bastow Award for best animated animated feature and six Annie Awards, which is a celebration by from animators.
Of the best work of the year and that kind of quality keeps attracting more quality. So we're deep into our 21 22 23 animation site working with some of the greatest animators and the world.
Chris knee and a whole rig the chair as.
Nor a to me.
Chris Chris Williams, Alix woo, all making the projects that they've been dying Jamaican making about Netflix. So we're really excited about it we think that there is no quality trade off for quantity and we think that there is a big appetite for film and a big appetite for animated features a Netflix you got it.
And Greg if I could switch to a slightly different topic recently, they've been headlines and on the leased or changes in payment terms, especially put in app purchases and obviously this has been a broader discussion with a dispute between HBIO Peacock local and so on EBITDA estimate last quarter than anybody, but if you could help us think about.
Not just the near term impact of the group, we move but also bigger longer term issues. I mean, how do you plan to be with Aggregators is there is this becoming a bigger deal than it used to be in the past and so you know how would you expect to put some of these issues going forward on the pricing front.
Sure on the Google play store, specifically I think you probably won't I won't comment on the details of any given partnership but you can look at our position on iOS were work.
Quite some time, we've been signing up.
New members on those devices through the mobile browser using our own payment method, we're not dependent on the App store for discovery, we're not depend on the EPS will for payment and we've seen steady solid growth through that channel. So it's been quite effective.
Regardless I think thats relevant to note when you think about sort of that dynamic.
And then to your point look I mean that.
The world is shifting to streaming into Internet TV and a bunch of new players are coming in and so I think the dynamics between those relationships Aggregators and device manufacturers and new streaming services are are being worked out but we have been in this business for quite some time and we've invested in our relationships with device.
Tourism platform owners for over a decade, and we really really focused on making this a positive experience for them and adding more value to their devices because we're there.
Making it great for us because we get to use those devices to access new consumers around the world and making is great for the people to purchase those devices because they have these incredible experiences with Netflix and the amazing story that we tell on those devices and I just don't see any significant change in that sort of positive model, we're going to keep investing.
Whole teams, who basically just do nothing but make it great for our device manufacturers to take our technology on and deliver then great experiences to the consumers who buy those devices.
Got it.
And good I think last quarter one of the things you had mentioned was the promotional impact Alf.
Net fixed so we can sort of spending on marketing.
You could do with Netflix et cetera, and the scale of Netflix as a promotional duty green.
Going forward.
I think the foreclosure and I know in a way that data came from but it is quoted all over the place that 75% of your viewing comes from before speech.
In terms of your recommendations I don't know if that's still if that number is true at all but would be great to get some context around.
How much of content consumption is actually driven by the recommendations.
That you put up on the screen versus other sources essentially.
Yes, a very significant majority is driven by the recommendations that we present and so I think to your point you know the most.
The model that we are working with is that millions of people millions of our members show up every day to our applications. Our interface is looking for something great to watch and so we really have a tremendous opportunity to to fulfill that in trips and fulfill that demand we do a good job at through the roof.
Commendations the titles that we select how we present those titles in a compelling way on giving.
Each of those members something satisfying in that moment, then they're happy they are fulfilled and that means the next night when theyre thinking about like what do they want to watch or how do they want to be entertained and you think about the wealth of options that are available to them. This sort of read went through but if we've done a good job the previous night, they're going to turn to US again, and we have an opportunity to sort of fulfill again into.
Sort of keep that positive feedback process and so we're really deeply invested in that we have hundreds of people, who wake up every day and sort of do both their entire professional existence to making every aspect of that working better and better and better and we're no we're going to be doing that for decades to come with super exciting.
And I guess this also means that as you evolve this process some of the capabilities internally that you measure of performance on also changes over time and I think read in your book you mentioned Youve mentioned in interaction with.
Marketing officer at the point.
At the point I think and this was in 2016.
Well she pushed back against the customer sign ups being used for measuring performance of the marketing team.
Instead of retention and I think ultimately they went with retention, but overtime a number of these keep yates seemed to have shifted internally. So could you help us understand how you measure performance.
To the extent you're comfortable doing that how do you measure of performance for the content.
Has this focus shifted from origination to retention is that a bigger part of how you think about the business broadly or or even features such as engagement for example.
For at least the last five years, we've realized there are no gimmicks. There are no techniques, it's fundamentally about member satisfaction and if we view on a Wednesday night, you're more likely to come back on Thursday night, So again.
You can juice given title.
He wants to too.
But you're going to pay for it downstream because not everybody got the best title for that or you can choose sign ups or you can choose any particular metric, but it's all just very distorting.
The fundamental for US is member Joy, which we look at how much of your viewing time do you choose to spend with Netflix how.
How many VP days, what's retention all of those aspects and so.
We're really focused on the fundamentals of that leasing and what does seem to please our members and that's how we grew up now we augment that with a lot of conversation because we want our titles to be the most talked about titles and every nation because you know when you watch in Oklahoma.
And then like you see this all the Activations that we're doing in London.
You know with the lower home statues lifelocks in its like something under really talk about and it was a great top spin on a fundamentally great piece of content, but that interplay that we use across product content is how we do budgeting decisions how much do we want to spend in each area.
Revenue fundamentally by our gas on member satisfaction in each country, and how that works and Ted you've thought a lot about that so let me turn it over to you. Yes, I would agree with you I mean, I think one of the things going back to what Greg said, it's not unusual for a Hollywood studio to spend 57 decent.
The 100% of the production budget of a film and marketing to get people out of the box office on opening weekend.
We do a fraction of that for our advertisers in terms of paid advertising for our films and yet we're getting 70 80 to 100 million folks turning out to watch those movies in the first 28 days, which seemed like a billion dollars box office in terms of color.
Cultural impact so when I look at that I think thats, the and the enormous promise of the scale and the the recommendation engine the value of the recommendation on Netflix to make sure you have a great experience and come back looking for the next one and our and primarily what we're trying to do in our marketing is get people to talk about those things that they are watching.
And got to get it into the conversation get into design guys that the watching the heavy lifting of the watching is being handled by the by the recommendation of the presentations on Netflix on that first page you talked about earlier, so but what we can do is do really creative marketing really clever events to activate the fan base.
And to excite the fan base, so that when they are talking about a movie or talking about eplex movie and when they're talking about a TV show. They are talking about an EPS 60 may show and that's the thing that we're building toward everyday.
Got it.
And I guess.
In terms of the content, it's a bit I mean, there's probably a lot of opportunity right now given the shutdown in theatrical and the slow the openings that there's a lot of content in the pipeline and the window between will be the leases next year at a significantly smaller than what it was left field already.
If this gets pushed out another quarter potentially a lot of movies would probably come to you or Amazon or somebody else.
How are you thinking about that pipeline of content as you go into next year is that a big opportunity in terms of content acquisition.
It's pretty short term opportunistic there said there will be some things reinvention enola homes is one that we bought that would've gone theatrical other turned out to be a nice hit for us.
And then we just released the trials are the Chicago seven that we picked up from Paramount under similar conditions, which is great. We have to remember we have a very healthy pipeline of films coming out already and the rest of this year and next and 22.
But we're looking at all of them will be at the table, but I would look at it as a fairly short term opportunity while the studios refigure, how they're going to release films in different parts of the world. This past week in Japan theaters reopened two 100% with 100% capacity. So I think they're looking at the impact of that around the world and how long they go.
Got to make new plans and what are they going to do with our 21 and 22 films.
They are sitting on their 20 films. So I do think there'll be some short opportunities, we'll pick up some not all but we'll certainly be in the mix.
Got it.
And in terms of some of these newer opportunities is.
Is this also.
Eventually.
Weve floored and new business models to open up I mean, there's also been a lot of experimentation by the likes of business.
On the PBM side as well as leading some of their movies directly to consumers on streaming.
But unlike music we've seen a lot more of this as well so.
Some of these opportunities during covert also open up.
Potentially new avenues for monetization from your perspective as well.
Look I think what's been happening with consumer consumers desire to see films at home has been growing and we've been satisfying it and I think.
That was kind of a natural migration that was already happening that this may have accelerated in some dimensions, but I think at some point there or is it going to reopen and people are going to go back out to the theaters I hope so like I said I'm a fan of doing it myself and I do think people kind of crave. The the social interaction to go out and see have done with an audience of that.
No doubt, but thats going to come back and some capacities I wouldn't look at this thing that radical a change I just it can be it's probably an accelerating change that was may have already been in the works.
No no no.
Hi, Mike.
We have time for one more question.
Got it.
Suspense I guess.
You know the most.
The mandatory free cash flow question that we have to get to now that you have potentially $2 billion in free cash flow.
Over the course of this year and obviously I mean, there's a lot of lumpiness in that just given the cadence of content production, but broadly when you think about.
Maybe a three year four year kind of a nice and you are getting to a point where it.
Cash flow use is going to be more than just about content.
I was just thinking about your capital structure.
As you get closer to the breakeven point, what's the use of cash.
Once you've done free cash flow positive.
Yeah sure well the freak. Thanks on the free cash flow story is.
As an exciting one for US right now as you can see the free cash flow profiles, improving obviously this year was a bit short term with not just improving profitability, but also the reduction in content spend but as we look forward to 2021 already we guided to free cash flow negative free cash flow of negative 1 billion to breakeven so vastly improved from.
Our peak negative free cash flow in 2019, or not yet sustainably free cash flow positive or ready to call that we're rapidly closing in it and then given the the more than $8 billion of cash on the balance sheet. We are at a point where.
At least.
You, probably pretty safely say that we can sell finance our growth.
Needing to access the capital markets, but but we're still we're still.
Lastly, based on our guidance, probably a couple of years away.
You shouldn't see sustainably being free cash flow positive. So it's probably a little too early to call. Our long term capital allocation approach other than to say that you can trust that we're going to be we're going to remain disciplined and were going.
And we're going to take an approach that we believe will maximize long term value for our shareholders. So more to come on that front got it.
Thank you so much thanks for the time today.
And hopefully be chat again next quarter. Thanks in the Big picture is that.
That you referred to there you next time, we get together, we should be over 200 million members.
Completing a year of 34 million all time record free.
Free cash flow positive got an amazing content technology and marketing engine humming, so really looking forward to next year.
Thank you so much.