Netflix 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

One or Two dollar increase to new subs only

“if we want to continue to expand to do more great original content, more series, more movies, we have to eventually increase prices a little bit. We are not doing much. We are doing $1 or $2, depending on the country and all the existing subscribers keep their current price. They don’t get it increased.”

Tiering sounds like it’s interesting to them

“we have tiering today, and it is definitely something we are thinking about in terms of expanding the options that consumers have. Some of that being on the criteria that you referred to.”

Original content costs are high because it’s competitive to create top quality shows

“I think what’s happening is that we are committing to larger budget shows not that the same show is more expensive to make year-on-year. We are looking at kind of shows that we are competing with. We are still only competing with kind of the top end of cable for those shows. So when you think about it like a sports team where the bidding gets quite high on a couple of key pieces of talent, but the overall salaries, they are kind of in check.”

Original content spend going to get bigger and bigger

“that we sort of migrated away from the 10% number just because that number is going to grow. It is going to get bigger and bigger and bigger.”

We think we can have 3x more subs than HBO

“in the fullness of time we can be two to three times larger than domestic HBO, linear HBO which would be 60 to 90 million subscribers in the U.S. and that model anticipated that as we got to 40, we would get better, as we get to 50 we would get better. So I would say all of those improvements in the model that we think of our built-in to our 60 to 90 million member projection for the domestic market and so we stand by that.”

The more subs we get the better the product offering

“Every year that we add another five or six million members, makes us feel a little bit more confident of getting into that range which is great. And then, with that we are able to add more content and continue to make the service better.”

Member satisfaction drives growth

“I think most of the growth, Doug, is coming from member satisfaction. When members are really satisfied they tell their friends about the service and they retain better. So it is really driven from member side and when we have great shows coming and unique exclusive and things that make people so passionate about Netflix, then they are again more likely to tell their friends and more likely to stay. And so it’s a mix of both of those things. But fundamentally, it’s member satisfaction.”

Not trying to copy HBO per se

“HBO is an example of that great marketing. But we are not trying to copy them specifically. We are learning and doing best practices as they have been doing for a while.”

We didn’t think we should have to pay Comcast, but we did

“we did end up choosing to pay Comcast to improve the video quality that our members experience. We don’t think we should have to, but in the short-term we felt like we had no choice.”

We are against the Comcast TWC merger

“we are in opposition to the Comcast, Time Warner merger because we are really concerned about what happens when the combined entity, if the merger were to go through, would have with over 60% of U.S. homes passed and eventually over 50% of U.S. homes subscribing to cable Internet and that’s a worrisome factor”

I don’t really get this, but seems important

“in the original days of the Internet, it was the opposite, which is the ISP paid Level 3 for interconnect and it’s only the very large ISPs that now are able first to demand they are not paying and now to demand payment from the transits. So there’s been a real shift in the last five years, but Brian Roberts is incredibly thoughtful. I mean I would say, if there is anyone that you wanted to trust with controlling half of the U.S. internet, you might pick Brian Roberts. He is very thoughtful, very long-term about it and very reasonable. But I don’t know that we want anybody to control half of the U.S. internet and that’s the real basis of our objection to the merger.”

Netflix moving faster than the studios

“I think we could bring a lot of efficiencies as a global buyer. Just today the studios and networks aren’t setup to be global sellers yet.”

Netflix a top destination for premium shows

“I think the Netflix is a number one or number two spot destination for these shows almost across the board these days. We are very proud of that and happy with that”

You have to adjust

“If we are very fortunate, we will have programmed it completely correctly from day one. More likely we will figure out some stuff’s working, some stuff’s not. We will adjust the formula, but what we have become really convinced about is around the world, people want the convenience of Internet on-demand video and that that really is a very big and broad need.”