Netflix 3Q15 Earnings Call Notes

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Reed Hastings – Founder and Chief Executive Officer

Internet TV is fundamentally better than linear TV

“it’s fundamentally that internet TV is better than linear TV. The consumers can watch when they want, on what type of device they want, and the content has just got better and better.”

Have a lot of good content coming in next year

“We have the Disney pay-one deal coming in the U.S. in the third quarter. Third, fourth quarter next year…And so we got just a tremendous content coming in. I am sure there is a lot of competitors, but there always have been”

Counter-cyclicality in Brazil

“Brazil what we’re seeing is this with a tough economy, a value-based product like Netflix, that’s very inexpensive is really appreciated. And so even though there’s tight economic times currently, that has not held back our growth.”

The media companies are cautious about dealing with SVOD broadly. Hulu is more of a cord cutter’s dream than NFLX

“the caution it’s SVOD wide. So when you think about new content on Hulu, I mean Hulu is even more of our cord-cutter’s dream than Netflix is, because it’s got the network shows day after. So you really want to read it. A lot of the concern is about SVOD generally, which is to be understood.”

We’re hoping for movies that premier on Netflix and in theaters at the same time over the next two years

“what we’re hoping for over this next two year as we launch, so really incredible movies that are highly original and premier on Netflix as well as in the movie theater simultaneously that we can do better putting the money into those kind of spectacles that we create more consumer desire and awareness through that vehicle than through this additional pay-one licensing.’

We’re very happy with AWS

“AWS has been a great supplier to us. They demonstrated again and again strong market leadership, strong attentiveness to our account. We could not be happier with AWS. And they’ve always kept that separate from Amazon retail. ”

Paying Apple a 30% fee for in app purchase to get better access to international markets

“higher motivation on our side to get access to that incredible iPhone customer base around the world.”

“You would see an increase in COGS to deal with the fees to Apple. That’s where it would show up. But it’s essentially the gross revenue the 7.99 or 9.99 that shows for us.”

What’s known as channels is going to become apps

“everybody has got to get into streaming. It’s been our main message for several years, that what is known as channels is going to become apps. And that all of these providers need to have great apps on a phone, on a tablet, on a TV, so it’s completely consistent with all of that.”

We are just focused on having great content

“And what we see is if we have great content, then consumers watch our service and enjoy it and tell their friends about it. And it kind of doesn’t matter that there is also a great sports game on or there is also a shows on Verizon or on Comcast…What has affected us is when we have great show like Narcos that just takes the world by storm. So that’s what we’re focused on, how do we have more incredible shows.”

Being aggressive to secure content

“We’re going to work really hard to expand our movies and TV shows so quickly in such a compelling way, that lots of the viewing for movies and TV shows is through Netflix, which is sort of what makes us want to focus so much on that area.”

Everyone is racing to make a great app

“the next couple years, when you have this new phase of the market, I think everyone is just racing to make a great app like Netflix, like HBO Now, those things.”

It’s possible that bundling may be appropriate at some time, but our instinct is to build our brand

“At some future time the bundling may be appropriate. Of course, we’ll keep an eye and watch the Hulu Showtime take rate to see, to confirm that there is very little traction of that. So we’ll be open minded. But our instinct is focused on making Netflix the passion brand in this space.”

David Wells – Chief Financial Officer

Disappointing sub growth due to credit card transition

“I would say that in terms of additions they were pretty strong through the quarter in terms of flat year-over-year. In net additions they were down year-over-year, and that we explained and attributed to our involuntary churn or payments-related churn. We think partially that was due to the transition to the chip cards, which is still ongoing. ”

There may be more to it, but the chipcard stuff isn’t helping

“Like I said, it’s likely multifactor. There may be other things going on here, but certainly the transition to the chip cards is not helping, and that has to be a factor in it. And we’re only partially the way through, so the U.S. issuers are going to continue that in Q4.”

We may be in the market raising capital next year to pay for content

“given our plans to expand content and given the fact that we’re on pace to use about $1 billion this year and no indications that that would shrink next year, we wanted to give some headway or some inside into the fact that we may be back in the market next year.”

Theodore Sarandos – Chief Content Officer

There is some caution in dealing with us

“The media business is absolutely influx. As Reed said, you’ve had this growing move away from linear and towards on-demand, both watching and spending. So the future of how the networks and studios deal with Netflix, and Hulu, and Amazon Prime Instant Video, is certainly going to determine their future. So there is a lot of caution. And you see how volatile the market can be just with a turn of a phrase last quarter”

Trying to move sellers into a global license framework

“it’s definitely been the drive of myself and my team all year, trying to move the sellers into a more of a global mode. Remember, they are mostly situated as regional sellers of content, sometimes the rights are fragmented in their ownership. But in the cases of the deals we did this past quarter, they were controlled by one entity and typically solved by multiple regions and we corralled the deals into the corporate offices, and were able to license the world on those titles.”

It turns out that tastes are rather global

“it turns out that tastes are rather global too. So it’s actually really well lined up.”

Japan is less local than we expected

“we went in expecting Japan to be much more local than it turned out to be. It’s more local than other territories, but not as local as conventional wisdom would have had.”