Netflix 3Q16 Earnings Call Notes

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Netflix’s (NFLX) CEO Reed Hastings on Q3 2016 Results

Sorry for the volatility

“I’m not particularly, I think we can all see that it’s time for me to apologize for the volatility again, this time it’s in a good direction, but I think more investors are able to look at the multiyear picture and they see the patterns emerging and so then it will be less and less about our guidance. I think the main thing about one year guidance is we probably don’t have any more insights than investors do, whereas in the current quarter when we’re two or three weeks into it we do have a little bit of an advantage, so that’s why we do the current quarter guidance.”

No plans to make any changes on password sharing

“No plans on making any changes there. Password sharing is something you have to learn to live with because there’s so much legitimate password sharing, like with sharing with your spouse, with your kids. So there’s no bright line and we’re doing fine as is.”

We see an ability to continue to please customers

“No, we’ll keep investing in growing the content spend even domestically for quite a long time. We see an ability to continue to please consumers with a wide range of content. And so I think if you’re trying to model the business long-term, you should think of content and how it’s viewed and brand love always continuing up in the U.S. and internationally for a long time.”

Eventually movies and TV shows will be global and ubiquitous

“Well we generally think of the growth of Internet TV like the growth of the mobile phone, that is fixed line telephony was an amazing invention, 100 years of development and broad, incredible benefits to society and the same thing is true with linear TV. It’s been an amazing innovation, but the age of linear is starting to fade and it’s going to be replaced by Internet. And those firms like the BBC or CBS, that’s doing all access that’s invest heavily, I think will move into the future on Internet consumption. I think you’ll see Internet growth generally more broadband kind of fiber optic to every village and town. Those general trend lines, the growth both of YouTube-type advertising supported services, Facebook video, Snapchat. So you’re just going to see these new scenarios everywhere. And eventually, movies and TV shows will be global, ubiquitous, some amazing budgets. So I think you have to think big about the future.”

It’s tremendous fun inventing the future

“So there’s a lot out there. But we only just have to take it year by year, and it’s tremendous fun inventing the future.”

David Wells

Content is travelling well internationally

I’ll just add on quick, the one of the really encouraging points was our big series that we had going on in the quarter, Luke Cage, Stranger Things, The Get Down, Narcos of course. The great thing is they performed proportionally well globally. So the content is traveling in a way that would helped. Scott and Ben I would say it wasn’t any one market, it’s okay to talk about the fact that it was a very broad-based performance across multiple international markets so very broad.

Negative free cash flow expected to be 1.5B next year

“Yes a little bit right, correct, a few points in there, but I would say our former sort of guidance for free cash flow was around a negative $1 billion, $1.2 billion. Now we’re saying $1.5 billion for this year. It’s a little -it’s uncertain next year what that number might be. But I’d be surprised if it grows on a quarterly basis. So I would say as we’re able to raise operating income, we’ll be able to fund more of that organically.”

We can expand our content even more if we’re successful

“If we’re successful and if we grow faster than we expect, then we could expand our content even more than what we consider we would do today. So there’s a little bit of matching that to the scale growth of the business. How successful we are, how big the business we are growing internationally. ”

We don’t have a magic target for mix of originals vs licensed content

“what we see in terms of the engagement on our originals so we’re continuing to expand them. And so we’re going to keep growing that. We don’t have a magic target there that we’re trying to hit. It’s more about continued expansion and that mix of our content, being more of originals and less of licensing, but we’re still expanding both licensing content is still expanding. ”

Ted Sarandos

There’s always been a frenemy model in media

Like I said in previous quarters, this kind of frenemy model has existed for decades in television where competing studios produce for one another constantly. And it’s really the question I think that our suppliers want to make when they’re making decisions around their expansion over the top is, can they make better returns selling to Netflix or building their own thing? And that’s both a long-term and a short-term question and currently hypothetical.