Welcome to the Netflix Q2 2017 earnings call. I'm David Wells, CFO. I'm joined today on the company side by Reed Hastings, our CEO, and Ted Sarandos, our Chief Content Officer. Interviewing us today will be Doug Mitchelson from UBS. We're going to try something a little different and have one interviewer just for a little bit more continuity. I think Doug will have our first question, being our only interviewer. Before we get started, we will be making forward-looking statements. Actual results may vary. Doug, over to you for our first question.
Thanks so much, David. I wanted to start simply by asking if there's anything notable in the quarter. We know we've talked about Netflix being a learning machine. Anything that you've learned that you want to share with us from the past three months?
Anything notable beyond 5 million net adds in Q2, all-time record for Q2s, up sequentially from Q1, notable beyond that? I think we're just seeing that the rewards of doing great content focused on the quality of the service are paying off.
I think I went through some of the points that you guys had in the letter this quarter. One of the first ones that caught my eye was due to our amazing content. Ted, did you put that word "amazing" in there? Any update you can give us on thoughts around how content is being supported?
Look, I think it was the combination of a lot of great things. "13 Reasons Why" started right at the end of the quarter, rolled into some of our biggest content brands, new seasons of "House of Cards," "Orange Is the New Black," ending the quarter with Okja. Just, I think it was the combination of a lot of different things, kind of a reinforcement that as long as we're programming to a wide variety of tastes and keep the quality level high, that we can turn some success off of that.
I think congratulations on all the Emmy nominations to the company and to you specifically, Ted, 91. Someone had to count all of those.
Thank you. That's definitely a team effort, beyond my own content team, the marketing and PR groups and everyone who kind of makes that happen. It's hard to forget that it is a race. There's a big campaign that attaches to that stuff, too. 91 nominations is an all-time record for us and we're thrilled.
I continue with you on that a little bit. David, for you wrote that our Q2 guidance assumes much of the Q2 momentum will continue. You say you're cognizant the lessons of the prior quarters where you're over-forecasting, there's lumpiness in that add. Can you take us through that, the third quarter, indeed that you're cognizant of our quarter?
I think back to your earlier question about what lessons the last 90 days have held for us, one of them is our business is a little bit tough to predict, given the success of content and the popularity of content. We still think the major driver is adoption of internet television. On top of that, we're increasingly growing throughout the world, so we're getting more word of mouth in our newer territories, and we're seeing great content slates have an effect like they did in the second quarter. I think you can take that line to mean that our forward guidance assumes continued good trends and continued great trends, but we're a little bit cognizant of other quarters where we've either under or over-forecasted because some of that demand was pulled forward by a great content slate.
In this case, in the second quarter, we had a really strong content slate.
Yeah. To dig around with you, David, you had some strong ahead expectations when you talk in the letter about margins being on track for full year 7%. Does that suggest that the subs and therefore likely revenue coming in better than expected, you're choosing to invest more and maintain that margin target?
Yes. We had a 9% margin in the first quarter, and we had a lot of content come on in this quarter, so we got it down to 5%. On the first six months, we're running right on our target of 7%, and our guide is right on 7%. You can take from that we're going to reinvest and plow back in the business, sort of any over-forecasted growth that we have on the top line.
David, one more for you. You call out un-grandfathering impacting the fourth quarter. I think you had some price increase sort of costs that was impacting Q2 and un-grandfathering again in Q4. Is there any sort of sizing you can give investors around the pricing strategy issues that impacted specifically Q2, but the year as well with Q2?
I think last year what we found was because of the PR and the news around the price change in the second quarter, which actually didn't happen, or un-grandfathering until the third and fourth quarter, we had a real blended effect through the year. It's hard to tease out exactly which quarter we saw effects on both acquisition and retention. We do know that the comping off of last year, we think we will have less noise this year. I think that's pretty clear. I would say it was a medium in terms of size and impact on the business from last year.
Over to you, Reed. I'm sure you'll tell me based on the results you just reported, you did well everywhere. In particular, it looks like Europe is really hitting critical mass, and every country in Europe is different. I thought I'd sort of try to key in on Germany as an example. Particularly, I think Germany is kind of a tough market for U.S. companies. Consumers over there don't like to pay for TV. They don't watch as much TV. Obviously, English is not their local language. Amazon was there first as well, so there's a competitive dynamic. It looks, based on our tracking, you're actually surpassing Amazon, at least in terms of app downloads, if not subs. Is that right? Are you at the point where you're taking leadership in Germany?
Can you talk a little bit about what you've done right and what you're doing right as far as that market can really congeal with Netflix?
Doug, Amazon's super successful around the world. If you look at the U.S. with Prime, incredibly successful. It just doesn't seem to take away from us. 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? Clearly, we're succeeding at that, making our service better and better. In particular, there's no advertisements on Netflix, it's great for kids, it's great for teens. The great content is so significant in helping the growth that you're picking up. As you suggested, we're really seeing that around the world. Whether it's Brazil or Argentina or Japan, Singapore, Germany, internet TV is really catching on for us, for YouTube, for others.
I guess where I'm trying to get to, Reed, is you launched two and a half years ago, and I think when you launched, you drew parallels to Latin America in that it would take some time, but you figure the markets in Europe out, and eventually they'd have similar levels of success. Do those parallels still hold and can we look forward to, for the year, there's decent starts in terms of progress? Have you really hit the point where you've reached a state velocity and you think those markets will be strong markets going forward?
I think all throughout the West, so Latin America, North America, and Europe, we're doing very well. We've just got to continue what we're doing, more local productions. We've got some amazing new shows we're producing in Europe and in Latin America. With Asia, we've got a lot more to learn. We're really expanding a lot in India, Japan. We're figuring it out market by market. Asia's very unique and very large. We see a huge opportunity for us over the next couple of years, all of us spending more time there and investing more.
Reed, continuing along that line, because Asia is so diverse, and you think about Korea, Japan, Thailand, India, they're all very different markets. How do you prioritize your investments in the Asia-Pac or Asia play?
We look at market size. We look at growth of internet, kind of all the factors that we've always looked at around the world, we're able to prioritize in what we're doing. We saw some great success, for example, this quarter with Okja, and maybe, Ted, you want to describe a little bit of that?
Yeah. I mean, Okja is directed by Bong Joon Ho, who's the most celebrated director in Korea and is a huge star and an attraction in and of himself. The movie itself is one of the most ambitious productions in the history of Korea. His films tend to travel around the world pretty well. Made a ton of noise at the Cannes Film Festival, was the most talked about film of the festival. It helped in attract new subscribers also, but it also brings a brand halo to Netflix that it's a place for great content worth paying for. I think we saw some of that benefit throughout Europe and in pockets of Asia, where we saw big sign-ups in Korea. Remember, for most people, they learned about Netflix for the first time when Okja was coming out in Korea.
Relative to the rest of the world, we've got a lot of work to do, but it was a great introduction to Netflix for a lot of the world.
Carrying that forward, that Reed just mentioned, more local content in particular.
Yeah. Even more so, Doug, it's think about local content for global audiences. The idea, that's a fantastic story that we make a Korean movie for Korea, but it's even a bigger story that the movie's getting watched by the millions all around the world.
Ted, can you talk a little bit about how you're expanding local content teams? Have you sized the team? Is there a capacity growth? Is there a growth in percentage of budget being allocated to
Yeah. As Reed mentioned, the matching the programming to local taste is really the key, and we've seen it in our expansion through Latin America, our expansion to Europe, and as we look to Asia, we have to get better and better at matching those tastes. Those tastes are not as easily aligned with Western tastes. We'll invest more time and energy in Asia, putting some people on the ground in Asia that we haven't historically. 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.
Doug, just to round out Ted's answer, all those things that you mentioned are involved in that. It's growth of the acquisition and development teams. It's also budget. I mean, we already had in place growth in budget in many of these territories, so it's just trying to deploy that more efficiently. In some cases, it's adding on to the levels of investment. You asked about how we prioritize. Generally, when we see success, we try to add on to that until we reach a point of diminishing returns. If we're going to see success in some markets, we may up the content budget in those markets.
That makes sense. Reed, over to you. I think it's particularly on Asia, if we think about emerging markets broadly, they're certainly a lot more mobile. I'm curious if you can give us an update on the implication for strategy and test sorts that you have underway as you think about addressing mobile too.
Absolutely, Doug. We've had great success on mobile in the developed markets like the U.S. and Europe, then throughout Latin America, now in Asia. All of the Netflix service works extremely well on mobile. We're continuing to get better and better at encoding efficiently our films and TV series so that it takes less and less network bandwidth, and we're rising in popularity around the world. That's paralleling the improvements that YouTube and others are doing to make video a natural part of mobile phones. That's just a continued evolution.
Is a mobile Netflix product a different product than what you see right now?
No, mobile is just a four or five-inch screen for us with a great touch interface, and it's very similar to what you see on an iPad to the television. Think of it as there's just many screens that you can enjoy Netflix on.
You don't have to think about different types of content.
I'm afraid, Doug, I can't hear you anymore. It seems to be some AV problem.
The signal-
What, Doug? Can you hear me now?
Barely.
Okay.
No need to shout.
Fine. For Reed or David, as you consider emerging markets, again broadly, is your capacity to mass market product with talent having a limiting lower price point?
Yeah, we'll see. We've been very successful getting to beginnings of a mass market product in Latin America, where you've got a lot of fairly developed economies. We'll see in Asia what we can do with that. For the first couple of years, it's focused on more high-end, Western-oriented elites. As we grow into that, we can think about expanding beyond that.
Ted, back over to you. At the beginning of the year, you talked about having a strong second half content slate. Do you feel that the content slate is settling out the way you thought, and there is a strong second half? Are there any titles that you are excited for?
There's a lot to be really excited about in the second half in terms of our content releases. Starting as early as next week, we have a great show called "Ozark" starring Jason Bateman that we're really excited to launch. In August, we have the release of "Death Note," a great new film that we're going to panel at Comic-Con this week. In August, "The Defenders," which brings together all of the characters from Marvel's Defenders, Jessica Jones, Luke Cage, Daredevil, and Iron Fist, for an incredible season that people are really excited about. Throughout the year, we have things that'll lead up to "Bright" at the end of the year, which is a huge film with Will Smith that'll be only available on Netflix, that we're incredibly excited about.
Ted, what did Reed mean when he says he wants you to be able to cancel more shows?
Look, I think I mentioned before that in this universe, 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. When we have a good hit rate, and even with the recent cancellations, 93% of our shows have been renewed. You want to be introspective and look at that and say, "Are we being adventurous enough? Daredevil. We're trying new things." I think when you have a very high hit ratio, you definitely want to keep second-guessing yourself, even though you do.
David, when we think about the potential for more and more original shows being produced, that's more likely more and more cancellations over time. Is any impact on the financials that we should think about? Separately and importantly, is the viewing that you're expecting, whether it's licensed content, whether it's original content, whether it's movies that you're putting out, consistent with the amortization schedule that you have in place?
Yes. I think where you raise a good point, which is the more shows we add, the more likely in absolute numbers that you'll see cancellations, of course. That's only novel on Netflix, and it's still novel because you see on network television, about a third of the content gets cut in the first season versus our content, which is mostly renewed. It's not because we're less careful about it. It's because we can more efficiently build it, not 100% of the time. We want to launch shows. We love it. 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 costs for future fans of new shows.
Doug, just to take the accounting-oriented part of that question, I would say no, we don't anticipate right now. We look at this constantly. Every quarter, we look at the trends. Many of these shows, even if they're not picked up for a renewal, they may have a story arc that completes the narrative. It really is, for us, is about the continuity of viewing over the life of the show. Even if some of that viewing is concentrated, as our amortization methodology reflects upfront in the first release, the first month of release of that content on the site, it may have steady viewing over the life. If it does, then it's going to be reflective of those trends. If it's really concentrated, yes, sure, we would have to reflect that. Many of the non-renewals get wrapped up.
Bloodline is an example of something that got wrapped up in a narrative. We're going to do a movie wrap up on Sense8. I think overall, you'll see us try to wrap the narratives on these.
I have some questions on content. I want to start off, Reed, with a question for you. In the past, you've drawn parallels between Netflix and HBO, and that implies Netflix as a TV network. I think even the letter this quarter, it talked about that, the TV network sort of analogy. Same thing when you expand to unscripted movies, original TV. Is Netflix instead more of a Comcast-like version of linear TV, or should we think about it as a linear TV network?
I think about it more like a super network. We're talking about addressing content desires and needs across the board, as you mentioned, unscripted, but also kids and films. This year at the Emmys, just as an example, we have five different series nominated for Best Comedy or Drama. We also have two documentary series nominated for Best Documentary Series, two documentary films nominated for Best Documentary Film. We won 10 Daytime Emmys for our kids' programming. We are doing across-the-board programming, not programming for one niche, which networks tend to do.
For me, there's a question on content spend. How do you decide so much of the rollout at any given point in time, and how do you measure your sort of aggregate value to customers when any one piece of content is becoming less and less important as you grow your body of original content?
Well, every piece of content that we do is important, and we try to have that content flourish around the world. In terms of the overall investment levels, we're continuing to see increased median viewing compared to a year ago, two years ago, three years ago, as we're winning a few more of the moments of truth of what you do to relax. Still, we're such a small player in our viewing compared to linear TV, compared to YouTube. We've got a long way to go to have more and more content to please more and more members and continue to grow. What you see us doing as we grow is also improving our margins. We're getting some efficiency out of that as opposed to spending every dollar in the content.
We are growing the content budget significantly also because of the opportunity that we see.
Ted, back to you in terms of strategy for how you're producing content. When you think about the fact that Netflix now can self-produce titles, you can license exclusive originals from Hollywood studios, you can license third party, you can license genre ones. Where do you see the greatest return at this point in time, and how are you responding to your strategy of self-producing a few shows at this point?
The success we've had with our self-produced shows has given us a lot more confidence to expand it. Because we're a global network, those rights are really important in terms of being able to control our destiny, when we can make shows available, in what formats to make them available. Beyond that, there's an economic trade-off, which is there's a big studio margin that we're able to put on the screen and make better shows when we produce it ourselves. A show like "Stranger Things," when it becomes a big cultural phenomena, we'd like to be able to control the destiny of those brands as we continue to invest in them. At the same time, we want to lean on putting the best programming possible on the air.
Not being dogmatic about which shows we pick, depending on their business model, but being really careful about picking shows that are great regardless of their business model. You'll see us do a lot more of self-producing whenever we can.
The last question in this series on content, Ted. You'll probably end up asking this sort of every quarter forever, but any issues on either cost of content or access to the best shows with more and more players? Obviously, Apple hired two terrific Sony executives, you have Facebook announced they're buying some original content, others continuing to expand. You're certainly competing very well on the Emmys are sort of proof of the quality of content. On the margin, do you think, cost-wise more than you can be bought because sometimes it's fair to others that what you prefer to have yourself?
I think internet television is an enormous space. There's going to be lots of competition. 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. It's great for creators because there's more buyers at the table. We expect the content cost to go up on the top premium things. Like I said, I think that's a good result for everybody.
That, of course, brings in new capacity. Like you saw headlines today that Liberty Global and TPG were forming a new television studio to produce shows for all this new market. As the prices go up, there's more capacity because there's very large numbers of writers out there.
In the letter, it talks pretty explicitly about expanding distribution relationships, whether it's with broadband providers or pay TV providers, the bundling Netflix service. I guess two questions there. Reed, to you first, what about the reverse? Do you see Netflix as a platform that can bundle other video services and sell that on top and make a margin? Second, as part of that, any specific times the point made in the letter that you expect to significantly expand these efforts?
There are several companies who are selling networks on top of their platform. Hulu is doing that, Amazon is doing that. We don't see that as a business direction for us. We're really focused on making our network as great as it possibly can be. Then, as you point out, we're now looking at proposals for including Netflix in some services and beginning to learn the bundling part of the business. We're doing a little bit of that in Europe already. It's been quite successful. Thus, we're interested in expanding that.
Shifting over to David and ASPs. I think in the past, you've talked about mid-single digit being a sort of good aspirational point to consider. When we look at the tiers that you have, it seems like the base tier is relatively tied in price to the middle tier and the upper tier. What do you do with that? Two, are there other ways to differentiate those tiers to create more value and have that be an even bigger part of ASP growth in the future?
Well, Doug, I'm not sure I heard the first part of your question on ASP. Just repeat that first part.
For ASPs, I think in the past, you've said that mid-single digit growth longer term is the right way for investors to think about Netflix's pricing potential.
That's correct. If you're just looking for clarity there, yes, that's an easy answer.
When we think about the tiers that you currently have in place, the mid-price tier and The higher priced tier feel like they're relatively close in price to the base tier. Is there other ways that you're considering to add value to the higher priced tiers to have tiering up be an increasing part of that ASP growth?
Well, I don't think so. Right now, I would say we do see success with people taking the upper tier with just the differentiation of concurrent streams and high definition. We don't think necessarily that we need to add more value. We have the flexibility to add more value in terms of that tier differentiation. Honestly, we think there's progressive growth just from thinking about differentiating those tiers on price point a little more in terms of middle and upper. Then in terms of an expectation of ASP growth, that's reasonable in terms of what you outlined. We are lapping the un-grandfathering of last year, you are seeing sort of revenue on a year-over-year basis or ASP on a year-over-year basis start to reflect that lapping of a large pool of un-grandfathers coming off.
Doug, we're super proud that we've been able to maintain this $8 access point in the U.S. or EUR 8 in Europe, which we've had in place since 2010. All of this decade, Netflix has been available for $8. When you think about the content increase over the last seven years, it's phenomenal, and it's still $8 a month at the base level. We're getting the ASP growth as people optionally select to get HD and Ultra HD, which are amazing new formats that have come on. Again, a key part of the successful strategy is that we're staying very affordable for people.
It's interesting because you mentioned sort of growth in content and the service, Reed, you mentioned that the median time spent has been increasing. Are newer customers that are coming on the service this year behaving similar to new customers three years ago or four years ago?
Similar and better. They're watching more.
More engaged, yeah.
Yeah, more engaged. Again, that's a combination of the user interface, the algorithms or the personalization and of course, the content itself. It's very exciting that we've been able to see even higher engagement with members now compared to last year and the prior years.
David, I wanted to circle back on churn. You talked about the un-grandfathering churn. I'm just curious if you could sort of help investors understand how churn has evolved over time, and do you see meaningful opportunities to improve churn from here and what specifically those opportunities might be?
We generally talk about net additions just because the fluidity of somebody coming back on the service, it's hard to parse the two pieces. I've made comments in the past that generally year-over-year churn has improved, as we improve the service, as we add more content, as subscribers age up. More and more as our word of mouth and as we penetrate close to 50% in the U.S. today, those lines are fairly indistinct in terms of who's a rejoin or not, and somebody may have been a member of the service 12, 14, 18 months ago.
I would say, in giving an answer in the spirit of the question, we continue to improve the quality of the service with more content, with a better interface, all the things that Reed just talked about in terms of driving value to the middle and upper tier to have people choose and electively choose a more robust service. I'd say that continues. Outside the U.S., as we age, usually the pattern there is to improve the quality of the library. We better match the taste, and that includes both Western content for that local audience and a little bit of local content as well that Ted talked about earlier. We expect to improve churn outside the U.S. as we get better and better in these markets.
Sticking with you, David, on the margin side, you've in the last letter, in this letter, talked about a 7% margin target this year and a modest expansion thereafter. Care to help investors out at all in terms of understanding what that pace of margin expansion might be relative to investment opportunities that you have?
We're focused on making the 7% this year. We know that we'll clarify that towards October. We want to balance both growth of the business and reinvestment back in the business, given that we're seeing some great returns on that content, given the growth that we experienced this last quarter with sort of a disciplined growth of profit. We also know that you can't just hockey stick it in three to five years and expect the business to be in the right place. I think it's a bit of a balance, and right now that 7% with sort of consistent and deliberate growth after that is the right guidance for our investors.
Doug, if you remember last year we were at 4%, you might be able to apply something there.
Yeah. Thank you, Reed. Appreciate that. What would be helpful as well, sort of getting the details a little bit on it, David, is can you frame the margin progression in terms of where the leverage comes in the cost structure? Is it the content side, the marketing side, G&A, tech and dev? Where should we see the most leverage in the cost structure over time?
Well, to date, it's really just been about as we expand globally and people watch a lot of the same content. Ted talked about cost pressures in terms of as more people pile in at the top end of the market on the unit cost of content costs. We've been able to grow even faster than that. We're able to expand both our content spending and our margin at the same time because we're growing faster than that content. We expect that to continue forward for the foreseeable future. We are leveraging marketing. We're spending more on an absolute basis on marketing as we become more and more of a media company. On a % of revenue basis, we're leveraging there.
G&A and tech and dev has kind of run a little bit in line with revenue as we expand internationally and as we become more of a full-fledged studio and a bigger and at-scale studio. It's pressure there in terms of adding people. I do anticipate the ability to leverage some of that down the road.
The free cash flow burn is certainly an interesting comment, you mentioned it last quarter in the letter, you mentioned it this quarter in the letter. I think similar to margins, investors are trying to read between the lines and understand how free cash flow burn might progress over the next few years. First, I think, actually, for you, Reed, why the comfort level with this level of negative free cash flow? David, any sense you can give investors as to, does it carry forward at these elevated levels? Does it get better, but take a while to get to break even? Any help would be appreciated.
Look, when we produce an amazing show like "Stranger Things," that's a lot of capital up front, then you get a payout over it over many years. Seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop many more properties as Ted can find the appropriate ones. Then there's comfort with being able to finance it, of course, our debt to market cap is incredibly low and conservative, so we got lots of room there. I think that combination, that it's spent well and we could raise it, is what makes us very excited. The irony is the faster that we grow and the faster we grow the owned originals, the more a draw on free cash flow that will be.
In some senses, the negative free cash flow will be an indicator of enormous success.
Then to annotate your second part of your question, like Reed said, this is a success scenario in the sense of as we scale and if we're scaling faster, we're going to reinvest part of that back into the content, that has implications on the cash side. For us, as we've seen success with both the popularity of our owned originals, we've expanded into other content verticals, as we scale faster, as we grow faster globally, that has implications. That said, we gave you an indication of around $2 billion this time. We've updated that to be between $2 billion and $2.5 billion. You can think about that as a 10%-15%.
When you put that in line and compare that with our subscriber growth on the top line, you kind of get some indication that we're still being very disciplined about the efficiency of our content cohort investments, we're looking at how those shows perform over time. If we have a bigger prize, if we see a bigger prize with the growth of the globe, that's going to have some implication on the cash flow side.
A couple more for Ted, then I think we'll wrap up with Reed. Ted, one question I get a lot is the investments in movies. I think part of it is with a TV series, it's a brand that goes forward. There's year after year of episodes versus one-time for a film. Film could be very expensive as well and require an amount of additional approach. I think in the letter you talked about, you believe internet TV can reinvigorate the film business. One, confidence level in your film strategy at this point, two, any thoughts behind the statement in the letter would be helpful.
Well, look, we're doing a lot in the film space for a lot of the same reasons we're doing it in the television space, which is access to great content when consumers want it around the world. We think it's a good investment. We're trying a lot of different things. Some of them work out great, some of them work out not so great, we've learned from every single one of them. We're going to continue to invest in that space because we can bring films to our members when they want them, which is when the world is talking about them. That's almost impossible to do with a studio partner. That's why we're pushing down that road.
I think that in success, our films will be able to attract subscribers and retain subscribers the way our series have, that's why we're working so hard at it.
Another question I get, I think it's just so noticeable, is the investment you made in comedy, and we talked a bit about that last quarter, Ted, but is there something behind that strategy in terms of forming closer relationships with comedians who also might be actors in TV shows and movies, or is it simply ROI, so keep investing more?
Yeah. The category is remarkably efficient, even at the premiums that you'd have to pay to get the superstar talent attached to them. It gets a big audience. They get watched like movies. Just think about it, that the main cost of them is the talent themselves versus the cost of production. It's been also a great way to invest in content partners, because like Chris Rock, by way of example, is getting ready to shoot his special for Netflix. He is right now starring in the next Adam Sandler movie that's being shot right now in New York. We're really excited about being able to work with great talent like Aziz Ansari, like we did with Chelsea, across the entire platform whenever we can.
Shifting over to Reed. I noticed in the letter it said over 1 billion hours per week of viewing on the Netflix platform. Is that 1.1 or 1.2 billion?
Climbing.
climbing.
That's what we're working on.
All right. I think I wanted to wrap up with a couple of questions. First, regulatory, Reed, I think you've already expressed your opinion quite clearly on net neutrality, but more broadly, if you look at the regulatory environment globally, particularly Europe, there appears to be an environment that is a challenge for American companies and seemingly Google and Facebook. What's your approach to the regulatory environment given these challenges?
Well, first on net neutrality, the recent effort that we participated in generated over 3 million additional comments to the FCC, demanding that the net neutrality rules stay in place, bringing the total to over 8 million comments. Certainly we, other companies, the public have weighed in heavily. We'll see where that goes. When you look at Europe, we're making big investments in local content, local productions, working well with local content companies. I think it'll be a really different dynamic, or we hope so, with Netflix than maybe with other firms, because just of the business structure. We're able to take some great French and German and other content, Spanish this quarter, and share it around the world, and that creates big new markets.
Think of us much more as trying to curate some of the world's best content and share it with the world, versus the moniker of being a disruptive tech company.
Last question from me. You're talking a lot about the shift from linear TV to on-demand viewing. It's something that you talk a lot about, Reed. You talk about how much viewer time and how many TV services will be successful. While that's all well and good, I imagine that Netflix will have to continue to be the leader in this category. Just final question is, Reed, how does Netflix sustain and expand its leadership position? Because while the market opportunity might be big, I'm sure you're busy executing every day.
More watching, less sleep.
What are you doing, and what is Netflix specifically doing to make sure that Netflix leads that more watching, less sleep charge?
Well, again, I'm not sure we are leading it when you look how far ahead YouTube is. You might say, "Well, it's different content," but it's still very engaging for the audience that's choosing it. We don't really focus on who's ahead in certain things. What we focus on is doing our best work. Ted runs a lot of that with the content. We're doing amazing work in product, making it easy to use, fast. Finally, all these distribution agreements and marketing we're doing. We're just improving around the whole company, growing what we have. We're very excited about what we've accomplished, but what's ahead is also super exciting.
Thank you all very much.
Thank you.
Thanks, Doug.
Thanks, Doug.