Netflix 1Q15 Earnings Call Notes

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Focused on content

“We have continued the focus on the same things over the last couple of years, improving the content, improving the streaming, improving the user interface. And we have seen the rewards of that in continued growth.”

Internet TV is growing

“And so all of that compounded to really push us forward and certainly what you are seeing is all of Internet TV growing. ”

We think we can get to 60-90m subs in the US. Most internet companies have 65-80% of usage coming from international

“I mean at a $25 billion to $30 billion market cap, there is a lot of growth pressed into it, I think you would agree. And so yes, 60 to 90 million feels great for us. We are continuing to grow. That’s the 60 to 90 million in the U.S. market. Of course, the really big upside beyond that is in international. For most global Internet firms, the U.S. is 20% to 35% of usage and revenue. We are not anywhere close to that yet, but we are continuing to invest in international.”

HB at $15 is great value

“I think HBO at $15 is a great value. I mean I have traditionally paid more than $15 for my cable company for it. So I think they are doing great work with their premium content. It does create obvious underline of just how great the value is of Netflix with prices ranging from $7.99 to $11.99.”

Margin target is 40% in 2020

“That’s also why we put in the letter that our target remains the same, 40% in 2020.”

More pricing options for 4k TVs

“We have got a great mix of pricing plans and options and for those who get a new 4K television and they are excited about 4K content, we are the leading service in the world for 4K and that plan is a little more expensive at $11.99. So as more 4K TV is sold, we will get people to upgrade to the $11.99 plan.”

We’ve been shutting down VPN access where we can

“with VPN usage, that’s where someone, to bring up Poland again where we are not yet operating, has the money to pay for content they want to access content, they want to pay for that content. Netflix is not yet in Poland. And so they will use the VPN to come to the U.S. virtually over the Internet, pay for content. So it’s certainly less bad than piracy, it’s not something we encourage.’

VPN is whack a mole, but we’re winning with access. The best way to combat it is global licensing

“It’s one of the many things that we have discussions with the studios about an ongoing basis and we do continue to work with them and work with these VPN. But to be honest with you, it’s kind of a whack-a-mole to get ahead of the different usage of VPNs become kind a lifestyle thing for a very small segment of the population. The real great news is, in the piracy capitals of the world Netflix is winning. We are pushing down piracy in those markets by getting the access. So the best way to really make the VPN issue a completely nonissue is through global licensing that we are continuing to pursue with our partners.”

9.8 B in streaming content commitments

“we have grown from $9.5 billion in streaming content commitments in the table to $9.8 billion. That’s about a 31% year-over-year growth rate and our streaming revenue has grown at 31% year-over-year as well.”

Hollywood is still willing to sell Netflix its content

“I am not seeing any actual evidence at the table in terms of that there is any reluctance to continue to sell. They are definitely trying to juggle the terms of their core business versus the license business, but that’s true not just of us, but they are also seating these opportunities for themselves where you see the networks launching their own on-demand services. So I think they really are trying to find the right balance.”

Everyone is scrambling to figure out how they do apps etc

“Clearly over the next 20 years Internet TV is going to replace linear TV. And so I think everyone is scrambling to figure out how do they do great apps, how do they things like noggin are fantastic and that will just keep getting built up and so it’s a transition into figuring out the Internet.”

50% of our business should be our owned content

“if we are successful in building out the content and if we want to get to ever-increasing mix of original content, meaning that up to 50% of our business is really our own owned content, then we are going to continue to invest in that content and that will require more and more cash”

We’re glad that people are looking at internet like a utility

“we are very encouraged by the general consumer perspective and political perspective that broadband access is so important that it is a utility. It is like power distribution where it’s a natural monopoly in the last mile. ”

Sports going on line frees people up to be more a la carte

“the great thing, Michael, about the emergence of sports online, is it frees people up to be more à la carte which gives us more money to be able to spend on Netflix. ”

Smart TV is one of our fastest growing categories

“Now we have seen smart TVs just continuing to grow and grow in usage and sales. Virtually every new TV sold now is a smart TV, at least at the middle and high-end and it’s natural for people to use. Now, do they also watch on tablets? Yes and on phones. So really all those categories are experiencing absolute hours growth, but on a percentage basis, smart TV is one of our fastest-growing categories.’

If I knew what was going to happen with Forex…

“if I knew what was going to happen with foreign-exchange, I would probably quit and then run a hedge fund.”

We are just open minded, curious, we are a learning machine

“you are nice to say we pivoted perfectly, but I think you are forgetting about certain incidents four years ago. But we have succeeded in getting through them and the key thing is that the company is very agile. We are just a learning machine. When you think about how Ted has grown our original content muscle is just so impressive. How are continuing to expand to international, it’s just like were learning country by country. We don’t get everything right upfront, but we fix that. So I think the fundamental is, we are just open-minded, curious, we are learning and then frankly it’s that Internet TV is growing around the world at incredible rates. And so were really propelled by that big macro trend.”