Q3 2024 Netflix Inc Earnings Call

and I am Spencer Wang, VP of Finance, IR, and corporate development. Joining me today are Koseo's Ted's Rendos and Greg Peters and CFO's Spence Newman.

Unknown Attendee: Solomon.

Unknown Attendee: Joining me today are co-CEOs, Ted Sarandos and Greg Peters, and CFO Spence Neumann.

Unknown Attendee: As a reminder, we will be making forward-looking statements, and actual results may vary.

WELT, we will be making for looking statements and actual results may vary.

Unknown Attendee: We will now take questions submitted by the Annals community, and we'll begin with questions about our Q4 results and our outlook.

We will now take questions submitted by the analysts community and we'll begin with questions about our two four results and our outlook.

Sheridan: The first question comes from Sheridan of Goldman Sachs.

Sheridan: Can you please frame your key investment priorities for 2025 and beyond and how they evolved in the past 12 to 18 months?

Speaker Change: The first question comes from Eric Sheridan, of Goldman Sachs, can you please frame your key investment priorities between 25 and beyond, and how they evolved in the past 12 to 18 months?

Greg Peters: Thanks a lot, Spencer. Let's start with looking into 2025. We're feeling really good about the business. We had a plan to re-accelerate growth, and we delivered on that plan. You can see that in our 2024 financials. We expect to deliver 15% revenue growth and 6 percentage points of operating margin improvement and engagement, which we view as our best proxy for member happiness, because when people watch more, they stick around longer, so that's retention. They talk more about Netflix, which drives acquisition, and they place a higher value on their Netflix subscription. This year, we've maintained very healthy engagement, about two hours of viewing per member per day, and engagement on a per owner household is up through the first three quarters of 2024.

Speaker Change: Thanks, Wes, let's start with, you know, looking into 2025, we're feeling really good about the business. We had a plan to re-excelerate growth and we delivered on that plan. You can see that in our 2024 financials, we expect to deliver 15% revenue growth and 6% of operating margin improvement.

Speaker Change: and engagement, which we view as our best proxy for member happiness, because when people watch more, they stick around longer, so that's retention. They talk more about Netflix, which drives acquisition, and they place a higher value on their Netflix subscription.

Speaker Change: This year we've maintained very healthy engagement, about two hours of viewing, remember, per day, and engagement on a per owner household is up to the first three quarters of 2024.

Greg Peters: So if you look at what we're sitting now and we finished Q3 with some big hits, Perfect Couple, Monsters, The Eric and Lyle, An Indistory, and Nobody Wants This, and we're really excited about our Q4 slate because it's filled with great big titles from the US, from Brazil, from Korea, from the UK, from Germany, and we also have got some really amazing live events coming up.

Speaker Change: So, if you look at where we're sitting now, we finished you three with some big hits, perfect couple monsters, Eric and Lyleman in this story, and nobody wants this.

Speaker Change: and we're really excited about our Q4s late because it's filled with great big titles from the US, from Brazil, from Korea, from the UK, from Germany, and we also have got some really amazing live events coming up. So we look forward into 2025 and beyond. We want to build on that success. We plan to build on that success.

Greg Peters: So when we look forward into 2025 and beyond, we want to build on that success. We plan to build on that success. And we've been making original programming now for more than a decade, and the Q4 has become very strong. We have a team of people who are the best creative talent around the world. We have a culture and an operating model that allows us to create stories in more than 50 countries and through audiences of more than 600 million people all over the world. So our 2025 slate, I look at that as another ambitious step towards this push to make even greater for our members.

Speaker Change: and we've been making original programming now for more than a decade.

Speaker Change: and the chorus become very strong.

Speaker Change: We have a team of people who are in the best creative town around the world. We have a culture and operating model that allows us to create stories in more than 50 countries and thrill audiences of more than 600 million people all over the world.

Speaker Change: So, our 2025 slate, I look at that as another ambitious step towards this push to make us even greater for our members. So, it really showcases the scale and the ambition and reflects the investment that we made in the steady cadence of programming.

Greg Peters: So it really showcases the scale and the ambition and reflects the investment that we've made in the steady cadence of programming. So looking into 2025, you've got new seasons of our biggest shows, Wednesday, Squid Game, and Stranger Things. On top of new shows from Shonda Rhimes and Ryan Murphy, a new Knives Out thumb from Ryan Johnson, Guillermo del Toro's Frankenstein, even the return of Happy Yomor. So we could not be more excited about where we sit right now and where we're heading.

Speaker Change: So looking into 2025, you've got new seasons of our biggest shows Wednesday, Squid Game, Stranger Things.

Speaker Change: on top of new shows from Shonda Rimes in Ryan Murphy, a new knives out film from Ryan Johnson, Guillermo del Toro's Frankenstein, even the return of happy Yomor. So we could not be more excited about where we sit right now and where we're heading.

Ted Sarandos: Just jumping on that, we've always been focused on trying to constantly improve every aspect of our service and service quite well for the last decade and a half. We hope in an expectable service well for decades to come. And then the question I may mention priorities too, and our top priority is really bringing that mindset to improving our core film and series offering. I think just to double down on what Ted was saying, we've seen really good progress on that front and on our plan. One of the things that I like the most is increasingly seeing a steady drumbeat of hit titles from countries around the world.

Speaker Change: It's just jumping on that, you know, we've always been focused on trying to constantly improve every aspect of our service and service quite well for the last decade and a half.

Speaker Change: Hope in an expected ill service while for decades to come. And then the question I may mention priorities too and our top priority is really bringing that mindset to improving our core film and series offering. I think, you know, just to double down on what Ted was saying, we've seen really good progress on that front and on our plan. One of the things that I like the most is increasingly seeing a steady drum beat of hit titles from countries around the world, you know Ted mentioned a bunch, but you've got Japan, you got Korea, you got Thailand, you got India. This represents again, that decade plus investment in those creative communities working with local storytellers there and making sure that they have the capability to tell their stories in a compelling way. So that's super exciting and we expect to see more of that.

Greg Peters: Ted mentioned a bunch, but you've got Japan, you've got Korea, you've got Thailand, you've got India. This represents, again, that decade-plus investment in those creative communities working with local storytellers there and making sure that they have the capability to tell their stories in a compelling way. So that's super exciting, and we expect to see more of that.

Greg Peters: Also improving the product experience, we tested a new, more intuitive version of our TV home page. We're excited with the progress that we've seen there. So we're polishing it up, and we're excited to bring that to our subscribers around the world.

Speaker Change: and I'm proving the product experience. We tested a new, more intuitive version of our TV homepage. We're excited with the progress that we've seen there, so we're polishing it up and we're excited to bring that to our subscribers around the world.

Greg Peters: Our second set of priorities are about planting seeds; these investments in new initiatives that help us expand and strengthen our entertainment offering and that we believe will be incremental levers for growth in the coming years. We got initiatives like games. We're excited about games based on Netflix IP. So we got a Squid Game game coming. We've got a Virgin River Christmas. We've got the ultimatum. We've got games based on storied game classics like Monument Valley 3 that's coming out.

Speaker Change: Our second set of priorities are about planting seeds. These investments in new initiatives that help us expand and strengthen our entertainment offering. And that we believe will be incremental levers for growth in the coming years. We've got initiatives like games. We're excited about games based on Netflix IP. We've got a squid game game coming. We've got a virgin river Christmas. We've got the ultimate and we've got games based on...

Speaker Change: story game classics like Monument Valley 3 that's coming out.

Greg Peters: We're also expanding into live. We've got the Tyson Paul fight NFL in December. We've got 52 weeks of WWE coming in January. John Mulaney and more and more.

Speaker Change: We're also expanding into live, we've got the Tyson Paul fight, NFL in December, we've got 52 weeks of WWE coming in January, John Mulaney and more and more.

Greg Peters: And then we're also growing advertising, as the principal goal here is, in a more effective way, to give members and members to be a lower price plan to access all of that great entertainment. I think it's worth noting it takes time to build these new initiatives to the point where there's significant given that we already have a fairly large court business. It adds to the great example of how we approach growing these seeds. It takes a lot of work, but we know the path, and we're hustling to move down that path as quickly as possible.

Speaker Change: and then we're also growing advertising as...

Speaker Change: You know, the principal goal here is the more effective way to give members and members to be a lower price plan to access all of that great entertainment.

Speaker Change: and I think it's worth noting it takes time to build these new initiatives to the point where they're significant given that we already have a fairly large corp business. It adds as a great example of how we approach growing these seeds. It takes a lot of work.

Greg Peters: And you can sort of see some of the benefits that we're getting. We're roughly doubling revenue each year, but it's off a small base. So it starts to become a material contributor revenue over the next several years. But if you step back and you think about this opportunity ahead of us, over 600 billion in consumer spend in the areas and countries that we operate, we're only capturing roughly six to seven percent of that today. That's tremendous upside if we can just stay focused on that continuous improvement and drive to that field. Future.

Speaker Change: and we know the path and we're hustling to move down that path as quickly as possible, and you can sort of see some of the benefits that we're getting, we're roughly doubling revenue each year, but it's off a small base, so it starts to become a material contributor revenue over the next several years.

Speaker Change: is a big deal. But if you step back and you think about this opportunity ahead of us, you know, over 600 billion in consumer spend in the areas in countries that we operate, we're only capturing roughly six to seven percent of that today, that's tremendous upside if we can just stay focused on that continuous improvement and drive to that future.

Unknown Attendee: Thank you, Ted and Greg.

Jessica Reef-Earlick: Our next question on our outlook comes from Jessica Reef-Earlick of Bank of America.

Speaker Change: Thank you, Ted and Greg. Our next question on our outlook comes from Jessica Rieferlick of Bank of America. At a high level, when we think about the Netflix revenue growth algorithm, can you please provide some color on the pieces moving forward between organic membership growth, army increases, and advertising.

Jessica Reef-Earlick: At a high level, when we think about the Netflix revenue growth algorithm, can you please provide some color on the pieces moving forward between organic membership growth, arming, creases, and advertising?

Spencer Neumann: Spence, maybe you can take that one. Sure, I'll try that one, Jessica. So really, those investment priorities and that focus that Greg and Ted just talked about, really are the engine that kind of drives that growth equation.

Speaker Change: will be the best. See you next time.

Speaker Change: I'll try it out on Jessica's so really those investment priorities in that focus that Greg and Ted just talked about really are the engine that kind of drives.

Spencer Neumann: But if you look at our 2025 guide as a proxy for that evolving mix or components of our growth over time, I'll walk you that a bit as an indicator. So we expect to deliver roughly $40, 3 to $44 billion of revenue next year. That's based on FX rates at the end of Q3. That represents about 4 to 5 billion of incremental revenue over our kind of 2024 expected landing, or think of it as about 11 to 13% growth. And that's from a combination of membership and armed growth. The majority of growth next year, we expect to be a membership-driven growth.

Speaker Change: That Cross Equation. But if you look at our 2025 guide,

Speaker Change: as a proxy for that evolving mix or components of our growth over time, I'll walk through that a bit as an indicator. So we expect to deliver roughly $43 to $44 billion of revenue next year, based on FX-neutral rates at the end of Q3.

Speaker Change: that represents about four to five billion of incremental revenue over our kind of 2024 expected landing or think of it as a level 11 to 13 percent growth.

Speaker Change: and that's from a combination of membership and arm growth. The majority of growth next year, we expect to be a membership-driven growth. It's from the full-year impact of, you know, this year's strong that adds plus solid pain that adds expected next year.

Spencer Neumann: It's from the full year impact of, you know, this year's strong ad ads, plus solid pay net ads expected next year. We still have hundreds of millions of households that aren't members. And we're growing to that opportunity. Thanks to a great 25 slate and our improvements in converting consumer demand. And we'll have armed growth. Arms, a combination of continued plan, evolution, and price. We've been facing building off the actions we've been taking this year and growing our ads revenue, as I just talked it, talked about not yet a primary growth driver, but to be a more meaningful contributor in 25.

Speaker Change: We still have hundreds of millions of households that aren't members and we'll grow into that opportunity thanks to a great 25-slave in our improvements in converting consumer demand.

Speaker Change: and we'll have our group. Arms a combination of continued plan, evolution and pricing.

Speaker Change: Building Off the Actions we've been taking this year and growing our ads revenue as Greg just talked it, talked about not yet a primary growth driver but to be a more meaningful contributor in 25. So overall, healthy double-digit revenue growth, more balanced across multiple drivers and strong outlook.

Spencer Neumann: So overall, healthy, double-digit revenue growth, more balanced across multiple drivers, and strong outlook.

Justin Patterson: As of building on that question from Justin Patterson at KeyBank, given what appears to be a moderating competitive environment, how are you thinking about the puts and takes around operating margins going forward?

Spencer Wang: Thank you, Spencer, as of building on that question from Justin Patterson at Keybank, given what appears to be a moderating competitive environment, how are you thinking about the puts and takes around operating margins going forward?

Spencer Neumann: Sure. I'll take it again. So, as we said in the letter, we see plenty of room to increase our margins over the long term. And we feel great about what we're delivering in 24. We expect to be up six percentage points, as Ted mentioned. And our approach to margin is unchanged. We believe we build a stronger and more lasting business by gradually increasing margins as we grow. We set margin targets.

Speaker Change: Sure, I'll take it again, so as we said in the letter, we see plenty of room to increase our margins over the long-term. And we feel great about what we're delivering in 24. We expect to be up 6% as points as Ted mentioned.

Speaker Change: is on change. We believe we build a stronger and more lasting business by gradually increasing margins as we grow.

Spencer Neumann: So, and we do that by investing to improve our service while making trade-offs and prioritizing like growing our costs slower than revenue and operating like owners. The amount of margin growth each year, it'll bounce around a bit based on the strategic opportunities in a given year, FX moves and things like that, but will aim to increase each year. And what you see in our 25 guide is consistent with that approach.

Speaker Change: We set margin targets, and we do that by investing into it, improve our service, while making trade-offs and prioritizing, like growing our costs slower than revenue and operating like owners.

Speaker Change: The amount of margin growth each year, it'll bounce around a bit based on this strategic opportunity that's going to give in year FX moves and things like that, but we'll aim to increase each year.

Spencer Neumann: So, coming off such a big year of margin expansion in 24, which exceeded our target, you know, we want to be sure we're actively investing to deliver more value to our members and strengthen and grow our business. So the things you just heard about from Greg and Ted further investing in our core film and TV offering, improving product discovery, expanding into new areas like live and as in games. So we think this strikes the right balance for our 25 complaining, with lots of room to grow profit margin and absolute margin dollars for many, many years.

Speaker Change: and what you see in our 25 guide is consistent with that approach. So come off such a big year of margin expansion in 24, which exceeded our target.

Speaker Change: We want to be sure we're actively investing to deliver more value to our members and strengthen and grow our business. So the things you just heard about from Greg and Ted further investing in our core film and TV offering and proving product discovery, expanding it in new areas like live and as in games.

Speaker Change: So we think this strikes the right balance for our 25-complanning with lots of room to grow profit margin and absolute margin dollars for many, many years to come.

Spencer Neumann: to come.

John Blackledge: We have a specific question on our Q4 results that I think is worth touching on from John Blackledge of TD Cowan.

Spencer Wang: Thank you, Spencer. We have a specific question on our Q4 results that I think is worth touching on from John Blackledge of TD Cowin.

Spencer Neumann: Perhaps, Spence and Ted, you could tag team on this one. Could you please discuss the dynamics that drove the slight Latin member net loss in Q3 and provide further color on drivers of the pickup in Latin early in Q4? Sure, Ted, I can start off if you like. Yeah, overall, the underlying business trends in Latin are healthy. Q3 revenue, which is our primary kind of north star for top line growth, was up 9% year-over-year. Year-to-date, it's up 10% on a reported basis. That's in line with our 2023 growth of 9%, and we've got much more significant currency headwinds in 24 relative to 23, so actually growth at the local level is much accelerated in 24 relative to a year ago.

Speaker Change: and Ted, you could tag team on this one. Could you please discuss the dynamics that drove the slight Latam member net loss in Q3 and provide further color on drivers of the pickup in Latam early in Q4.

Speaker Change: It's your tag, I can start off if you like, sure.

Speaker Change: OK, you know, overall, you know, the underlying business trends in Latin are healthy. Q3 revenue, which is our primary kind of north star for top line growth, was up 9% year over year, year to day, it's up 10% on a reported basis. That's in line with our 20, 23 growth of 9% and we've got much more significant currency headwinds in 24 relative to 23, so actually.

Speaker Change: Growth at the local level is much accelerated in 24 relative to a year ago.

Spencer Neumann: On Q3 memberships specifically, the slight decrease you saw was primarily due to some recent price changes in some of our bigger Latin markets, which always dampens near-term member growth.

Speaker Change: on Q3 memberships specifically. The slight decrease you saw was primarily due to some recent price changes in some of our bigger lab 10 markets, which always dampens near-term member growth, but the good news is we're already seeing a nice rebound so far in Q4. Lab 10 memberships are growing nicely in the fourth quarter, early in the fourth quarter. And fun fact, if the quarter lasted one more day, Net ads would have been up instead of down. So overall we feel good and maybe I don't know if I can speak to it a bit more.

Ted Sarandos: But the good news is we're already seeing a nice rebound so far in Q4. Latin memberships are growing nicely in the fourth quarter, early in the fourth quarter, and fun fact, if the quarter lasts one more day, net ads would have been up and stood down. So overall, we feel good, and maybe I don't know if Ted can speak to it a bit more. No, I just say we obviously don't time those things for quarter ends.

Ted Sarandos: The thing that's really, really excited about Q4 in Latin America is this incredible slate of coming. They've got Santa from Brazil, which is going to be, we think, a large hit around the world, but most importantly, loved in Brazil. 100 years of solitude from Colombia, Rodrigo Prato is doing his directorial, making his directorial debut on a new film for us in Mexico called Pedro Paramaro, which is an epic book in Mexico that's being adapted. So we're really thrilled with the creative output in Latin America, and it's been alluded to here; we're also thrilled with the underlying business climate too.

Speaker Change: No, I just say we obviously don't time those things for quarter ends. The thing that's really excited about a Q4 in Latin America is this incredible slate of coming. You know, they've got Saina from Brazil, which is going to be, I, we think it's going to be a large hit around the world, but most importantly, loved in Brazil. A hundred years of solitude from Columbia, Rodrigo Pratos doing his director, making his directorial debut on a new film for us in Mexico, Campejo Paramars, which is epic.

Speaker Change: has been looking at Mexico that's being adapted, so we're really thrilled with the creative output in Latin America and has been alluded to air. We're also thrilled with the underlying business climate too.

Unknown Attendee: Great.

Steve K.: I'll now move us on to a series of questions about advertising, and we'll begin with a question from Steve K.

Speaker Change: Great, I'll now move us on to a series of questions about advertising and we'll begin with a question from Steve Kehal of Wells Fargo. Can you please discuss the levers that will move advertising to a more to a primary contributor to growth after 2025?

Steve K.: Hall of Wells Fargo.

Steve K.: Can you please discuss the levers that will move advertising to a more, to a primary contributor to growth after 2025?

Steve K.: I was at tier engagement tracking versus at free. What kind of CPMs are you attaining in the US market?

Speaker Change: I was at your engagement tracking versus at free. What kind of CPNs are you attaining in the US market and how should we think about improvements in terms of your ability to monetize your advertising inventory?

Steve K.: And how should we think about improvements in terms of your ability to monetize your advertising inventory?

Greg Peters: Yes, a lot there. We'll see if we can't take them all on.

Greg Peters: I would say the most important part is we've been carrying two top-level priorities when we think about our ads business. Prior to number one was we have to grow our Azure memberships so that we can get to sufficient scale to be relevant in each market for advertisers. And the big priority number two was we have to improve our capabilities and attracting this to advertisers, and therefore the monetization of all that inventory. So on that first one, we've made some really solid progress. Q3, we mentioned the letter ads plan accounted for over 50% of signups in our ads countries.

Speaker Change: is a lot there. We'll see if we can't take them all on. I would say that the most important part is we've been carrying.

Speaker Change: to top-level priorities when we think about our ads business. Prior to number one was we had to grow our ad to your membership so that we can get to sufficient scale to be relevant in each market for advertisers.

Speaker Change: and the big prior number two is we have to improve our capabilities and attractiveness to advertisers and therefore the monetization of all that in matured.

Speaker Change: So on that first one, we've made some really solid progress.

Speaker Change: Q3, we mentioned the letter, adds plan to kind of over 50% of signups in our ads countries. That's a leading indicator of how you think about sort of ads membership there. Our ads plan membership base was up 35% of the quarter of a quarter that's probably four quarters of really significant growth as well.

Greg Peters: That's a leading indicator about how you think about sort of ads membership there. Our ads plan membership base was up 35% quarter over quarter. That's over probably four quarters of really significant growth as well. So that's growing nicely. As we said last quarter, we expect to be at critical scale as our advertising partners tell us they need us to be in each of our 12 ads countries in 2025. An engagement that was mentioned that remains healthy. Our ads plan members are watching a similar amount of you hours and similar titles too, which is probably interesting to note relative to comparable non-ad plan members.

Speaker Change: So that's growing nicely. As we said last quarter, we expected to be at critical scale as our advertising partners tell us they need us to be each of our 12 ads countries in 2025.

Speaker Change: and engagement that was mentioned that remains healthy our ads plan members are watching similar amount of view hours and similar titles too which is probably interesting to note, relative to comparable non- ads plan members.

Greg Peters: So this was our top area of improvement. I'm incredibly proud of this significant progress that our teams have been able to deliver on that front. and because they've been able to do that, that allows us to turn more attention to our second priority, and that's effectively monetizing all that growing inventory. I think it's worth noting we've got a lot of work still ahead of us to achieve that goal to make our offering better for advertisers.

Speaker Change: So this was our top area of improvement, incredibly proud of this significant progress that our teams have been able to deliver on that front.

Speaker Change: And because they've been able to do that, that allows us to turn more attention to our second priority, and that's effectively monetizing all that growing inventory.

Speaker Change: I think it's worth noting we've got a lot of work still ahead of us to achieve that goal to make our offering better for advertisers. It's going to be, you know, a priority for us for, you know, several years coming, but we're moving.

Greg Peters: It's going to be a priority for us for several years coming, but we're moving our first-party ad server, which is a key component of unlocking value in the space. That's on track to launch in Canada this quarter, and then the rest of our ad market is in 2025. We've got our partnerships with Trade Desk and Google Live, and those are going well. We've got a roadmap for more formats, for more features, for more measurement. That's all coming. So, while we've got lots of work to do, we are very confident in our ability to execute and grow our ad business much like we did with the page sharing initiative.

Speaker Change: Our first party ad server, which is a key component of unlocking value in the space, that's on track to launch in Canada this quarter, and then the rest of our ad markets in 2025. We've got our partnerships with Trade Desk and Google Live, and those are going well. We've got a roadmap for more formats, for more features, for more measurement, that's all coming. So, what we've got lots of work to do, we are very confident in our ability to execute.

Speaker Change: and Grow Our Ad Business, much likely we did with the Page Sharing Initiative.

Greg Peters: Yeah, thank you. And this could just follow up and grab for a second. Obviously, the teams are making great progress. We have a ton of work to do, and it's seemingly new to us, but what's great about it really is that it calls on all of our deepest skill sets. Both technologically and creatively. It depends heavily on thrilling engagement, which is true for both our subscription business and our ad business. So what advertisers want to do is they want to be close to the stories that people are watching, the stories that people are talking about, and the events that people are gathering to be part of.

Speaker Change: and this will go good. Just follow him for a second. Obviously, the teams are making great progress. We have a ton of work to do. And it's seemingly new to us, but what's great about it really is that it calls on all of our deepest skill sets.

Speaker Change: and the company, it's both technologically and creatively. It depends heavily on thrilling engagement, which is true for both our subscription business and our ad business.

Speaker Change: So, what advertisers want to do is they want to be close to the stories that people are watching, the stories that people are talking about, the events that people are gathered and to be part of, that's all part of the exact same equation. So when we have a nobody wants this or a perfect couple, that fandom, that buzz, that's what advertisers want to be close to and that's what I'm excited about what we're doing here.

Greg Peters: That's all part of the exact same equation. So when we have a nobody wants this or a perfect couple, that fandom that buzz, that's what advertisers want to be close to, and that's what I'm excited about what we're doing here.

Greg Peters: Yeah, and I think that's right, and stepping back and sort of just putting that in the broader context. Our goal over the next five or 10 years is to combine the best of digital advertising. So this is all the things that we know from that targeting personalization relevance with the best of TV advertising. So this is an elevated creative format. We've got highly engaged viewers and positioned against those culture-defining shows and films that Ted mentioned. And so that's really the North Star. We see ads revenue growth on a good trajectory. We've got healthy CPMs at the high end of that premium CDV ad market.

Speaker Change: Yeah, and I think that's right, and stepping back and putting that in the broader context, our goal over the next five or ten years.

Speaker Change: is to combine the best of digital advertising, so there's all the things that we know from that targeting personalization relevance with the best of TV advertising. So this is an elevated creative format. We've got highly engaged viewers and positioned against those culture defining shows and films that has mentioned.

Speaker Change: and so that's really the North Star. We see ads revenue growth on a good trajectory. We've got healthy CPMs at the high end of that premium CTV ad market. That's where we want to be positioned.

Greg Peters: That's where we want to be positioned. And while ads won't be a primary driver of revenue in 2025, because we're still scaling that audience and that inventory faster than our ability to monetize it, we definitely see already the momentum growth in the monetization and our opportunity to close that gap. So for 2025, we expect that ads revenue will roughly double year over year, albeit off a small base, but just as a confidence point in that this year's US upfront, we're seeing 150% over 150% increase in our ad sales commitment. So I think it's also worth noting that, like ads against premium video, it's a proven model.

Speaker Change: and while as won't be a primary driver, Reverend 2025, because we're still scaling that audience and that inventory faster than our ability to monetize it, we definitely see already the momentum growth in the monetization and our opportunity to close that gap.

Speaker Change: So, for 2025, we expect that adds revenue a roughly double year over year, albeit a small days, but this is a confidence.

Speaker Change: Point in that. This year's U.S. upfront, we're seeing over 150% increase in our ad sales commitment. So, I think it's also worth noting that like, you know, ads against premium video, it's a proven model. So if we take the potential size of that opportunity, the growth trajectories that we are seeing, that's what makes us so excited about. Ads being able to be one of those growing levers to support our sustaining healthy revenue and profit growth in the years to come.

Greg Peters: So if we take the potential size of that opportunity, the growth trajectories that we are seeing, that's what makes us so excited about. Ads being able to be one of those growing levers to support our sustaining health, healthy revenue, and profit growth in the years to come.

Unknown Attendee: Great, thank you, Ted and Greg.

Justin Patterson: We do have some questions about ad tech, probably in two parts. So first, from Justin Patterson at KeyBank, what are your initial learnings from your partnerships with The Trade Desk and DV 360?

Spencer Wang: Great, thank you, Ted and Greg. We do have a...

Spencer Wang: Some questions about ad-tech probably in two parts, first from Justin Patterson at Keybank. What are your initial learnings from your partnership with the trade-desk and DV360? And secondly, from Rich Greenfield, Netflix has decided to use trade-desk to build a man, but longer term how important do you see partnerships like trade-desk versus building your own wall of garden?

Rich Greenfield: And secondly, from Rich Greenfield, Netflix has decided to use Trade Desk to build demand, but longer term, how important do you see partnerships like Trade Desk versus building your own wall of cards? in. A couple of parts there. So I'd say these partnerships are going well. We're live both with one-to-one private marketplaces in U.K. and in Latin. We've got some always-on agency deals in the U.S. and Australia. We're going to be adding more programmatic capabilities next month in U.K. and Latin. I mean, just sort of building from there. So that's what is the sense of the roadmap.

Speaker Change: Couple of parts there, so I'd say these partnerships are going well. We're live both with one-to-one private marketplaces in U.K. and in Latin. We've got some always-on agency deals in the U.S. and Australia. We're going to be adding more programmatic capabilities next month in U.K. and Latin. I mean, just sort of building from there, so that's what I'm going to be the sense of the road map.

Greg Peters: You know, what have we learned? I'd say, you know, not surprisingly, that more demand creates positive pressure on CPMs. More channels mean it's easier for more clients to buy. So we're learning, I think, what you'd expect to learn. You know, as we mentioned previously, just this last question. We're seeing a solid trajectory on ads revenue growth. And this is going to be part of how we build that trajectory over time. But it's going to take us a while to catch up to that significant inventory expansion we've been able to drive. But I really see that as growth potential that we're building in, right?

Speaker Change: What have we learned? I'd say, you know, not surprisingly, the more demand creates positive pressure on CPMs. More channels mean easier for more clients to buy, so we're learning, I think, which you'd expect to learn.

Speaker Change: and we're seeing a solid trajectory on ads revenue growth and this is going to be part of how we build that trajectory over time.

Speaker Change: But it's going to take us a while to catch up to that significant inventory expansion. We've been able to drive, but I really see that as growth potential that we're building in, right? So we're going to progressively work our way into that inventory and effective monetization of that inventory over the next several years. And the good news is we've got a long road map of things that we know will make our ads more valuable. So we're excited about that.

Greg Peters: So we're going to progressively work our way into that inventory and affect the monetization of that inventory over the next several years. And the good news is, is like, we've got a long roadmap of things that we know will make our ads more valuable. So we're excited about that.

Greg Peters: As to Rich's walled garden question, I would say we've learned not to be too rich in our positions. So we're going to always evaluate, and we'll evolve based on, you know, how our businesses evolving. And frankly, how the ecosystem is evolving around us. But we believe these partnerships are very positive for us.

Speaker Change: as to Rich's Wald Garden question. I would say we've learned not to be too rigid in our position, so we're going to always evaluate and we'll evolve based on how our business is evolving and frankly how the ecosystem is evolving around us. But we believe these partnerships are very positive for us.

Ben Swinburne: I will move us on now to a few questions on content and engagement from Ben Swinburne of Morgan Stanley.

Spencer Wang: Thank you Greg. I will move us on now to a few questions on content and engagement.

Ted Sarandos: And this is for Ted. How did last year's Hollywood strikes impact your 2024 slate and ultimately engagement and retention? And did it disproportionately impact you, can, given a shutdown production here in the States?

Spencer Wang: from Ben Swinburne, of Morgan Stanley, and this is for Ted.

Speaker Change: How did last year's Hollywood strikes impact you were at 24th late?

Speaker Change: and ultimately, engagement and retention ended this proportionally impact you can.

Ted Sarandos: At what point, if not already, will you be back to a more normalized slate with no lingering effects on the strikes? Thanks, Ben. Look, our aim here is to always have a very steady drumbeat of great new TV shows and films and games for our members to watch throughout the year. So a drumbeat so steady, that when you're watching the last episode of whatever you're watching, you start expecting the next thing to be great too.

Speaker Change: Give an issue down production here in the states. At what point, if not already, will you be back to a more normalized slate with no lingering effects of the strikes?

Speaker Change: Thanks, Ben.

Speaker Change: Look, our aim here is to always have a very steady drum beat of great new TV shows and films and games for our members to watch throughout the year.

Speaker Change: So, a drum beats so steady.

Speaker Change: when you're watching the last episode of whatever you're watching, you start expecting the next thing to be great too. So, however, in the first half of this year, our lineup was much lumpier than we liked and it was primarily because of the work stoppage.

Ted Sarandos: So, however, in the first half of this year, our lineup was much lumpier than we liked. And that was primarily because of the work stoppage. It did hit you can the hardest, but there were some effects of that felt in production around the world. We're moving closer and closer to a more normalized output schedule now, a series a little more on track than film. But neither fully fully recovered. We've had returning favorites like Bridgerton that managed to get into the first half of the year. But many of our other high-profile returning hits like Cobra Kai, Emily in Paris, Outer Banks, and even our new shows like Perfect Couple and Nobody Wants This.

Speaker Change: It did hit you can the hardest, but there were some effects of that felt in production around the world. We're moving closer and closer to it and more normalized up as you'll now. A series a little more on track than film, but neither fully fully recovered. We've had returning favorites like Bridgerton that managed to get into the first half of the year, but many of our other high profile returning hits like Cobra Kai, Emily and Paris, Outer Banks.

Speaker Change: and even our new officials like perfect couple and nobody wants this, we're scheduled for much earlier in the year and got in a kind of a late in Q3. And that delay was again because of the strike and its impact on the U.S. late.

Ted Sarandos: We're scheduled for much earlier in the year and got in kind of a late Q3. And that delay was again because of the strike, and it's in fact on the you can slate. By the end of the Q3, a lot more normalized, as you see. Perfect couple of monsters, nobody wants this accident. That nice steady drumbeat that we keep, you know, we're trying to hit on all the time.

Speaker Change: by the end of the Q3, a lot more normalized than you see.

Speaker Change: Perfect couple of monsters, nobody wants this accident, that nice steady drumbeat that we keep, you know, we're trying to hit on all the time.

Ted Sarandos: Our film slate obviously was impacted as well, and it's getting back to normal. We also had a change in the leadership there, which changed the cadence of release a bit. We have a really strong Q4 lineup coming up with Karyon, Piano Lesson, Spellbound, Sixth Tribal 8, and Millia Perez. And things are getting much deadier.

Speaker Change: are filmed, obviously, was impacted as well and it's getting back to normal. We also had a change in the leadership there which changed the cadence of release a bit.

Speaker Change: We have a really strong Q4 lineup coming up with.

Speaker Change: Carryon, Piano Lessons, Spellbound, Sixth Treble Eight, Millia Perez, and things are getting much deadier. In 2025, we're largely back to normal. I mentioned earlier, but new knives out film, General Tutorials, Frankenstein, Happy Gilmore II, a new film from the Russo Brothers with Millie Bobby Brown, Electric Street. I mean, a lot of, and plenty more on top of that, but largely back to normal starting in

Ted Sarandos: And in 2025, we're largely back to normal. I mentioned earlier, but new Knives Out film, General Tutorials, Frankenstein, Happy Gilmore 2, a new film from the Russo Brothers with Millie Bobby Brown, Electric Street. I mean, a lot of, and plenty more on top of that, but largely back to normal starting in 25.

Unknown Attendee: Thank you, Ted.

John Hodulik: The next question comes from John Hodulik of UBS. The Neils Engage indicates that U.S. Engagement for Netflix has been stable recently. That's his nice way of saying flat, I think. With page sharing, now on the run rate, when can U.S. engagement begin to grow again? Do you see expansion into live programming as a major driver? Well, total hours, roughly 1% in the first half of the year, compared to the same period last year. Engagement is super healthy. I mentioned earlier, two hours per day, per member, and then owner household engagement, which is much more of apples to apples compared to pre-account sharing, is up, and we're very happy with that.

Speaker Change: Also, thank you Ted. The next question comes from John Hullick of UBS.

John Hullick: The Nielsen gauge indicates that U.S. engagement for Netflix has been stable recently. That's a nice way of saying flat, I think. With page sharing, now in the run rate, when can U.S. engagement begin to grow again? Do you see expansion into live programming as a major driver?

Speaker Change: Well, the total hours of roughly 1% in the first half of the year compared to the same period last year. Engagemen is super healthy, I mentioned earlier, you know, two hours per day, per member and then owner household engagement, which is much more of the apples to apples comparison, pre-account sharing is up, and we're very happy with that.

Ted Sarandos: The contribution from live, you have to think about it this way: we have about 200 billion hours every year on Netflix. Very few of them are actually live, but we all promise to be extremely high value. So, you know, the excitement of the Tyson Paul fight, which is growing every day, and certainly Christmas Day NFL football is going to be a blast all day on Netflix. So we're really excited that we're going to be capturing even more of the excitement that comes when the whole world gets together to watch something, and that's a really fun part of live.

Speaker Change: The contribution from live, you have to think about it this way. We have about 200 billion hours every year on Netflix.

Speaker Change: Very few of them are actually live.

Speaker Change: but we all promise to be extremely high value. So, you know, the excitement of the Tyson Paul fight, which is growing every day. And certainly, Christmas Day on a Phil phone call is going to be a blast all day on Netflix.

Speaker Change: So we're really excited that we're going to be capturing even more of the excitement that comes when the whole world gets together to watch something.

Ted Sarandos: The contributor to growing engagement is going to be across the board on our scripted and unscripted, our documentary programming, all the kind of things that people love, including now the addition of some live hours. Greg mentioned earlier, but weekly live with WWE and the new John Mulaney show upcoming, but then at a steady cadence of exciting events, more and more upcoming. But pretty hard to swamp the on-demand hours, which they said are over 200 billion. But thankfully, all hours are not created equal.

Speaker Change: and that's a really fun part of live. The contributor to growing engagement is going to be across the board on our scripted and unscripted documentary programming, all the kind of things that people love, including now the addition of some live hours. You know, Greg mentioned earlier, but weekly live with WWE and the new John Malaney show of coming.

Speaker Change: is a steady cadence of exciting events, more and more upcoming, but pretty hard to swamp the on-demand hours, which I said are over 200 billion, but thankfully all hours are not created equal.

Unknown Attendee: Thank you, Ted.

Rich Greenfield: From Rich Greenfield, we have the perennial question on theatrical, which is, is it possible for films to pierce the cultural zeitgeist without a theatrical release? Over to you, Ted. Thanks again for that question. Again, Rich. Hey, look, guys, this is going to reiterate. We are in the subscription entertainment business, and you can see in our results, it's a pretty good business, and it appeals to a very large segment of consumers and fans. Our top 10 films that premiere on Netflix all have over 100 million views, among the most watched films in the world. It's our desire to keep adding value to our consumers for their subscription dollar.

Speaker Change: Thank you, Ted. From Rich Greenfield, we have the perennial question on theatrical, which is, is it possible for films to pierce the cultural zeitgeist without atheiatric or really so over to you, Ted?

Speaker Change: and I'm going to ask you a question again, Rich. I love the guys that's going to reiterate. We are in the subscription to the Daily Business.

Speaker Change: and you can see in our results it's a pretty good business and it appeals to a very large segment of consumers and fans. Our top 10 films that premier on Netflix.

Speaker Change: and Vives. Among the most watch films in the world.

Speaker Change: It's our desire to keep adding value to our consumers for their subscription dollar. We believe that not making them wait for months to watch the movie that everyone's talking about adds that value. So, what we do for filmmakers is we bring them the biggest audience in the world for their films.

Ted Sarandos: We believe that not making them wait for months to watch the movie that everyone's talking about adds that value. So what we do for filmmakers is we bring them the biggest audience in the world for their films. And then we help them make the best films of their life. That could be any one of the nine Best Picture nominee films that we release so far, or it could be any of those top 10 films that are as big as billion dollar box office movies. So I'm sure that we can continue to pierce the zeitgeist and have those moments in the culture, even when those moments begin on Netflix.

Speaker Change: and then we help them make the best songs of their lives.

Speaker Change: That could be any one of the nine best picture nominee films that we've released so far, or it could be any of those top 10 films that are as big as billion-dollar box-op as movies. So, I'm sure that we can continue to pierce his eye, guys, and have those moments in the culture, even when those moments begin on Netflix.

Unknown Attendee: Thank you, Ted.

Alan Gould: We last question on content from Alan Gould, the Loop Capital, which is, are you playing to change the talent compensation structure to pay less upfront and more on the back end based on? Thank you for that. We like our model and talent like our model. It's so much more impactful for our business that we can make our films or shows just a little bit better, so much more impactful than making them a little bit cheaper. Bella said this very clearly a couple of weeks ago to all the talent agencies. We're not changing our compensation structure.

Speaker Change: Thank you, Ted. We last question on content from Alan Gould, a loop capital, which is, are you playing to change the talent compensation structure to pay less up front and more on the back end based on success?

Speaker Change: Thank you for that. We like our model and talent like our model. It's so much more impactful for our business, if we can make our films or shows just a little bit better, so much more impactful than making them a little bit cheaper. Bella said this very clearly a couple of weeks ago to all the talent agencies.

Ted Sarandos: Hanging up front, something that Netflix actually pioneered, benefits creators, and it benefits Netflix. So for creators, Netflix takes all the financial risks so that they can focus on making the best possible version of what they're working on. And for Netflix, that model enables us to attract the best talent in the world. Now, with all that said, we have been, and we continue to be, and we are open to more bespoke deals where talent is interested. Now they rarely happen because typically the talent chooses the upfront model. So we think that where we have the right model and we are not looking to change it.

Speaker Change: We're not changing our compensation structure.

Speaker Change: Hangup front, something that Netflix actually pioneered, benefits creators and benefits Netflix.

Speaker Change: So for creators...

Speaker Change: Netflix takes all the financial risks, so that they can focus on making the best possible version of what they're working on. And for Netflix, that model enables us to attract the best talent in the world.

Speaker Change: We have been, and we continue to be, and we are open to more of these both deals where talent is interested. Now they rarely happen because typically the talent chooses the upfront model. So we think that we have the right model, and we are not looking to change it.

Unknown Attendee: Thank you, Ted.

Rich Greenfield: Now move us along to the next topic, which is around pricing and plans.

Speaker Change: Thank you, Ted.

Speaker Change: Now move us along to the next topic which is around pricing and plans. This one comes from Rich Greenfield, a black shed.

Greg Peters: This one comes from Rich Greenfield, a black shed. And the question is, what is holding you back from raising price into one of the strongest content periods in recent memories starting in late Q4 this year and into 2025?

Speaker Change: and the question is, what is holding you back from raising price into one of the strongest content periods in recent memory starting in late Q4 this year and into 2025? Greg, did you want to take that one?

Greg Peters: Greg, did you want to take that one? Sure, we're going to invite Rich to join our Pricing Committee. I think it's worth starting by just noting that our approach towards pricing; it hasn't, it's remarkably consistent over many, many years. And our core theory is we got to work really, really hard to make sure that we are delivering more value to members every quarter. And then we sort of assess based on how that's going, metrics like engagement, like acquisition retention. Didn't we do a good job there? How we actually deliver on that promise of more value?

Speaker Change: Sure. We're going to invite Rich to join our pricing committee. I think it's worth starting by just noting that, you know, our product store is pricing. It hasn't, it's been remarkably consistent over many, many years. And our core theory is we got to work really, really hard to make sure that we are delivering more value to members every quarter. And then we sort of assess based on, you know, how that's going, you know, metrics like engagement like acquisition retention. Did we do a good job there? How we actually deliver on that promise of more value? And when we do, then we occasionally ask members to pay a bit more, so we can invest that forward and keep that whole process going.

Greg Peters: And when we do, then we occasionally ask members to pay a bit more so we can invest that forward and keep that whole process going. So, you know, you've seen us do that this past quarter in a couple of countries. We did it in Europe, in several countries; we didn't scan in Avia; we didn't Japan. I'd say those changes that we've done, I've been going well; the results have been in line with expectations. You saw in the letter that we announced that we're doing in Spain and Italy as well. And of course, you know, we'll continue to evaluate that; we'll look at those signals and we'll figure out where and when we think it's appropriate to ask those members to pay a little bit more as well.

Speaker Change: So, you know, you've seen us do that this past quarter in a couple of countries. We did it in Europe and several countries. We didn't Scandinavia. We didn't Japan. I'd say those changes that we've done, I've been going well results have been in line with expectations. You saw in the letter that we announced that we're doing in Spain and Italy as well. And of course, you know, we'll continue to evaluate that. We'll look at those signals and we'll figure out where and when we think it's appropriate to ask those members to pay a little bit more as well.

Greg Peters: Now I would say, just stepping back, you know, we look at the long-term monetization opportunity, and we feel that there's a tremendous amount of potential there. As long as we can continue to deliver on improving the variety and quality of our TV and film site, you've heard a lot about that and what we're excited about over the next year to come, as well as expand our offering into new areas. We've got a live events, Tyson, Paul, Chris, and Stan, if all those should be exciting things, and then games. So if we do a good job there, then we feel like we can continue to, you know, keep that long-term monetization cycle flowing.

Speaker Change: Now we'd say just stepping back, we look at the long-term monetization opportunity and we feel that there's a tremendous amount of potential there. As long as we can continue to deliver on improving the variety and quality of our TV and film slate, you've heard a lot about that and what we're excited about over the next year to come, as well as expand our offering into new areas. We've got a live events, Tyson, Paul, Chris, and Stan, if all those should be exciting things, and then games. So if we do a good job there, then we feel like we can continue to keep that long-term monetization cycle flowing.

Robert Fischman: From Robert Fischman of Moffat, Nathanson, you've increased prices for your non-ads plans but have kept the ad tier at the same lower price while other streaming services have been increasing prices on both.

Speaker Change: from Robert Fishman of Moth at Nathan Sin. You've increased prices for your non-adds plans, but I've kept the ad tier at the same lower price while other streaming service have been increasing prices on both. How do you think about the right spread between the ad tier and the non-ad tiers?

Greg Peters: How do you think about the right spread between the ad tier and the non-ads? Tears. Yeah, we try to think about our pricing mostly, you know, not in relationship to competitors, but, you know, from the value that we're delivering to members. So, we want to have a range of price points. We think that that's healthy. We want to have that, you know, range of price points be able to deliver different features for different consumers while also making sure that, you know, we're not adding too much complexity or too much choice tax, which we think is a real thing.

Speaker Change: Yeah, we try to think about our pricing mostly, you know, not in relationship to competitors, but you know, from the value that we're delivering to members.

Speaker Change: We want to have a range of price points, we think that that's healthy, we want to have that, you know, range of price points be able to deliver different features for different consumers.

Speaker Change: Well, also making sure that, you know, we're not adding too much complexity or too much choice tax, which we think is a real thing. So, and the other thing that I think is important now here is that our North Star, through this process, is optimizing a law and term revenue rather than armed.

Greg Peters: So, and the other thing that I think is important to note here is that our north star through this process is optimizing long-term revenue rather than arm. We look at a variety of signals to sort of help assess how we're doing in that regard. Important one is the relative balance of sign up mix across these various options, that sort of an indicator of healthy offering. I think it's also important to say that we love the low price point and increased accessibility that comes with our ad plan. If you take the US just as an example, 699, I think it represents an incredible value.

Speaker Change: We look at a variety of signals to sort of help assess how we're doing in that regard. A important one is the relative balance of sign-up mix across these various options. That sort of indicator of healthy offering.

Speaker Change: I think it's also important to say that we love the low price point and increase accessibility that comes with our ad plan.

Speaker Change: Futec, the US just as an example, 699. I think it represents an incredible value. You get an amazing offering of TV shows, films and games, two streams, HD, plus downloads. That's an exciting part of that plan. So I'd say with all of that in mind, we'll continue to evaluate based on those factors. We'll continually try to offer consumers a spread of plant choices.

Greg Peters: You get an amazing offering of TV shows, films, and games, two streams, HD plus downloads. That's an exciting part of that plan. So, I'd say, with all of that in mind, you know, we'll continue to evaluate based on those factors. We'll continually try to offer consumers a spread of plant choices, the right features at the right price point, and evaluate that and evolve it based on what we think works.

Speaker Change: and the right features of the right price point and evaluate that and have all that based on what we think works.

Unknown Attendee: Thanks, Greg.

Unknown Attendee: From Doug Annmouth of JP Morgan, he's asking about the facing out of the basic plan across the UK, Canada, US, and France. Are there any sort of learnings you can share there in any expectations to phase out basic and other ad markets going forward? Yeah, I think it's a good example of what I've just mentioned before, how we sort of evolve plans in pricing, thinking about expanding that range, especially the low end on our ads plan, but also keeping the number of choices manageable.

Speaker Change: is asking about the phasing out of the basic plan across the UK, Canada, US and France. Are there any sort of learnings you can share there? Any expectations of the phasing out there have markets going forward?

Speaker Change: Yeah, I think it's a good example of what I've just mentioned before, how we sort of compute evolved plans in pricing, thinking about expanding that range, especially, you know, the low end on our ads plan, but also keeping the number of choices manageable. And I think of this is that every plan has to earn its spot on the roster, right? It has to deliver enough value to consumers in that offering, otherwise it just sort of adds to the complexity of the choice tax.

Greg Peters: And I think of this as that every plan has to earn its spot on the roster, right? It has to deliver enough value to consumers in that offering; otherwise, it just adds to the complexity and choice tax. I think what we've done in this regard is also a good example about how we generally try out changes and judge by how consumers react whether or not that change makes sense for the business. So, you know, I'll let our actions speak for themselves. You know, the changes gone well in line with our expectations.

Speaker Change: I think what we've done in this regard is also a good example of how we generally try out changes and judge by how consumers react, whether or not that change makes sense for the business. So, you know, I'll let our actions speak for themselves, see how the changes have gone well in line with their expectations. We announced one more country, we'll do that in the letter, and then nothing more to say on it beyond that.

Greg Peters: We announced one more country will do that in the letter, and then nothing more to say on it beyond that.

Unknown Attendee: Thanks, Greg.

Spencer Neumann: Spence has been a bit quiet, so I'll now ask him a question from Ben Swinburne of Morgan's family on capital allocation. Spence, the company looks poised to generate tens of billions in free cash flow over the next several years. What are the possible uses of all this capital? Will you look to maintain a minimum net leverage level?

Speaker Change: Thanks, Reg. Spencer's been a bit quiet, so I'll now ask him a question from Ben Swinburne of Morgan Stanley on Capital Allocation.

Speaker Change: Spence, the company looks poised to generate tens of billions in free cash flow over the next several years.

Speaker Change: What are the possible uses of all this capital where you look to maintain a minimum net leverage level?

Spencer Neumann: Sure, I was actually just I was quite so slightly on getting off the pricing committee so that Rich could get on it, but I think you're extremely welcome that. In terms of kind of future free cash flow, well, that future of throwing up tens of billions of free cash flow, that would be a great future and be a nice challenge to have, but no change to our capital allocation policy. We prioritize profitable growth by reinvesting our business, maintain ample liquidity; second priority, and then we return excess cash to shareholders beyond several billion dollars of minimum cash that we have on our balance sheet, and then any that we use for selective M&A. But beyond that, we return to shareholders through share repurchase.

Speaker Change: they

Spencer Wang: Sure, I was actually just quite so, like the I'm getting off the pricing committees so that rich could get on it.

Speaker Change: and I'd like to see what we've welcome at. In terms of kind of future freecasts, we'll let that out future of throwing up tens of billions of freecasts, though, that would be a great future and be a nice challenge to have, but no change to our capital allocation policy. We prioritize profitable growth by reinvesting our business.

Speaker Change: Maintain ample liquidity, second priority, and then we return excess cash to shareholders beyond several billion dollars of minimum cash that we have on our balance sheet and then any that we use for selective M&A, but beyond that we return to shareholders through share repurchase.

Spencer Neumann: We have made some tactical moves recently, consistent with our policy. We have sized our revolver to three billion dollars for additional liquidity if we needed on a rainy day, and we raised 1.8 billion of investment grade debt earlier in the quarter to refinance upcoming 25 maturities, but no plans to increase leverage to buy back stock or an issue we dividend.

Speaker Change: We have made some tactical moves recently, consistent with our policy. We outsized our revolver to $3 billion for additional liquidity if we needed on a rainy day, and we raised $1.8 billion of investment grade debt earlier in the quarter to refinance upcoming 25 maturities. But no plans to increase leverage to buy back stock or an issue we did at end. We put a real premium on balance sheet flexibility, so in other words, to be clear, no minimum leverage targets.

Spencer Neumann: We put a real premium on balance sheet flexibility, so, in other words, to be clear, no minimum leverage target.

Spencer Neumann: Thank you, Spence.

John Hodulik: Now, the next question comes from John Hodulik of UBS. It's regarding YouTube.

Spencer Wang: Thank you, Spencer Now, the next question comes from John Hullick of UBS. It's regarding YouTube, do you see YouTube's growing share of TV consumption as friend or foe is user-generated content via AI, a threat to your business?

Ted Sarandos: Do you see YouTube's growing share of TV consumption as friend or foe? Is user-generated content via AI a threat to your business? Well, we take the second one first on the AI side. Lots of hype, good and bad, about how AI is going to impact or transform the entertainment industry. I think that the history has been that entertainment and technology have worked hand in hand throughout the history of time. And it's very important, I think, for creators to be very curious about what these new tools are and what they could do. But AI needs to pass a very important test.

Speaker Change: We take AI, I was sick the second one first, on the AI side, lots of hype, good and bad about now AI is going to impact or transform the entertainment industry. I think that the history has been that entertainment and technology have worked hand-in-hand throughout the history of time. And it's very important, I think, for creators to be very curious about what these new tools are and what they could do.

Ted Sarandos: Can it help make better shows and better films? That is the test, and that's the thing I have to figure out. But I've said this before, and I will say it again: we benefit greatly from improving the quality of the movies and the shows, much more so than we do for making them a little cheaper. So anything that any tool that can go to enhance the quality of making them better is something that is going to actually help the industry a great deal.

Speaker Change: But, I need to pass a very important test, you know, I actually can't help make better shows and better films.

Speaker Change: is the test, and that's where that's what I figured out. But I've said this before, and I will say it again, we've benefited greatly from improving the quality of the movies and the shows, much more so that we do for making them a little cheaper.

Speaker Change: is something that is going to actually help the industry a great deal.

Ted Sarandos: Well, look at YouTube specifically. I'd say, look, we compete directly at YouTube for people's time, for the time they spend on that TV screen. But we have very different strengths. And we continue to invest in ambitious premium content to grow our share of engagement. We think that Netflix is the best place for premium stories because we're the home to the best storytellers. We have an enormous reach, 600 million watchers. We assume the financial risk when you're making your content. Our subscription model generates higher returns for creators. Those higher returns let them make more ambitious investments in their next projects.

Speaker Change: I look at YouTube specifically, I'd say we compete directly at YouTube for people's time for the time they spend on that TV screen, but we have very different strengths.

Speaker Change: and we continue to invest in ambitious premium content to grow our share of engagement. We think the Netflix is the best place for premium stories because we're the home to the best storytellers.

Speaker Change: We have an enormous reach, 600 million watchers. We assume the financial risk when you're making your content. Our subscription model generates higher returns for creators. Those higher returns let them make more envisages of investments in their next projects.

Greg Peters: So Netflix and YouTube, while we do compete for that time, we're interestingly complimentary as well. So we put up our trailers on YouTube, and they get a lot of viewing, which is great because it drives a lot of viewing on Netflix. So we think among those advantages that we have here is that streaming is the future. It's what consumers want. We give that to consumers. We give them choice and control. We have that enormous reach that we talked about. So you're looking at really incredible watching, incredible fandom. We continue to lead the industry and engagement.

Speaker Change: So Netflix isn't YouTube while we do compete for that time, you know, we're interesting in the complementary as well. So, you know, we put up our trailers on YouTube and they get a lot of what, a lot of viewing, which is great because it drives a lot of viewing on Netflix.

Speaker Change: So we think among those advantages that we have here is that, you know, streaming is the future as what consumers want, we give that to consumers, we give them choice and control.

Speaker Change: We have that enormous research we talked about so you're looking at really incredible watching incredible fandom when we continue to lead the industry and engagement. So, and the other investment we have is benefits for consumers because it brings a great deal of value for money. Creators get big audiences on both platforms but when they look at it and say, how do you do all this and how do we get the best return? We like what we said and we think it also brings a great value to shareholders because you get higher revenue and profit.

Greg Peters: And the other investment we have is benefits for consumers because it brings a great deal of value for money. Creators get big audiences on both platforms, but when they look at it and say, "How do you do all this?" And how do I get the best return? We like what we said. And we think it also brings a great value to shareholders because you get higher revenue and profit. You want to jump in on either of them?

Greg Peters: Yeah, maybe just to reiterate this, you know, I think the core message. I think that Netflix fulfills an important and different role for both consumers who want these great movies and TV shows. But also for creators, you know, who want partners that can share in the risk that's inherent in bringing those stories alive. And if you think about some of the titles we'll launch this quarter. You mentioned a couple of Squid Game, Outer Banks, Black Doves. You mentioned "A Hundred Years of Solitude," Senna, both coming from Latin America, which are, you know, huge, ambitious projects.

Speaker Change: I think the core message, I think Netflix fulfills an important and different role for both.

Speaker Change: Consumer, you want these great movies and TV shows, but also for creators, you know, who want partners that can share in the risk.

Speaker Change: that's inherent in being those stories of life. And if you think about some of the titles we'll launch this quarter, you mentioned a couple of squid game, outer banks, black doves, you mentioned 100 years of solitude, sent a both coming from Latin America, which are huge and vicious projects.

Greg Peters: It's hard to imagine how those kind of big creative bets would be possible with YouTube's model. So, while it's certainly a competitive environment, that's absolutely true. But we feel our focus and our model, which is the best storytellers and business premium storytelling. Those work well for consumers and for creators, while also generating significant operating margin for the business, too.

Speaker Change: is hard to imagine how those kind of big creative bets would be possible with YouTube's model. So while it's certainly a competitive environment that's absolutely true, but we feel our focus and our model, which is the best storytellers and business premium storytelling, those work well for consumers and for creators while also generating significant operating margin for the business too.

Greg Peters: Yeah, and like we said last quarter as well, you know, we are really focused on the 80% of watching that happens not on YouTube or Netflix yet. So we got a lot we've we've got plenty work to do.

Speaker Change: and we said last quarter as well. We are really focused on the 80% of watching and having not on YouTube or Netflix yet. We've got a lot of people who have plenty of work to do.

Unknown Attendee: Thank you, Ted and Greg.

Michael Morris: We have time for one last question, and this one comes from Michael Morris of Guggenheim.

Speaker Change: We have a time for our one last question, and this one comes from Michael Morris of Duginheim. His question is, Netflix doesn't need to bundle with other streaming services, but could there be an opportunity to leverage or industry-leading global member base?

Greg Peters: His question is Netflix doesn't need to bundle with other streaming services, but could there be an opportunity to leverage your industry-leading global member base? We are offering a bundle with a less stale streamer, potentially one or more services with complimentary content like live sports, and in exchange for a share of subscription, economics, or advertising inventory. Yeah, so look, you're we're seeing a lot of our competitors use bundles to find growth in their businesses, and I get that it's a comfortable business model for legacy media companies and kind of given the narrow scope of the libraries on these services.

Speaker Change: The offering a bundle with a less-scale streamer, potentially one or more services with complementary content like live sports and in exchange for a share of subscription, economics or advertising inventory.

Speaker Change: Yeah, so look, you're we're seeing a lot of our competitors use bundles to find growth in their businesses and I get that it's a comfortable business model for legacy media companies And kind of given the narrow scope of the libraries on these services and the fairly limited engagement, it makes sense for them to kind of replicate some of the older media models of kind of creating these bundles.

Greg Peters: And the fairly limited engagement, it makes sense for them to kind of replicate some of the older media models of kind of creating these bundles.

Greg Peters: But what we're focused on is adding more and more value to this package: amazing series and films, and now games, at a remarkably low price, all in one place. You know, we have first-run films, we have a variety of the original series from all over the world that are the most watched and the most talked about shows. And you don't have to go anywhere else if you also want on scripted shows and competition shows and great animated series and great animated films. The best of standard comedy and increasingly the busiest live events on TV, things like the Brady Roaster, the Tyson Paul fighter, NFL football, and Christmas Day are next year with the WWE.

Speaker Change: is adding more and more value to this package.

Speaker Change: A Amazing series in films and now games at a remarkably low price all in one place. You know we have first run films, we have a variety of the original series from all over the world that are the most watched and the most talked about shows.

Speaker Change: and you don't have to go anywhere else if you also want unscripted shows and competition shows and great animated series and great animated films.

Speaker Change: of the best-less-than-of-comedy and increasingly, the busiest live events on TV, things like the Brady Roaster, the Tyson Paul Finer, and itself football and Christmas Day are next year with the WWE. So we are really betting on our ability to reach consumers and our our our our our ability to continue to grow value of this package.

Greg Peters: So we are really betting on our ability to reach consumers and our on our ability to continue to grow value of this package. Yeah, I think that's right. And it's worth noting that our share of viewership in even our biggest countries is still less than 10% of TV time. So we look at this as there's a huge opportunity to grow that share by doing what Ted said, invest more in our slate, continue to improve the variety and quality of our offering. I think it's also worth noting that we've got a lot on our plate right now.

Speaker Change: Yeah, I think that's right, and it's worth noting that our shared viewership.

Speaker Change: and even our biggest countries is still less than 10% of TV times. So we look at this as if you're a job opportunity to grow that share by doing what Ted said. Invest more in our slate, continue to improve the variety and quality of our offering.

Greg Peters: We got a lot of hard work building new capabilities. We're building ads or building games and building live. Those all expand that offering. They deliver more value to members. So we want to focus on building those capabilities.

Speaker Change: I think it's also worth noting that we've got a lot on our plate right now. We've got a lot of hard work building new capabilities we're building ads or building games or building live. Those all expand that offering they deliver more value to members. So we want to focus on building those capabilities and you know before we're taking on the new let's take care of that and we I think you know we believe strongly based on our history that if we can just keep focusing on that be a little bit better every day at delivering more entertainment value to our members. We're going to have an incredible little business. So let's take focus there. We're going to have a little bit better. We're going to have a little bit better.

Greg Peters: And you know, before we're taking on the new, let's take care of that. And we, I think, you know, we believe strongly based on our history that if we can just keep focusing on that, be a little bit better every day at delivering more and our payment value to our members. We're going to have an incredible business.

Unknown Attendee: So let's stay focused there. Great.

Unknown Attendee: Thank you, Ted and Greg, and spend some for your answers on this call. Thank you, analysts, for your questions. And we thank all the listeners for tuning into our Corby earnings call.

Spencer Wang: Great, thank you Ted and Greg and Spencer for your answers on this call. Thank you Analyst for your questions and we thank all the listeners for tuning in to our Corbyterian's call and we look forward to speaking with you all in the next quarter. Thanks again.

Unknown Attendee: And we look forward to speaking with you all next quarter. Thanks again. Thank you.

Speaker Change: what's going on guys welcome back to the shring now i know we've been going werthrough some crazy tech issues alsosort of like crazy stuff has been happening in and we've got disconnect on the last stream but now i'm here to fix everything and we are going to be doing it with some upgrade this time because this stream is going to be clear that ever beenokay the boy up of your boy up react is back and the publicup of them does not that tech issues uff so today we're going to be building the signal clone with reacting

Unknown Attendee: What's going on, guys? Welcome back to the stream. Now, I know we've been going through some crazy tech issues. All sorts of like crazy stuff has been happening. And we've got disconnect on the last stream. But now I'm here to fix everything. And we are going to be doing it with some upgrades this time. Because this stream is going to be clearer than it ever been. Okay. So your boy, your boy, Papa React is back. And the Papa fam does not let tech issues stop us.

Unknown Attendee: So today we're going to be building the Signal clone with React Native. And it's going to be a fire build. And we're going to start from scratch and go all the way to the finish time. Okay. So if you guys are excited, let me know in the chat right now. Let's get the numbers up. And let's completely smash today's build, guys.

Speaker Change: and it's going to be a fire building. We're going to start from scratch and go all the way to the finish time. Okay, so if you guys are excited, let me know in the chat right now. Let's get the numbers up and let's complete these master days, Bill guys. This is what we're building. Check it out.

Unknown Attendee: This is what we're building. Check it out. The signal clone. This is a React Native build, guys completely cross platform. We have so much stuff to look forward to in today's build. What's up, Ben? What's up? Avniish, Anki, Tech and Fun. We've got a wicked amazing donation from Cloud DevOps. Thank you so much, guys. And you guys can see the stream is going to be better than ever, stronger than ever. We are not going to quit on this channel.

Speaker Change: The Signal Clone. This is a React Native build, guys. Completely cross-platform. We have so much stuff to look forward to in today's build. What's up, Ben? What's up, Avniish, Anki, Tech and Fun? We've got a wicked, amazing donation from Cloud DevOps. Thank you so much, guys. And you guys can see the stream is going to be better than ever, stronger than ever. We are not going to quit on this channel. Alright, guys, I've made a few upgrades. This is our now. So we've got loads of cool stuff happening, right? Yeah.

Unknown Attendee: Alright guys, I've made a few upgrades. This is on now. So we've got loads of cool stuff happening, right? So let's check this out, guys. This is after we're building. Let's do a little run-through so you can see it's both on the web and it's on the phone. Okay, so over here we have an iOS simulator running. I'm going to show you guys how to do it for export. Okay. So let's go ahead and firstly smash the thumbs up button if you're excited for today's content. I am pumped. I cannot wait. We're going to crush it today.

Speaker Change: So let's check this out guys, this is the app that we're building, let's do a little run through so you can see it's both on the web and it's on the phone okay so over here we have an iOS simulator running I'm gonna show you guys how to do it, let's go ahead and firstly smash the thumbs up button if you're excited for today's content. I am pumped, I cannot wait we're gonna crush it today. Do you guys can see we this is all powered by firebase back and we have some authentication here as well. Let's test this out guys, let's go into the official proper thumb chat. On the left hand side we're signed in as Mark Zuckerberg, on the right hand side we're signed in as sunny okay so let's go ahead and say yo what's up.

Unknown Attendee: Do you guys can see we this is all powered by Firebase back and we have some authentication here as well. Let's test this out, guys. Let's go into the official proper farm chat on the left-hand side. We're signed in as Mark Zuckerberg on the right-hand side. We are signed in as Sunny. Okay. So let's go ahead and say, yo, what's up. Let's pack it in, boom, we get that perfect, you see like dynamic guys, perfect, everything works, this is fire from Mark, right, so everything is working perfectly and we have loads to look forward to, okay, so let's go through a few of the features in this build, right, we can create new chats, okay, so I'm going to go through everything from the beginning, okay, so let's imagine we have the YouTube chat V2, because this is, you know, this is going to be better than last time, let's go ahead and create the chat, and now you can see YouTube chat V2, now let's go ahead and as Mark, let's type in, yo, what's up Sony, and chat this up, watch over here guys, watch over here, if I send the chat, boom, it actually updated the chat over there, so we're collecting all this information, we're going to show you guys how to do all of this in today's build, okay, so really, really fun exciting stuff, I can see the energy is working just as we need it, everything is working perfectly, right, and I'm not going to, I'm not getting scared of these tech issues happening guys, we're just going to fix it, I've been up for two days straight, trying to fix this stuff, and we are going to go crazy, okay, now I will be deploying this at the end, so you guys will be able to see how you deploy an Xflow app, two Firebase, and then we're going to show you, we're going to leave it off with sort of you having a deployed Xflow build that you can then go ahead and if you want, deploy to the app store, okay, so let's go ahead and break down this build, and I'm going to show you a few other things that we have to look forward to, now my light just cut off, okay, okay, I guess the lights are, we're not going to let it up, okay, one second guys, one second, don't worry guys, we don't let this break, we don't let this break off, it's all good, your voice is coming in with a backup fix, there we go, just carry on guys, my light just popped, wow, of all the things, yeah, you can smell it, let's go ahead and pop this light a little bit stronger today, that will be fine, all right, let's carry on guys, we're always going to go ahead and have these problems, all right, let's carry on, so you guys can see over here, we have the web app and then on the right hand side, we have the iOS app, okay, so everything is,

Speaker Change: Let's type in, boom, we get it, that perfect, and you see like dynamic guys, perfect, everything works, this is fire.

Speaker Change: from Mark. Everything is working perfectly and we have loads to look forward to. Let's go for a few of the features in this build. We can create new chats. I'm going to go for everything from the beginning. So let's imagine we have the YouTube chat V2, because this is going to be better than last time. Let's go ahead and create the chat. Now you can see YouTube chat V2. Now let's go ahead and as Mark, let's type in. Yo, what's up, Sony?

Speaker Change: And chat this out. Watch over here guys, watch over here. If I send the chat, boom, it actually updated the chat over there. So we're collecting all of this information. We're going to show you guys how to do all of this in today's dawn. Okay? So really, really fun exciting stuff. I can see the energy is working just as we need it. Everything is working perfectly, right? And I'm not going to, I'm not getting scared of these tech issues that are happening, guys. We're just going to fix it. I've been up for two days straight, trying to fix this stuff and we are going to go crazy, okay? Now I will be deploying this at the end. So you guys will be able to see how you deploy an expo app to fly a base and then we're going to show you.

Speaker Change: 're going to leave you having a deloyed that you can go ahead and if you one deploy to the so that's going break down is i'm going show you afew other things that wehave to four to now my life justokay i guess the when i can one second gu one second

Speaker Change: I'm still excited, I'm just gonna go with the palm trees All I'm doing is falling up in the dawn All the time, all the time I'm still in my dream, I'm still in my dream Don't worry guys, we don't let this break, we don't let this break us, it's a little good You've always coming in with a backup fix, there we go, this carry on guys I like just pop