Netflix (NFLX) Q4 2020 Earnings Call Transcript

Spencer Wang: (00:00) Hello, and welcome to the Netflix Q4 2020 earnings interview. I'm Spencer Wang, VP of IR and Corporate Development. Joining me today are Co-CEO Reed Hastings, Co-CEO and Chief Content Officer Ted Sarandos, COO and Chief Product Officer Greg Peters, and CFO Spence Neumann. Our interviewer this quarter is Kannan Venkateshwar from Barclays. As a reminder, we'll be making forward-looking statements and actual results may vary. With that, let me turn it over to Kannan for the first question. Kannan Venkateshwar: (00:27) Thank you, Spencer. And good afternoon, everyone. So maybe, Spence, we could start off with you, just given the guidance and the beat during the quarter relative to guidance. Sequentially, the first quarter tends to be higher in net additions than Q4, but your guidance is lower despite the fact that you beat Q4 by a relatively large amount. And it feels like the pull forward effect is more or less behind us. So if you could just help us walk through the thought behind the guidance and the framework that you use for that, that would be a good place to start. Spencer Wang: (01:01) Yeah, sure Kannan. Well, great to see you. Happy new year, obviously delayed. Kannan Venkateshwar: (01:06) Yeah. Spencer Wang: (01:06) So, okay. In terms of the guide, first know we guided to 6 million paid net ads for Q1, if you saw. And obviously that's still a big number, especially when you think about it in context of 2020, which was by far a record year with 37 million paid net ads. So I know you mentioned the pull forward. I don't think we're declaring that we're necessarily through that yet. So if you think, there's puts and calls every quarter, but one that's still a meaningful factor for us in the guide is thinking through how we kind of grow through that growth from 2020. So there's probably still a little bit of that pull forward dynamic in the early parts of 2021. Spencer Wang: (01:46) And then more broadly, Kannan, it's just so difficult in this time. I mean, this is one of the more uniquely challenging times, not just for life, that's most important. But also obviously in terms of trying to just forecast the growth trajectory of the business. There's just so much uncertainty right now. So it's more uncertain than we've ever seen. And we're trying to forecast through that, but at the same time, one thing that's maybe counterbalancing that is that what COVID has done for us is it's accelerated that big shift from linear to streaming entertainment. So the long-term growth trajectory is at least as strong as ever. There's just more short term noise and uncertainty right now, but still very strong underlying growth metrics. And that's what you're seeing in the Q1 guide. Kannan Venkateshwar: (02:32) And I guess if you just look at the full year in terms of cadence, 2021 obviously has [inaudible 00:02:40] versus 2020. But I think one of the things you guys also indicated was potentially a 4 million to 5 million pull forward into 2020 from a growth perspective. And I think there's been a lot of debate about what you actually meant by that 4 million to 5 million. So if you could just contextualize the guidance for Q1 more in the context of 2021, you typically do 28, 30 million [subs 00:03:03] in a given year. Is that framework more or less intact or should we leave that 4 million to 5 million comment as a full forward into 2020? Spencer Wang: (03:11) Well, look I'll take this one. Others can jump in as well. Unfortunately Kannan, we're not going to provide a full year guide. I mean, just as we talked about, there's so much uncertainty in the business. We could provide a number, but I'm not sure it would be that bankable, right? I mean, it's hard enough to project the next 90 days, let alone the next 12 months. What we feel very good about, as I said, is that longer term growth trajectory. You've seen us as you pointed out the historical growth trends. Hopefully it'll be plus or minus that, but it's a bit impossible to predict. What we do see is that viewing is up in every region of the world. It's kind of returned from those peak COVID levels, but it's up year over year in all regions. Retention is better than it was a year ago. Acquisition is strong. So the underlying metrics are strong in the business, but I don't want to provide false precision on a 12 month target. Kannan Venkateshwar: (04:07) Okay. And if you could touch on a couple of regions, I mean the one thing that stood out during the quarter, of course, UCAN where most of us thought the market was saturated, but you guys keep accelerating growth, despite price increases, which is even more impressive. And then the other region, which Q3 seemed to be, despite the benefit of COVID seemed, to have slower growth than 2019, despite the market not being saturated. So if you could just talk about the underlying trends in some of these markets and what you're seeing, which is driving some of these trends that might be useful. Spencer Wang: (04:43) Do you want me to go or someone else want to go? Reed: (04:46) Sure. Spencer Wang: (04:47) Yeah, okay. I'll go again Kannan. I think the story is pretty similar throughout the world. Every country is a little bit different, but what we're seeing in terms of our viewing trends are similar around the world. The types of content that our members are viewing is kind of similar pre-COVID and post-COVID. Obviously we have more and more variety of content and great experiences that we're offering to our members. But the story is pretty similar. As you know, there are certain countries around the world where we're just further along in our content market fit and our maturation, but we're seeing growth everywhere. Spencer Wang: (05:22) I mean, even you pick Latin America as an example, one of our more mature markets. You look over the past few years and we've been steadily growing about 5 million to 6 million paid net ads a year. As you mentioned in a kind of US, UCAN market, we're roughly 60% penetrated and we're still growing. So we're still a very small share of even just pay TV penetration in most markets around the world and small share of viewing. So we've got a lot of headroom in all these markets and we're just trying to get a little better every day. Reed: (05:54) [crosstalk 00:05:54] Kannan, if you take the US being our most penetrated market, we're still under 10% of television viewing time as Netflix. So again, there we've got a lot of subscribers here in the US but we still have a lot more viewing time that we would like to earn with an incredible service and incredible content. Kannan Venkateshwar: (06:17) Got it. And Spence, maybe one last financial question and we get this out of the way and get into the more interesting part of the discussion. Spencer Wang: (06:25) [crosstalk 00:06:25] I won't take offense to that last comment [crosstalk 00:06:30]. Kannan Venkateshwar: (06:32) But the one thing obviously, which is new in the latter of this quarter is the cashflow guidance and your cashflow guidance is better than what you guys initially indicated and the buyback guidance. So maybe you could talk about capital allocation and using the cash for buybacks versus potentially other opportunities. And also, why use an absolute gross debt number instead of a leverage target to frame the buyback discussion? So it would be helpful to get that context. Spencer Wang: (07:01) Yeah, sure. So thanks. We're super proud of where we are from a free cashflow perspective. And we talked a bit internally before the call as to what was a bigger milestone for us, the passing the 200 million member mark, or kind of turning to this next chapter in terms of our free cash flow and the ability to self-fund our growth going forward. And we think that's a pretty big milestone for us. Spencer Wang: (07:26) To the point of our capital allocation approach, the philosophy remains unchanged, which is that we're going to be disciplined stewards of the capital and try to do things that we believe are value maximizing for our shareholders. But we have turned this corner where now we can, as we talked about with $8 billion of cash on the balance sheet, projecting to be cashflow about breakeven in 2021 and then positive thereafter. We want to return excess cash to our shareholders. So we won't build up a bunch of excess cash. We'll maintain, as you say, about as we said in the letter and as you mentioned, about $10 to $15 billion of gross debt on the balance sheet. And that's really just to maintain familiarity and access to the debt markets, should we need it. But there's really not a whole lot of science beyond that. Spencer Wang: (08:16) And then beyond, as they say, we put a premium on balance sheet flexibility. So we're going to continue to invest aggressively into the growth opportunities that we see, and that's always going to come first. But beyond that, if we have excess cash, we'll return it to shareholders through a share buyback program. Kannan Venkateshwar: (08:37) And Reed and Ted, if we could just pivot to a question on competition. I mean, this question may feel a little bit unfair, to be honest, because in many ways you created the streaming template for others to replicate, but given Disney's recent success and the kind of numbers they are putting out, it almost feels like Netflix is under achieving versus its potential and has to work a lot harder to get the comparable scale. So are there any reasons why the Disney numbers are not a benchmark for Netflix, and why the company can't get there? Reed: (09:16) Underachieving, Kannan. Kannan Venkateshwar: (09:20) Sorry I had to phrase it that way. Reed: (09:21) We included a table [crosstalk 00:09:22] in the bottom of our earnings with the return, the annualized return, over 18 years being 40%. So if that's under performance, we'll do more of that. Look, it's super impressive what Disney's done. I mean, it's the incredible execution for an incumbent to pivot to taking on an insurgent. And so, that's great. And it shows that members are interested and willing to pay more for more content because they're hungry for great stories. And Disney does have some great stories. And so it gets us fired up about increasing our membership, increasing our content budget. And- Reed: (10:02) Membership, increasing our content budget. And it's going to be great for the world that Disney and Netflix are competing show by show, movie by movie. We're very fired up about catching them in family animation. Maybe eventually passing them, we'll see. We have a long way to go just to catch them, and maintaining our lead in general entertainment. They're so stimulating, like Bridgerton, which I don't think you're going to see on Disney anytime soon. Ted, you want to follow up on that? Ted: (10:36) No, I think when you talk about it in competitive terms, you think about Christmas Day 2020, where you have an enormously anticipated film like Wonder Woman '84 and Soul both debuting on competitive services, and us launching what turns out to be one of our biggest launches ever. And I do think what Reed said is it does point to people have tremendously big appetites for great entertainment and all different kinds of it. And the fact that they're willing to pay more for more programming, I think is very encouraging. We've always said to people, "Well, our goal is we want to make everybody's favorite show, everybody's favorite film". Other people are going to try to do that too. And people will supplement their Netflix subscription to get that content, and which I would think is a super healthy dynamic. Spencer Wang: (11:27) And Kannan if I could [crosstalk 00:11:25]. Sorry. Go ahead. Greg: (11:27) Yeah, sorry. But if I could just add as well, I think there's the membership lens and the number of subscribers. But it's also useful to look at it from a revenue lens, which of course is the fuel that we have to basically create more of that content to get that virtuous cycle flowing more. Ted: (11:41) And the only other thing I would add to that Kannan, not to get you in the weeds on the numbers and not to take anything away at all from what Disney's done, because it's been amazing and I'm a happy customer myself. But 30% of their, I think, 87 million paid subscribers, were Hotstar, which I think we all recognize as a bit of a different service. So the 87 million is closer to 60 million and our [inaudible 00:12:05] is roughly double or actually more than the double. So we added close to 40 million last year alone. So I think when you factor in those dynamics and the fact that we're coming from a higher level of penetration globally, I think we feel very good about the performance. Greg: (12:19) So you took the bait. Can I just try to get us to chest bounce some more? Kannan Venkateshwar: (12:22) It meant to be provocative. It turned out to be [crosstalk 00:12:30] But just a follow up. And Greg, I guess you're going to have a lot to say on this topic, but when you think about Disney coming in or even Discovery or all these new launches that are happening, in some ways this expands the pie quite a bit for streaming in general, because there are also new distribution models that are being attempted and telecom companies have started to see this as a new normal. And my guess is this will lead to all kinds of other permutations in the future. So when you think about more streaming services coming out over the course of 2021, does that in some way provide an opportunity to try new distribution avenues or accelerate growth because of the growth in streaming in some ways? Greg: (13:14) I think you're right. I mean, we're seeing this big macro shift and certainly the global pandemic has accelerated that process. And really, I think the first bit is just even that big impetus to move is to some degree a tailwind for us because we have more and more consumers around the world who are aware of these services. We have more and more intention, more activity out there. We are seeking to be innovative and constantly pushing the edges around how we can accelerate our growth, how we can improve our distribution footprint. How do we access members more and more? And also, and what's really the key engine of our growth, is just how do we satisfy those folks that have signed up for us? Because that really is the ultimate stimulus. When they have a great experience and they talk wildly about how great the service is, how amazing the titles that they're viewing there to their friends, their family, their colleagues, that's really what motivates that next round of subscribers to sign up. Greg: (14:17) So we'll keep pushing the edges. We seek to be innovative in that way. And we'll come up with as many creative ideas as we can to grow. Kannan Venkateshwar: (14:25) All right. And I guess extending on that topic, you ran a couple of interesting experiments during the quarter. I think Netflix was free in India for a weekend and in France you have tried the linear format. So could you talk a little bit about the learnings from these experiments? And are these successful enough to expand to other regions? Greg: (14:43) Yes, so StreamFest in India. I mean the primary learning, which was very evident, is that there's a lot of interest amongst consumers in India to try Netflix. We had millions of people that had access for a 48 hour period to the service. And now we go through the more difficult part of actually analyzing how that interest through this specific tactic translates into sustained incremental growth. And we're still working through the details of that. And obviously based on what we see there will inform how we think about, how we leverage that tactic again, or how do we improve on it, whether places we think it might be leverageable. Greg: (15:24) And then on to your other point, I think Netflix members come to the service seeking to be entertained in a whole variety of ways. Sometimes they're looking for a movie or sometimes a TV show or animation or scripted or unscripted. And sometimes they show up and they're not really sure what they want to watch. And so we've had the opportunity to try and be innovative and try new mechanisms to sort of help our members in that particular state. So there's the linear feed, is one example of that. It's still unclear how that's going to work out. So we're still looking at that one. But I think an even better example of that is a new feature that we've been testing and we're going to now roll out globally because it's really working for us, where our members can basically indicate to us that they just want to skip browsing entirely, click one button and we'll pick a title for them just to instantly play. And that's a great mechanism that's worked quite well for members in that situation. Reed: (16:20) And Greg, are we going to call it "I'm Feeling Lucky" or are you going to come up with something better? Greg: (16:24) We're going to come up with something better than that, so standby for that specific verbiage. You'll see it when it rolls out. Kannan Venkateshwar: (16:30) That's great. And so Greg, just following up on Asia a little bit more. You mentioned the $4 billion to $5 billion in revenues that Netflix has been able to add over the last few years. As India becomes a bigger region and as your alliance on growth in that region increases, is that $4 billion to $5 billion the right way to think about revenue growth? And also because of the [inaudible 00:16:54] of course, in that region being much lower, how should we think about that framework for revenue growth going forward? Greg: (17:00) Yeah. I mean, we're proud of the sustained $4 billion to $5 billion annual revenue growth, which we think is unprecedented in the entertainment industry. And certainly our aspirations are to do as well as we can in growing and continue to grow that revenue. But to your point, specifically what we're seeing is we have to find ways to improve the accessibility of the Netflix service. And oftentimes that means doing some trade-offs between subscriber growth at different ASPs. But really our framework for all of that and the way we assess the moves that we make and how we expand those moves and when we test how we evaluate those tests is really around that sort of revenue optimization piece. And so that's always the lens that we get to, and we're going to use that to continue to try and basically fuel as much revenue growth as we can. Spencer Wang: (17:54) And I would just add to that, Kannan. Just in this past quarter, the APAC region was the second largest contributor to growth and you see the kind of revenue acceleration, frankly, that's happening in our business from about $4 billion increase over the total year, two years ago to about $5 billion this year. And even just in our guidance for Q1, it's I think 24% year over year. So on an absolute basis, that revenue is growing. Kannan Venkateshwar: (18:24) When you think about the APAC region, I mean, obviously that region is very different in terms of price sensitivity and the kind of diversity that region has, languages and so on and so forth. So when you approach that particular region, is the present model more or less the steady state of trying a mobile only kind of a plan and then trying to upgrade people from there? Or are there other things you can do either in terms of pricing or product to potentially accelerate that? Greg: (18:52) There are a hundred things that we can and we needed to go do. And we know that it's really not about just one trick or one thing that'll basically make us successful in the region, but it's just constantly looking at all of the ways at which the current product experience doesn't satisfy completely our members or members-to-be. And you mentioned language, it's a great one where even simple things, like we're improving the ability for our members to tell us what languages they want in terms of the content when they're browsing. Greg: (19:25) And there's sort of these different scenarios. There's a scenario maybe when you're by yourself and if you're multilingual, that can result in sort of different choices. If you're in a multi-generational household, then all of a sudden that might shift how you think about what titles you want to present in what languages. And so that's just one small example of places where we know we can improve the product experience and be more effective in satisfying members. But it goes on and on from that to the methods of payments that we know we need to expand. And we're constantly working to add more of those and make those more effective. The partnerships we have that make the service more accessible and more immediate, easier for our members to find out and sign up. So- Greg: (20:03) ... more and more immediate easier for members to find out and sign up. So there's tons of things that we're looking at. Kannan Venkateshwar: (20:08) And, speaking of an area of overachievement instead of underachievement, done 70 movies in a year. So now you guys are the industry in many ways. I think the top 5 studios potentially do about 90 movies a year. You guys are doing 70 a year. So at what point is this too much? How do you judge that balance and how are you juggling... Or how are you evaluating the returns on this investment? Speaker 1: (20:38) It's likely more than 70. That's just what we were able to talk about in that last release and that exciting trailer. And when you think about it, you think about how diverse people's tastes are you think about what the appetite to watch a movie is it isn't just one a week. I think there's plenty of room to grow that, and we're doing that but at much larger scale today. So thinking about movie stars like Gal Gadot, Leonardo DiCaprio, Meryl Streep and filmmakers like Jane Campion and Adam McKay and Zack Snyder, Antoine Fuqua making films at an enormous scale for Netflix so that when people have a appetite to watch a movie they could do it at home. And they could do it on the big screen or they could do it on their phone. Speaker 1: (21:20) And I just think that that evolution will continue to grow and expand well beyond a movie a week, because we're talking about serving a global audience with incredibly diverse tastes. So that one a week is, you know in many weeks it's already two or three, and some of them are hugely impactful in the region that they're created for. And some of them become very, very global. Like we saw with hashtag #Alive last year from Korea, which became a very big hit for us around the world. Kannan Venkateshwar: (21:51) And when you make these titles, you innovated with respect to the kind of financial model on content creation with a cost plus kind of a structure relative to the deficit finance models in the past for content. When you do the kind of output that you're doing and the volumes that you're doing, is there a risk that this leads to lower returns over time? Because there is really no downside in some ways for studios to create this content on a cost plus basis. And does it make sense at this scale versus when you were essentially doing originals as a startup? Speaker 1: (22:29) I think it does. I mean, we're seeing it scale up more than double every year and then continuing to scale both in the scope of the projects, the ambition of the projects, and the execution of the projects. And I do think the financial return, if you think about it relative on a handful of titles that wind up doing the enormous return for the studio, versus the hundreds of titles that barely break even. This is a great model for producers to produce in. And the fact that we can support it day in and day out at this kind of volume and make projects that are otherwise pretty difficult to make in some cases, has been really encouraging for filmmakers just to embrace this model. Kannan Venkateshwar: (23:09) And given the kind of volumes that you're doing on movies now, and also because of COVID, there's been a significant shift in the release patterns for movies, not just at Netflix, but across the industry. Does this in some ways create essentially a new distribution channel for you, if [inaudible 00:23:29] releases or shorter windows become more acceptable, does it become possible for you to essentially tap the box office with wider releases on a very short window? And does that become a new revenue stream at some point? Speaker 1: (23:42) Potentially, I mean, we've looked at this before. We've never had any issue with movies being in theaters. Our biggest issue has been that you had to commit to this very long window of exclusivity to get access to any theaters. That's been the biggest challenge. So if those windows are going to collapse and we'd have easier access to films to show our films in theaters, I'd love to have consumers be able to make the choice between seeing it out or seeing it at home. Which is becoming the norm, during COVID certainly, and we'll see how long, how much that sticks. Speaker 1: (24:11) But I think that consumer behavior, human behavior, things changed a lot over time. But, there's a very different experience associated with going out and going to the theater with strangers and seeing a movie. And it's fantastic. It's just not core to our business. Kannan Venkateshwar: (24:26) Right. Reed: (24:27) Hopefully with Warner Brother's COVID move, what we'll see is post COVID, like the second half of the year, is that people both go to the theaters in significant numbers and watch their films and their premiered simultaneously on HBO, Max. And then that will really set a path for simultaneous... It's good for the film. Helps both online and on streaming and then also in the theaters. But we have to wait to post COVID to get a clean read of that. Speaker 1: (25:01) Yeah. So what you're seeing today though, is exactly what we've been trying to do for a couple of years since we're making these films of this size. Kannan Venkateshwar: (25:05) I guess the other side of this coin is, given your distribution scale now, if a studio wanted to release a movie on Netflix, this was one of the most efficient channels they can get to. Why is that not an attractive model for Netflix? Either in the form of a premium VOD channel or some other distribution model, but why is that not an attractive model for you? Speaker 1: (25:30) We're not saying that it isn't, but we're saying is this one has been the most attractive model. So in terms of both for consumers and for our own business. Greg: (25:39) I think you alluded maybe to a different model, sort of a transactional kind of approach. And I would say that we really believe that from a consumer orientation, the simplicity of our ad-free, no additional payments, one subscription is really, really powerful and really, really satisfying to consumers around the world. So we want to keep emphasizing that. [crosstalk 00:26:02] Speaker 1: (26:02) It's interesting when you challenge to people to figure out, one of the great things about the subscription models, I think it opens up for consumers to be much more adventurous about what they watch. So I think you can throw out a lot of preconceived notions about what works and what doesn't, because those are mostly established by business trends, not by consumer trends. So I think what happens is people say, "Hey, I don't watch foreign language television, but I've heard of this show called Lupin. And I'm super excited to see it. And it's included in my subscription, I'll push play." And 10 minutes later, all of a just sudden they like foreign language television. Speaker 1: (26:33) So it's a really incredible evolution. Bong Joon-ho said it so beautifully at the Oscars that audiences have to get over the one inch wall to enjoy a whole another world of entertainment. And we're seeing that in incredible scale already. By watching, by having great stories from anywhere in the world to everywhere in the world on Netflix. And that one inch wall is the subtitles, or you can watch it with dubs or you can watch it the original language track. Kannan Venkateshwar: (26:56) Yeah. And I guess when you have this kind of content volume and also the kind of movie slate that you're putting out, it also gives you a lot more pricing power because instead of watching a movie for $10 or as a family for $30, you essentially pay for Netflix. So your pricing power implicitly goes up in this environment because of the kind of product. Speaker 1: (27:20) So we're increasing value, we're increasing the value proposition for the consumer. Every time we get another 10 minutes of watching on Netflix, you're increasing the value of that subscription. So I think by increasing the options we are also increasing the likeliness that you're going to push play. And when you do push play, you're going to love what you see. Reed: (27:39) And can I... Realistically out of home entertainment, is just most consumers think of that differently. Just like you could cook cheaply, but people still go out to dinner. And you know, they still go out and they see that as an experience that's just different. So don't think of that as the direct... Or our members don't think of that as the direct pump, but what they love is for a low price they get to watch an unlimited amount and be very experimental back to what Ted was saying in their taste. And to try Alice in Borderland, and to try Lupin. So it's all these things are kind of interconnected to be able to create a real unique and incredible viewing experience. Kannan Venkateshwar: (28:22) Okay. So I guess when you think about these factors, I mean, there are two ways to think about pricing in this environment. One is when you have so much competition and consumer wallets essentially have to be spread more widely. One way to read the environment is to say that pricing power is limited. But then on the other side of it, your share of total engagement could continue to go up and the pie itself could increase and you have more product, which consumers... Basically that wallet is coming out of somewhere else instead of a television. Which of these two dynamics should we expect to see? In other words, should pricing power accelerate or ARPU growth accelerate in the coming years, at least in the Western markets? Greg: (29:09) Yeah, I would say our competition set we think of as extremely broad, whether you think about it as a shared wallet or share of time and attention, share of entertainment, share of the delight. And we feel like we have so much more room to grow. And really it's exciting to now see the sort of new dimensions of value creation for our users. Like bringing a foreign language show, Lupin, Casa de Papel. Shows that are now becoming global hits from countries and in languages that, that's never happened before. So that's super exciting to see that kind of value creation. And that's really just where we stay focused. So we're not trying to predict the future in that way, but just stay tightly, tightly disciplined on trying to think about what's that next incremental step where we can create more value for our members, engage them, delight them more great content, more great product experiences. And if we think we do that well- Greg: (30:03) More great content, more great product experiences. And I think if we do that well, then we think our business will grow in turn. Reed: (30:08) And Kannan, we've been pretty cautious and we'll continue to be pretty cautious. So maybe Spencer, can you remember? What's the last three years, what's happened with average revenue per member? What's it moved up from? Ted: (30:24) Yeah so it's moved up from less than $10. It was around $9.90 per month per membership, to in the last quarter slightly north of $11. And just bear in mind Kannan, I think you know this, but we had significant FX headwinds over that course of time too. So we've seen that. It grows steadily, so that's I think a helpful framework view. Reed: (30:50) [crosstalk 00:30:50] Yeah. It's about 10% over three years. Ted: (30:52) Yeah. Reed: (30:53) So pretty cautious, and it's working well for us to provide incredible value. Greg: (30:59) Yeah, it may be just another way of stating that, cautious is just thinking about it. We do think we're an incredible entertainment value and we want to remain incredible entertainment value. Ted: (31:08) Yeah. I draw you back to that Christmas day releases where we have that with Bridgerton, but a couple of days before that we had Midnight Sky and a couple of days after that we had Cobra Kai. And a couple days after that we had [Lupan 00:31:20]. And a couple days after that you had Pieces of a Woman. I mean, it's a phenomenal... And you can see the numbers are in front of you. The way that people have enjoyed these series and films has been unprecedented and I think the rhythm and the pace of that has been really keeping up. But I think that is the definition of consumer value. Reed: (31:40) And just the recent data points, Kannan, we referenced it in a letter. But we had price increases in the US in the fourth quarter. We announced in the UK in December and we've grown nicely through that because I think to this point, we're continuing to increase the variety and value of what we're delivering for our members. Kannan Venkateshwar: (31:56) And I guess on the pricing front, I mean at a certain level, the elasticity. I mean, there's some academic research on this, but essentially elasticity seems to be a function of the price itself, which means as you go higher and higher, then you start taking price up, potentially maybe the elasticity of demand changes. But is that something that you guys have seen yet? Or are we still very far away from that point at which these factors kick in for you? So if you could just talk about what you've seen so far as you've taken price up across different regions in terms of potentially churn or cohort behavior, that might be a useful framework for us. Greg: (32:36) Yeah. And I think rather than sort of that academic perspective, we look at it perhaps more practically and more operationally. And really it's almost reversing it, which is that we are looking for signals and signs from our members that are telling us essentially that we have added more value. So you think about engagement with the service and retention and churn characteristics, acquisition. Those are the things that we're really looking for that are key to basically saying, "Okay, we've added more value in the service. Now it's the right time to go back to those members and ask them to pay a little bit more so that we can reinvest it and keep adding it." So it's really that sort of iterative feel our way forward kind of orientation that we have. Kannan Venkateshwar: (33:23) Got it. Turning to a slightly different topic, you guys added Strive Masiyiwa. I hope I'm pronouncing that right to the board. And Africa is not a region we've discussed in the past, but Disney started creating a lot of content in the region. And obviously this [inaudible 00:33:42] is pretty interesting. Is that the next focus? How should we think about this as an opportunity? Reed: (33:49) Well, Strive is a global board member. He's not coming on board to be a marketing consultant for Africa, although he does know it extremely well. But he's a voice about how to build large subscription businesses, which he's done. He's enormously sophisticated at dealing with governments, which as we grow is an increasingly important skill for us to have. So think of him as a great global advocate for us. He also knows Europe very well and the rest of the world reasonably well, so I think we've been broadening our global board membership and it's a continuation of that. And again, Africa has a ton of potential. We're doing more content there. We're growing our membership, but again, that's not Strive's role specifically. Kannan Venkateshwar: (34:44) And just looking at the rest of the world, I mean, there's been a lot of small transactions. And Spencer, this one might be for you and I'm sure the others will chime in as well. But there've been a couple of streaming services in Southeast Asia, which essentially were acquired by some of the Chinese internet majors. Sony of course did the acquisition of Crunchy Roll. So there's been interesting assets which could have helped you scale potentially faster, but obviously they passed on it or did not really show any interest in these assets. So would you help us think through what kind of assets you guys would care about, as it's more like the [inaudible 00:35:23] world assets? Or why are these assets not interesting? Ted: (35:26) Sure. To answer the first question, Kannan, with respect to other streaming services, our view is many people subscribe to multiple different services. So acquiring another one just for their members doesn't really help us. And we want to just stay focused on capturing and earning that subscription from each person organically rather than just doing some sort of MNA deal. So that's sort of point one. Ted: (35:51) Point two, in terms of your other question around what are we interested in? It is largely around things that can help us bolster our core business, which is entertainment and specifically content assets, inclusive of things like intellectual property that we can hopefully turn into great TV shows and great movies. Speaker 1: (36:12) I would just add that historically, we've been builders, not buyers. And years ago I used to try to get the team to wrap their head around the potential scale of the business by saying things like, "Someday we'll be so big, we'll have a VP of Anime." And then that someday is now. We're one of the largest producers of anime in the world. So you think about those kinds of things now and it's like, when you look at those assets they're primarily distribution assets, not really IP assets. So we've been taking the approach, like with our unscripted programming, with our anime, with our animated features, with big budget original film. We're building it over a couple of years versus acquiring. Ted: (36:55) [crosstalk 00:36:55] Kannan, we have time for one more question, please. Kannan Venkateshwar: (36:57) You got it. Spencer, maybe... Sorry, Reed, last Q, this final question more with respect to the longer term outlook for the business. And Ted, obviously feel free to chime in as well on this one. But is there any regrets you guys have had in terms of things that you guys could have done, but did not do? And one instance that comes to mind is something like Roku, if it was part of the company instead of being spun out. And also when you look at the competitive landscape, what do you perceive as the real competition? Is it streaming services or does it come from outside, from things like Fortnight, which you've mentioned in the past as an engagement driver for consumers? Reed: (37:46) [crosstalk 00:37:46] It was directed to Spencer, so I was going to see how he feels on this one. Ted: (37:54) [crosstalk 00:37:54] I can take a stab at it. I mean, and then I'll pass it over to Reed and/or Ted. So look, as Greg mentioned earlier, we think the competitive set is incredibly large and wide. And so I think we have a lot of work to do to continue to grow that small share of screen time that we have today to hopefully become more and more valuable to our members. Ted: (38:18) I think the other part of your question was, is there anything that we sort of regret? I've only been here five and a half years compared to Greg, Reed and Ted who have been here much, much longer. So I think my window of regret is probably smaller. So I don't think that there's anything that jumps out to mind right now. Reed: (38:34) Spencer's regret is not joining three years earlier. [crosstalk 00:08:40]. Ted: (38:37) That is correct. Reed: (38:42) [crosstalk 00:38:42] materially. I mean, I think it is fantastic that we've executed. If we had kept a Roku inside, it's very unlikely they would have been the success that they have. What Anthony and his team have done has taken enormous energy and focus on their side. And it was an enormous task for us just to become a leader in both streaming and then original programming and then global. So we're happy for their success, but no regrets on that front. Kannan Venkateshwar: (39:16) Got it. Speaker 1: (39:18) [inaudible 00:39:18] With the hours and hours of joy we're bringing to hundreds of millions of people around the world and with their return to our shareholders, it's hard to look back with much regret. Reed: (39:28) Here's one for you, Kannan. We regret not buying a global license to House of Cards in the first deal. That we had to go back and piece meal at that extraordinary expense. Kannan Venkateshwar: (39:41) That's a good note to end on, I guess. Reed: (39:47) [crosstalk 00:39:47] Thank you, Kannan, and thank you to all of our shareholders and look forward to talking to you in another quarter. Kannan Venkateshwar: (39:55) [crosstalk 00:39:55] Thanks all. Ted: (39:56) [crosstalk 00:39:56] Thanks guys. Greg: (39:56) Happy new year.