Netflix 1Q16 Earnings Call Notes

Reed Hastings – Founder and CEO

Plenty of competition, expanding into original movies

“Hulu is doing some great work. Amazon is, HBO, Showtime. There are so many competitors, and everyone is working hard to build the best content. And so, we’re seeing growth in the overall Internet TV market. Of course, that’s displacing linear TV, and it’s natural that everybody is coming in as they realize that the future is Internet TV. And in terms of our shows, we’re very excited about what we’re doing. Not only are we expanding the number of original series we’re doing, but we’re also expanding into original movies.

No interest in buying Paramount

“It’s been 15 years we’ve been public, and 20 years existing, and we’ve done no M&A. So I think that probably speaks for itself”

Payment infrastructure is hurdle to international distribution

One of the major things I think is eCommerce and payment systems to the degree that there’s a convenient way to pay for airline tickets, for example, online. That’s really helpful. But we’re continuing to work with all the different ISPs, phone billing solutions, other things, and we’ll grow as the payment infrastructure or the eCommerce infrastructure grows”

VR will likely be primarily a gaming format for the next couple of years

“I think it’s mostly going to be an intense gaming format for a couple of years due to the price of the consoles. So think of it like the PlayStation 5 or the XBox 2 or something, it’s heritage to console gaming, will be a lot of that market. And then, everybody hopes that it matures into something that’s lower cost and more ubiquitous. So I don’t think it will have a direct effect on us in the next couple of years, because I think the center point for VR will be other sorts of things than watching a TV show in a VR headset. I don’t think that’ll be very popular

We’re serving elites right now internationally, so price isn’t as much of an issue

“We really haven’t seen price be much of an issue. But then today, we’re serving English language speaking elites around in these countries. So in the model of what we’re doing, in targeting the high end, the price is fine. We’ll see over the coming years and we expand, and we may need some flexibility eventuality, but nothing in the short term. Why don’t we do the last two questions here?”

Theodore A. Sarandos – Chief Content Officer

Somewhat of a dodge of a response to a question about competition with suppliers of content

Sure, so I mean these have always been relatively complex relationships where you are both supplier and sometimes competitor. So in the case of Disney, they’re a major supplier and they’re a producing partner where they produce our Marvel Defenders series. We just kicked off our fifth season of production on the show. It’s a very lucrative piece of business for Disney, obviously and a great partnership in that way. And there’s no way to kind of isolate the two sets of businesses completely.

It’s tough to anticipate, so be good at fast learning and improvement

And I think five years ago when we were first launching the markets, we thought maybe we could anticipate most things. But every time we’ve launched, there’s been one or two things that we haven’t anticipated. What we have gotten good at as a company is fast learning and fast improvement. And so, I think that gives us some confidence as well that as things come up, we’ll be able to address them quickly.

David B. Wells – Chief Financial Officer

Weakening dollar has helped margins a bit

Sure. So we did highlight this in the letter and you live by the currency, die by the currency, in terms of the fluctuations. Last year, we had a lot of headwinds, especially on the international revenue line. We had to explain sort of why our international average subscription price was flat in certain quarters when it still was growing. This year, we’re seeing the reverse of that with the weakening of the dollar at least in the first part of the year here where our International contribution margin is benefiting from that. So we did highlight that for you in the letter. Thanks for pointing that out