Netflix 2Q17 Earnings Call Notes

Reed Hastings – Founder and CEO

Rewards of great content

“I think we’re just seeing that the rewards of doing great content focused on the quality of the service are paying off.”

It’s not us vs Amazon

“Amazon is super successful around the world if you look at U.S. with Prime, incredibly successful. It just doesn’t seem to take away from us, so I wouldn’t characterize it as us versus Amazon in Germany. I would really characterize it as can we have a service that’s so great that Germans find it worthwhile paying for. And clearly we’re succeeding at that making our service better and better.”

We add where we see success

” You ask about how we prioritize? Generally, when we see success, we try to add on to that until we reach a point of diminishing returns. And so, if we’re going to see success in some markets, we may up the content budget in those markets.”

We’re still a small player compared to linear TV and YouTube

“we’re such a small player in our viewing compared to linear TV, compared to YouTube. So we’ve got a long way to go to have more and more content to please more and more members and continue to grow.”

Ted Sarandos

Have to match local tastes

Yes, as Reed mentioned, matching the program into local taste is really the key and we’ve seen it in our expansion through Latin America, our expansion into Europe. And as we look to Asia, we have to get better and better matching those tastes. And those tastes are not as easily aligned with Western tastes. So we’ll invest more time and energy in Asia putting some people on the ground in Asia that we haven’t historically, but well within how we’ve looked at the size of the teams generally but locating them more likely outside of the U.S. as we continue to grow for local audiences in Asia and throughout the rest of Europe.

If you’re not failing maybe you’re not trying hard enough

“we look at a lot of things like failure is not such a bad thing and if you’re not failing maybe you’re not trying hard enough. So when we have a good hit rate and even with the recent cancelations, 93% of our shows have been renewed. So you want to be introspective and look at that and say, are we being adventurous enough, Daredevil, we’re trying new things. And I think when you think of things – when you have a very high hit ratio, you definitely want to keep second guessing yourself even though you do.”

Shows get cancelled on networks all the time

“the more shows we add, the more likely in absolute numbers that you’ll see cancelations of course. But that’s only novel Netflix and it’s still novel because you see on network television about two-thirds – about a third of the content gets cut in the first season versus our content which is mostly renewed. And it’s not because we’re less careful about it, it’s because we can more efficiently build it and not a 100% of the time. So we want to launch shows. We love when there’s a deep passion fan base for a show. We just need it to be big enough to support the economics of that show so we don’t create opportunity cost for future fans of new shows.”

Internet TV is an enormous space and there’s going to be lots of competition

“I think Internet television is an enormous space and there’s going to be lots of competition. And as they come in, they’re going to bid up the cost of the best stuff which is great. It’s great for consumers, because more things get made. And it’s great for creators because they’re more buyers at the table. So we expect the content cost to go up on the top premium things, but I think, as I said, I think that’s a good result for everybody.”