Q1 2023 Netflix Inc Earnings Call

Joining me today are co Ceos, Ted Sorento's, and Greg Peters and CFO Spence Neumann our interviewer. This quarter is Jessica Reif Ehrlich and as a reminder, we will be making forward looking statements and actual results may vary with that just kind of I'm going to turn it over to you for your first question.

Thank you so let's start with Ted and Greg. He has worked together for over 15 years, but this is your first quarter as co Ceos are there any highlights you want a shower.

Well, Jessica as you pointed out.

First quarter together with co Ceos, but 15 years working together and in those 15 years. You know you build a lot of respect and trusting each other to help you get these through some trying times and not to lose you down about this theres no drama, but this was pretty much business as usual quarter for us are having done this.

Together for so long and he Greg and I enjoy the same kind of trust respect and shorthand that I enjoy with Reed for so many years I know Greg did as well so it's not as eventful as folks might have thought and it's really been a incredibly and wonderfully professionally stimulating a to have a co CEO .

They get to tackle big problems together, so I think one of the things that we'll look back at Reed's incredible 25 years at Netflix one of the great accomplishments as facilitating a just very very smooth transition and succession.

So you've recently, which is prices and 116 countries.

Is this a more local approach similar to what you did in India in 2021.

The intent is to enable a successful introduction of password sharing and advertising tiers.

I can take this one if you want Jessica this is really about we've talked for the last few quarters about a further refining our pricing strategy in monetization and if you think back to when we did our global launch in 2016, it was pretty much across the board a bit of a skim approach in and not particularly sophisticated in terms of our pricing.

So think of this as kind of that next step in our evolution of a bit of a better market fit product market fit pricing fit.

With the aim of growing our penetration in these markets and also better medium and long term revenues are better for our members better for our business, but I want to emphasize this is not a material to our business anytime in the near term for sure. So there's a lot of countries, but it represents less than 5% of our revenue.

And so it's a it's something that will over the long term hopefully will benefit us and we can point to you. An example of the success is sort of like what we saw in India. So last year back in December of 'twenty. One we launch we drop prices in India between 20% to 60% we saw engagement over the past year grow by about 30% high growth in paint.

It adds and also revenue FX neutral revenue growth actually accelerated from 19% in the year prior to 24% last year. So that's what I was saying every market is going to play out like that but that's what it would look like and success.

Let's move on to password sharing.

Have you seen in your Q1, new market launches.

Churn as well as conversion and can you give us any specific color on what you're seeing in Canada, and whether it's in terms of misogyny versus add ons.

Yeah, I'll take that one so this this was an important transition for us and so we're working hard to make sure that we do it well and as thoughtful as we can this last set of country Rollouts have gone well and maybe most importantly were directionally consistent with what we saw in Latin America. So just to remind people what that looks like very much like.

A price increase we see an initial cancel reaction and then we build out of that both in terms of membership and revenue as borrowers sign up for their own Netflix accounts and existing members purchase that extra remember our facility for folks who they want to share with so first of all it was a strong validation to see consistent results in these new.

Countries, because you know there are different market characteristics different from each other and also different from the original Latin American rollout countries, so to get to a positive outcome you mentioned, Canada.

We're in now in a positive member and positive revenue position relative.

Relative to pre rollout. So that's a really strong confirmation that we've got an approach that we can apply in many different countries with different market characteristics, including our largest revenue countries are in fact, we actually we could have launched that solution, we actually consider that option.

But we also learned from this last set of launches about some improvements we can do especially in areas that matter a lot to our members things like having seamless access to Netflix as they've always been using it on the go or while traveling as well as making sure they've got good tools for them to manage access to their accounts and their devices. So all in.

And we.

We felt based on those results it was better to take a little bit of extra time.

Incorporate those learnings and make this transition as smooth as possible as we can for members and we think that approach also best serves the long term business goals as well so we're going to launch.

This new improved version broadly, including in the United States and if you do.

Kind of as a follow up to the cadence you can set your watch the kitchen, how about the rest of the world and is there you know can you give us your thoughts on pricing and whether you have a preference for a current borrower to become a subscriber or an add on.

Yeah. So that launch we're doing in Q2 was a very broad launch includes the United States includes many many other countries I mean, we reserve the right for some countries.

Where we think there's you know a different approach, but I would say the bulk of our countries and certainly when you think about it from a revenue perspective, the vast majority will.

We will be we will be rolling out in Q2 you.

You mentioned in terms of pricing.

We will look at that on a market by market basis, but obviously, we tested different pricing.

And these last rollouts that will be tested in Latin America and that gives you a sense about how we're thinking about.

You know what is optimal pricing, especially in a more affluent countries. So I'll leave it at that.

And then in terms of preference what we're trying to do is create a structure that really supports choice. So that gives us an opportunity for folks to spin off to a borrower accounts, where they think that's the right solution for them or for use cases, which are legitimate use cases, where somebody wants to.

You basically buy Netflix for a family member or something like that we want that extra member to be in place too. So we don't really have I'd say a strong preference we're not trying to steer in one perspective other than using pricing to both satisfy those customer chose choice goals as well as thinking about long term revenue optimization.

111 password sharing.

Any incremental cost it seems like content distribution and marketing.

Already in your expenses, so the incremental margin of a 100% or are there plans to reinvest some of this revenue so it doesn't all flowing through.

Well I'll leave it go ahead.

Go for it.

Yeah, I'd just say, there's there's really not other than just kind of just the general kind of allocation of resources I wouldn't say there is.

Real incremental cost but of course, we always want to reinvest so as you kind of see with our our kind of guidance and our objectives generally Jessica we're looking to Reaccelerate our revenue growth. That's the path that we're on right now and as we do that we want to kind of balance a gradually increasing margins you see that in our in our guide we were looking to pick up margins a bit.

The 18% to 20% range full year relative to just under 18% last year, but balance that with that Big Prize ahead of us so reinvesting to more and more great entertainment for our members and drive that flywheel of more entertainment more value for members and ultimately more and more members overtime and then build a really really big and profitable business.

So let's move on to advertising.

It looks it appears to have a huge advantage in this current TV advertising I mean, do you pretty much have nothing to lose people legacy perspective, and everything to gain an enablement platform given the limited ad load.

Video content or humongous reach and engagement with some pretty hard to reach demographics as long as the ongoing transition from linear streaming your position is enviable, having said that you seem to be very careful in your advertising rollout can you give us your key learnings to date and with the growing pains have been so far.

Yeah, as you state, where we're significantly optimistic about the long term opportunity for the reasons that you mentioned Ah, but we've always expected and we just didn't expect frankly this to be a gradual build it follows a very similar process that we've used in so many other areas, where we get in we learn as we go we iterate and we found.

As you know I'm, having that approach you know yields basically great long term outcomes as we sort of grow and learn so I would say where we're at today. We've got a lot of work to do to develop continue to develop features that support advertisers, we're rolling out things like measurement and verification, but we've got a bigger longer longer roadmap that we have.

They go through there, we're improving our go to market and sales capabilities in partnership with Microsoft is a lot of good work that we have to go do and some of this is hard work because it's very country by country of you've seen us add a programmatic private marketplace that gives advertisers more ways to buy as we grow inventory and then we're also trying to improve things on the.

Humor facing side. So we're adding more features to the ads plan, we're making that experience that are for members and going through that sort of process.

We expect those iterations, which we're trying to go as fast as we can on them, while being judicious and thoughtful about the business to really you know add up over a period of time into a significant highly.

Highly material and highly lucrative high margin business, but there's plenty to go do and you know when we're trying to maintain a fast pace, but also a thoughtful pace.

Is it a lot.

Press reports regarding the adult AD tech capabilities could you provide an overview of plans timeframe and cost.

Yeah, I would say you know we have ambition.

To be innovative in this space and a lot of that innovation is thinking about I'm not a one size fits all in terms of the member experience and thinking about whats the right time to fly to NAD and things like that but I would also say that you know we're very much in the mode right now where we're doing a lot of work that is falling a world.

Trodden path to build.

But the fact is when you think about you know verification measurement et cetera.

We're doing our programmatic on those sort of I'd say relatively straightforward things. So a lot of the work that we're doing is really heavily in that space and then in terms of incremental costs I could sense do you want to chime in here.

Sure I'd say I'd say I'm, just generally Jessica what we try to.

All of this you know firstly, we've always we've talked about this crawl walk run, which which Greg mentioned that you are being very thoughtful and methodical how we're building the business and with that also how it how it impacts our our overall financials, our revenue and our incredible incremental profit contribution and we believe we can do that in a very healthy way. So that's what we're building towards so yes.

There is some costs at both in terms of the cost of the Microsoft partnership and the cost to kind of some building out of our capabilities people as well as tech capabilities, but all very manageable. We also talked about a little bit of a content costs. As we continue to kind of we increased our level of of of content parity on the on the plan this past quarter.

Which is great. So it's about 95% plus of our viewing parity, which is again a great progress. So we're we keep moving forward, but this is all at a level that we believe is not just better for our members with a lower priced option, but better for our business and we think we could do it with.

Are doing it in a way that's I would say without being overly specific but think of it as like 50% or more incremental profit contribution to the business.

When you come to that Nate on advertising upfront, which is a couple of weeks and it sounds like you are coming with the standards here now.

Do you have any plans to introduce such a premium tier and how much scale.

Meaning you know how many times you are spending on the platform. When you when you rollout let me upfront commitments.

In the fall how much scale do you have.

Yeah. So on your first question you know, we're we're always thinking about and working to improve that plan structure of the pricing. We've got two goals in mind. When we do that one is we want a give a wide range of consumers and ideally increasingly wide range of consumers access to our great stories at a range of prices with appropriate.

A corresponding features the second goal is thinking about optimizing long term revenue and a good example of this is based on the economics of our ads plan based on the limited switching behavior that we've seen off of standard and premium.

We've upgraded the ads plan features both in terms of video resolution or video quality and number of concurrent streams. Because we think it supports both of those goals are so that's a good example of that I would say beyond that we've got you know where it will continue to evaluate as we always do as you've seen us make moves in this space before but we've got nothing more to add on that today.

And then in terms of scale, obviously, we're growing our everyday we grow and we're seeking to continue to grow, but we're not going to sort of announce or a target or what we would expect our forecast, let's say for upfronts at this point.

On the advertising question and then I'll move on but can you provide specifics on what you've seen so far but you mentioned in the release.

Is that the revenue is actually higher than even standards. So it seems like.

So far so good.

Yeah, I can jump in I mean, yes overall, we're pleased with our kind of per member add plant economics, it's higher.

Then our basic plan overall and as you say in the U S has actually been higher than our standard plan. So we we really like the path. We're on the trajectory we have and as I said, it's it's kind of a win win because it's a lower priced option for our members and it's both kind of incremental revenue incremental profit to.

For the business. So it makes the business stronger which of course, we can then reinvest into more and more great entertainment. So so we like the past, but again, it's early we're only a couple of quarters into this Jessica So we're gonna get better is as Greg said, better targeting and measurement that are kind of tools and buying options for advertisers advertisers. So we think all of that will actually can build on this so that will.

Reinforce and strengthen that kind of premium CPM AD network that we're building.

And maybe switching gears a little bit.

The.

Capital returns and free cash flow and you did mention free cash flow guidance that you've kept the margins the same for this year.

What are your longer term margin growth or expectations. At this point, you're pretty confident you indicated 300 basis points of improvement per year over a few year period.

Can you provide any update to that.

Oh, we're not we've never provided a long term guide to our margins.

But I'd say that we're already in a place where we feel great about the business that we have it's a very it's a great business model of the business at scale with over $30 billion of revenue healthy profit margins growing margins growing free cash flow. So that's sort of a starting point and as I mentioned before we're trying to balance how do we reaccelerate revenue.

Kicking up those margins with also reinvesting back into the business back into that member base that kind of a big prize, where we feel like we're so small today, we've talked on recent earnings calls, where we represent we believe roughly 5% of that direct consumer spend in the areas of entertainment that we're participating in today, primarily in film television and games.

And when we think about even just the member population that's available those 1 billion plus broadband households, and even today you know roughly 450 500 million of those being connected TV households.

We have $230 million ish paying members today roughly right. So so that's why we're so focused on.

Addressing with paid sharing and then just making our business and our the value that we bring to a service better each day to bring in more members. So that's that's really what we're working towards and then long term. We just we don't see ourselves approaching a near term ceiling theres lots of proxies out there entertainment services and networks at scale are traditionally have been.

Well above our roughly 20% operating margin. So we believe we have a long way to go and we have some inherent advantages. We're a truly global entertainment network, perhaps the first with really healthy leading engagement and a really scalable content model. So we believe we've got a long way to go but not really putting more.

Guidance out for now.

Just like it out are example of that are of the scale of the business being global is that every one of our big content wins started a local wind and then in success. They roll out do they get regional then they reached as far a then they get global and skewed success and Theres no marginal cost all that additional audience when we get it right so by driving.

Creating those stories that drive the growth of the business in local territories. It provides content into the pool that people can fall in love with and it's just as likely that we can get a gigantic head from anywhere in the world and that's really the scale of our operating business and to go back to what's been said about the potential for do you even grow margins beyond where we're at today is very very high.

Yeah.

Can you give us an update on your capital return plans and how are you thinking about you know when you announced the $1 2 million buyback in Q1, but relative to our free cash flow and kind of our balance sheet.

You have a lot of capacity. So you know can you give us any color on how you're thinking about.

Capital returns over the longer term.

Sure.

Ill take that one yeah I can take that one thanks, Jessica for the question and we are happy to be a fully investment grade as of Q1. So that's a nice milestone for the company and Youre right. There is no change to our capital allocation philosophy. So we are still targeting to maintain a minimum cash.

So roughly two months of revenue based on the Q1 numbers, it's about $5 $4 billion of minimum cash we ended the quarter with about $7 $8 billion on the balance sheet. So we do have about $2 $4 billion of excess cash.

So that is why we did indicate in the letter about our share repurchases will accelerate.

Over the course of the year and then one other minor thing I forgot to mention in my intro that Theres. A video interview will include forward looking statements and actual results may vary. So I do want to say that and here's evidence that this video interview was actually not scripted so back to you Jessica.

Ted how are you preparing for a potential right of strike conventional well likely well Jessica first they say we respect the writers.

And with respect to W. G a and we couldn't be here without them. We don't want to strike. The last time, there was a strike it was devastating to creators it was really hard in the industry. It was painful for local economies that support production and it was very very very bad for fans are.

So if there's a strike and we want to work really hard to make sure we could find a fair and equitable.

The deals that we can avoid one but if there is one we have a large base of our upcoming shows and films are from around the world. So we could probably serve our members better than most and we really don't.

We really don't want this to happen, but we have to make plan for the worst and so we do have a pretty robust slate of releases for to take us into a long time, but just be just be clear. We're at the table and we're going to try to get to an equitable solution. So there isn't a strike.

And.

Beyond the strength.

You know when we get past that and how would you expect content spending to change over the next few years, you've kind of been at the $17 billion and.

K Danske.

Does it depend on revenue growth can you give us some color on how you're thinking about that but yes. It depends on revenue growth and also keep in mind that the way that the revenue or the way that content spend hits US started production and deliveries are we still work through or we came through a comping off of those post COVID-19 floodgates opening and so that.

Does throw it makes the content spend a little lumpier.

That could be back to about 17 billion level in 'twenty for AR and AR and the rate of growth depends on the rate of growth of revenue growth for sure.

And just just to just to add to Ted's point, because I totally agree with all of that and.

But again, it's it's Oh, you know there's a big opportunity ahead. So I just wanted to reinforce that we're not going to we said we'd stay at roughly 17 billion on average over a few year period over the 2022 to 24 hour period, but Theres a big entertainment market to go after beyond that so as we reaccelerate revenue, we see a lot of opportunity to grow into that.

At viewing and engagement in and business opportunity ahead. So we expect to be there and we just have to build into it absolutely.

Do you have any thoughts on revisiting your film strategy.

It did.

In terms of like theatrical output as well as distribution you've had so much success at the Academy Awards. So does that change anything for you.

And you also recently had a restructuring in this division is there anything to read from that.

No just the.

The films Division is doing great. They really are building some great films as you pointed out the success at the Oscars was great, but they are even better than that was the moving into that one. So big we're also very very popular with fans. So this is our award winning critical acclaim and enormously popular with fans, even like I said with.

All quiet on the Western front was that a pinocchio certainly was that and we're really proud of the films that are were in the mix because they were loved by fans. So we're really happy with the investment in film where of course, we're trying to improve it like we do with all of our films, but our release strategy remember, there's a lot of ways to create and collect demand for.

Film.

Driving folks to a theater, it's just not our business, we create that demand and we collect that demand on our subscription service with our members are and I think having big new desirable content, including feature films in the first window drives value for our members and drive value to the business. So no major changes in play except for trying to.

<unk> to improve the films for our members and make a big splash with films that are loved and watched.

And it's real.

Really it's really leaning into an event and we believe an advantage we have of delivering that value to our members, but because of our our reach and our scale to have over 230 million paying members at our average revenue per member it affords the opportunity to invest in these big movies bring them to our bringing them to our members at just one other.

Pes or area of variety of content and must watch content and entertainment for our members. So so it's really kind of leaning into that advantage and I think it's it's tempting to make the comparison between the services, but the other services don't have that that scale as you pointed out, especially if they don't have the revenue base or the viewer base to support with a single window. The way we can support even big budget films are the single one.

On Netflix.

How much of my strategy evolving and Chris from what you said.

But love is blind had some cyclical pressures.

Is it like a big advertising driver.

You need to invest more to beef up your technical capabilities.

Greg on graduate I'll kick it off.

Saying, yeah. We're we're really sorry, if you are disappointed so many people are we didn't meet the standards that we expect of ourselves to serve our members and just to be clear from a technical perspective, you know a week.

We've got the infrastructure, we had just a bug that we introduced.

Actually when we implemented some changes to try and improve live streaming performance. After the last live broadcast Chris Rock in March.

You just didn't see this bug in internal testing because it only became apparent once we put sort of multiple systems interacting with each other under the load of millions of people trying to watch love is blind. So we hate it when these things happen, but we'll learn from it and we will get better and we.

We do have the fundamental infrastructure that we need.

I would say the good news is that ultimately a $6 5 million viewers watched and enjoys the shelf, but I'll turn it over to Ted to talk about more of the strategy side.

Yeah look as we've said we want to use live when it makes sense creatively when it helps.

Helps the content itself. So a reunion show that's going to generate news and buzz that it really does play better live when people can enjoy it together.

Certainly the Chris Chris Rock's debt of show played out so well because so much anticipation for what he's going to say in that set so when we have the opportunities to do projects like that.

Like the fact that we have the option to do it as quickly as Greg said, we're super.

Disappointed due to not be able to come across with the live product for sure enough for everyone who wanted it on love is blind reunion, but we're super thrilled that people love to show. It does point to the kind of love for that brand and for the growing love for those unscripted brands on Netflix.

And some of them will be alive and I do think sometimes those results oriented chose do little play out a little bit better on live and they do generate a lot of conversation.

But keep in mind like on Chris rock about 90% of the viewing happen after <unk>, but it doesn't change the fact that it was a big event when it happened a lot.

Is it a big driver of traffic per se.

Yeah.

But Greg did you say it I'll just say we're not currently have advertising in the AR and the lives and the live broadcast.

Right.

And I had one more question on passport Shang just come back to that for a second 30 million you can and 100 million plus global borrowers.

That sounds like from your really sensitive and that's actually the number of households, what is the number of potential subs are add ons I mean, what are the potential conversion from NIS 400 million plus households.

Well to some degree I mean, the borrowers with borrowers that represents you know well qualified people and essentially that they have all the technical needs they have.

To get to Netflix side, you know, there's a smart T V. The broadband access.

They know how the system works are they clearly enjoying content on.

On the service before or so.

Having said that we see a sort of a range of engagement amongst those borrowers and some folks are watching as much AR.

Of our shows as a as a normal paying accounts and those folks are very strong likelihood to convert I would say and then we see that tailor off paper off rather you know through that range of folks and you know if you're watching much less it's much less likely that you'll ultimately convert but even in that case I'd say this.

Represents.

A really important structural shifts where we'll develop that one to one relationship without pricing distortion without membership distortion with them with a whole new range of members. So we'll see membership growth through that approach, you'll see revenue grow through it as well, but we'll also see a situation where in high viewer penetration Mark.

<unk> like the United States, you mentioned the stats there you know some of those folks won't convert but they'll represent essentially a pool of people that we can then go after with you know improving our offering more amazing movies.

Talked about that more amazing series.

Amazing games in the fullness of time that'll get those folks ultimately to convert all of our members as well.

Okay.

Also going back to like advertising what are the advertising features that you are most excited about.

Well again, we're sort of in this in this mode, where there's what I'm Super excited about and then there's the work that really need to do for the business. What I'm also excited with it because it's just about how we get to be bigger. So there is sort of that you know that.

The brass tacks pieces, which are a lot about measurement verification targeting expanding the ways for advertisers to buy so I'm excited for most of you know.

Immediacy of business returns for those pieces, but then when you think about like from a technology and product experience perspective, what am I excited about there that's again, where I think we have an opportunity to bring up.

The specific characteristics of a premium a fully addressable fully targeted bolt fully deterministic AD streaming system.

To this world and so that means that we can do a whole range of things in terms of how we flight creative.

From brands associated with certain shows it thinks about how we tailor the user experience to be specific to what the user needs in a moment rather than having a one size fits all set of rules in terms of how we flight ads. So there's just a whole amazing line of innovation that we can go after and we'll be going out for frankly for years and we don't even know what all of those things are big.

Cause mostly will be working with advertisers and members to try things and then let you know, but then tell us what's working what's not.

What do you consider the rock face.

Well I think we're sort of getting into the walk phase and that it's probably a combination of things. One is you know its scale. Obviously scale is relevant in the business. So we have you know we're getting to a certain size or scale that just how advertisers think about us part of it is the technical features that advertises their tastes advertisers. So that's you know very much.

Along the lines with us measurement verification targeting the programmatic buying capability, that's a component of it.

So those those I think really constitutes I can characterize that were really were.

We're basically getting into that middle phase of growth and we've got a lot of work frankly to doing that before we get to the run phase.

Yeah, we've talked about is a multi year build in a gradual build and crawl walk run and you know where we're only a couple of quarters into this so I don't know Greg if you would agree but I I would hope we're in the walk phase by the end of the year and into next year, but I think this is a year of getting from crawl to walk.

Yeah that sounds right I just wanted to clarify something I think he started this just thinking percent margin I mean, typically advertising can be as high as 80 or 85% margins is that are you do you expect to build up to that or.

It's really just a 50% plus business well I put plus in there. So I said at least 50% of it was really just to highlight the fact that we're still in startup mode as business and so leaning a little conservative, but yes, our expectations over time is that it would be meaningfully over 50%, but I don't want to give a specific number yet.

Moving onto gaming can you give us some data points on engagement and what youre seeing on retention.

Yeah, I'm not going to give you those specific points, but let me just review sort of where we're at more broadly we've got 55 games out to date, we've got 40 more in the queue for this year.

Yeah.

Very exciting games, if you wanted to try a few out I'd recommend terra Neil that's a reverse city builders are sort of twist on that genre, you've got might equest launching today.

Our first new game from an internal studio, which is oxygen for Q is coming later this year. So you can sort of see it build into a combination of licensing and now layering in.

You know internally developed games into that and you know and it's really you know it's following a trajectory that we've seen before I would say on these other new content categories. We've added if you think about you know film and you heard folks here and talk about sort of that that's still in progress our nonfiction or international where are we sort of built into this over a month.

A year period and.

To reinforce your you mentioned those metrics I mean, the fundamental goal here, obviously is to give our members a new entertainment modality in more ways to enjoy incredible.

Universes, and deepen their fandom, and we do that with a an effort to drive the primary metrics. We have on the on the consumer facing side, which as you know engagement as a service, which leads to retention and incredible stories that people are talking about games that are must play games.

That's a great buzz off the service and motivate people to sign up.

Are there plans to directly monetize games for example, advertising licensing IP to game developers.

Not currently so we think that we're very consistent with what we've done in other parts of the business. The best thing for us to do is really focus on that.

Core initiatives, which for US right now is how do we bring games and games based on our IP to our members to fans of that IP directly.

And also we believe that you know we want to have a differentiated gaming experience and part of that is getting being creators the ability to think about you know building games surely from their perspective of player enjoyment and not having to worry about other forms of monetization, whether it would be ads or in game payments.

So maybe I'm trying to India, which is the biggest global markets and one of the fastest growing markets in the world right now.

<unk> expense, you mentioned that the pricing change in 'twenty, one and you recently said at a panel.

I don't have any or anything human India that is your fastest growing market and just given the statistics engaged around 30% revenue was 24% and there have been times, you said that you're increasing your local originals from three eight last year can you just talk a little bit about this market.

Like what are your long term plans it actually profitable or is this something that we can see a real change in contribution.

Look I think what we've talked about earlier when we got them when we get the pricing a little better.

Suited to the market you can see that we can grow revenue and therefore, and we grow engagement we have to get the content that people are just really flip out for them, we've seen a steady improvement in that quarter over quarter, both in our films and our series a run and I do know is a great show that we just you know the people are loving all over the country and it causes a go.

Deal of excitement for the service now we have to get them you have to get the pricing in the payment methods right.

India is a big prize because it's an enormous population of entertainment loving people and you just have got to have the product that they love and it's in Friday product that they and that you can do business with them together. So we've got a we're doing the creative part and we're getting the pricing better and there's always lots of promise to continue to grow in India.

It is a very specific market in terms of they liked local content, but also you're seeing their local content is traveling more than ever. This was an incredible year I think it was like you may be referring to Jessica that I was talking about movies like our IRR, which does business all over the world and a gun goodbye with Israeli fantastic film that.

In the hunt for the for for Best Foreign language feature. So you look at all of these things and say well that is the continued as the content opportunity continues to scale and our ability to access the market and throw those audiences continues to grow we could do quite well in India and we're a long ways from that we're still we're still investing against it and I think they will.

Ultimately they do great in India.

Jessica we have time for two last questions. Please.

Okay.

Ancillary revenue and products and can you give us an outlook or an update on <unk>.

You're saying, what's your expectations are for consumer products, I mean, you announced the lacoste collaboration from clubbing on your eight months to kind of iconic shows but you also have other collaboration so you know I.

It just seems like an area that now that you're building up your own content to provide I.

Incremental opportunity Yeah, we continue to grow at what was the primary driver for our consumer products businesses to build and deepen fandom Ah It does drive some revenue.

But in general what we're really looking for those opportunities to help fans connect with their favorite shows their favorite films her favorite talent by wearing the shirt or carrying the notebook and there's other ways that people really liked to express their fandom and also through these very successful live experiences are the <unk>.

And experience are the stranger things AR experiences that we've traveled around the world. We're super excited about all of them and you'll see us stepping into it in a newer one with the stranger things stayed show and there's all kinds of amazing stuff coming in that world, but keep in mind that it's mostly to build fandom, AR and VR and AR in a way that can drive revenue, but mostly.

And strengthened the core of the business.

Right and I guess, one last one just a follow up on password sharing them.

And the markets that you've brought to our password sharing have you seen any movement between the tiers. Like for example is a household that has a premium subscription are they going to Stanford.

Like that.

Yeah, we see some of those effects and right and we know that in especially price sensitive markets right. So this is also a situation, which is very different market by market, but in some price sensitive markets consumers.

Consumers essentially got to a practical are in formal pricing structure by subscribing to premium and then sharing this out and in oftentimes you know actually having people pay for.

And for a fraction of that.

From as they are sharing it so.

Associated with that we see some of that being shifted off of those plans and having those people sign up for individual plans you know as we rationalize that structure implement the changes that prevent password sharing and also have them be able to use things like extra member or in countries, where it's relevant.

Adds plan as a new entry level price I think you're going to see some of that sorting and again, we think that's really you know it's better for the business ultimately it sets us up structurally to have more members to have a one to one relationship with those members to have all of the systems that we have work more correctly, they have more transparent sort of pricing connections.

With those different members under different plans. So we're excited about getting to that point, but again I would characterize this as a very country specific kind of approach where some countries respond that way in other countries. Yeah. It really wasn't about that was much more about casual shrink.

So I'd just add really quick the way the way went over those shares and the way that we grow they add plan is to have the content that people cannot live without and let me just tell you real quick before I get into the close here, how we're doing on that front because this quarter alone. This past Q1 night agent became our six biggest original season of TV in our history.

Incredible success, we saw returning seasons of U C for season for a third season of outer banks, a second season of Ginnie and Georgia. All shows that have grown from the original first seasons.

Seasons are also shows that have created incredible Neustar stars like Chase Stokes and Antonio get century, and metal incline, and 10 Bradley who now have huge fan bases around the world. We saw the glory, which is from Korea, and our fourth biggest non English launch ever we had incredible big fish.

The Big stars like you people your place or mine murder mystery to did really well in the multi camera comedy space, but the 90 show and an unscripted with full swing. So this past quarter, we're super thrilled with the results of the content and we have to keep that up in order to win over those sharing accounts.

And also to grow that AD supported tier.

Can this be.

So crap.

[laughter], Oh I missed a bunch.

The reason why when we talk about our content it sometimes it sounds like a laundry list is it it's a long list that really illustrates.

How hard this is to do it just to hit on the quality of the breath of the entertainment that people really want and everyone has such a remarkably varied taste that you have to have very different things for different fans and that's what we're good at doing at scale.

And plus one to beef as being an amazing time.

Well, that's too bad by the way that's new this quarter and it has kicked off and it's having its off to a tremendous start.

And it's again. Another example of critical acclaim are likely to do well award season, we hope but loved by fans.

Right and without just how did you want to take it home Yeah. I just wanted to tell you a quick were really pleased with the quarter. A 2023 is off to a good start Netflix is the leading streaming service in terms of engagement revenue and profit and streaming is the future of entertainment at home.

On engagement just yesterday Nielsen released data then in Q1 to 23 Netflix was the most watched of any broadcaster or streamer and the U S by a pretty nice margin.

We have and we have plenty of room to grow even with that tremendous amount of watching we're about 10% of total TV time in our most established market like the U S and the UK.

On revenue and profit were growing not as fast as we believe we can not as fast as we'd want to but we are growing and we are profitable.

And we have a clear path to reaccelerate growth in both revenue and profit and we're executing on it you'll see a broader rollout of our paid sharing in Q2, and we're going to continue to grow that AD business and we also have grown our aiming to continue to grow free cash flow as we said this year, we're going to generate about $3 5 billion in free cash and an increased margins. So.

Remember that this account sharing initiative helps us to have a larger base of potential paying members that we can continue to serve and grow Netflix long term and that's why we've been so focused on execution. So the variety and quality of our much watch movies or must watch TV shows are must play games.

We're going to keep working to improve discovery.

Have buzzy ear and more creative marketing.

When we deliver for our members, we deliver as a business and we keep doing that by doing it just a bit better and a bit faster than our competition every month every quarter and every year. Thanks Jessica.