Because I know the sound's been not great. Everyone here? Spencer Neumann, Robert Fishman?
Check, check.
Exactly. We call him Roger. Thanks, Spencer Neumann, for being here. It's an honor to have you. Knowing you a long, long time.
Yes.
As a gift to us today that Spencer Neumann decided to sign an NFL contract with for the next three years. We just got that text a minute ago. Thank you for doing that. Thank you for making news. What can you say to us about why this, why it makes sense, and anything you could share?
Sure. First, good morning, everybody. Thank you, Michael Morris, for having us. We appreciate the opportunity to chat with you all. Yes, big day, exciting news for us today with our NFL deal. So it's very exciting. I first want to give a quick shout-out and congratulations to our Chief Content Officer, Bela Bajaria, and her team for getting this deal over the goal line. No pun intended. I know it was a lot of hard work. But I think of this as really more of part of our strategy to build out big, live eventized programming rather than a big move into sports per se. And the step back here, Michael Morris, is that about a year ago, we made a big jump into live, as most of you know, to tap into all that consumer passion around comedy, reality television, sports entertainment, and more.
And through that, we've learned that programming like the Chris Rock Selective Outrage special, most recently the Roast with Tom Brady, those types of programming can really deliver huge breakthrough moments that our audiences really love. And we're going to continue to build on that strategy. Our next up with the Mike Tyson and Jake Paul fight in July, and then with the WWE coming to Netflix in January of 2025. And I think that type of engagement is differentially important to both our members and to our business because in a world of audience fragmentation and so many entertainment choices, I think what's really rare are three things: attention, the ability to bring mass audiences together, and thirdly, really passionate viewing. And I think the NFL really fits in well with that strategy.
So again, really think of this as an extension of that approach to build a big live eventized programming.
Okay. Anything about the press reports about the cost of it? There's a rumor in the Journal, I think, $75 million. It doesn't seem like this is a big risk in terms of what Netflix has to pay to be in this business.
Yeah, that's right. So I can't confirm the specific details of it, but I would say it's a very manageable cost. I would characterize each game as roughly the size of one of our medium-sized original films. It fits within our existing content budget of about $17 billion in cash spend this year, so no impact on our operating margin guidance for the year.
Cool. Okay. So we're going to ask you to put your old analyst hat back on for a second.
Scary. I'm not sure I was very good at it.
Well, let's speak about that. So in terms of the cord cutting that we're seeing today, right, I think you were well ahead of where you thought this was going to go and where we are today. So given that you've had this front-row seat to the disruption that we've all been seeing in the media ecosystem since joining Netflix almost 10 years ago now, I think, but nine years. So maybe what has been the biggest surprise to you over this period? And maybe even bringing in, obviously, sports as part of that, how that has the potential to even disrupt further the traditional ecosystem?
Sure. It's a good question, Robert Fishman. I would say the reflection I don't think is super insightful. I would say as an analyst, I was pretty convinced that this was the direction that things were headed in. I think if I reflect, I'm probably surprised by how slowly it's gone, actually, in a way. So I think there are you know the numbers better than me, Michael Morris, and Robert Fishman, but I think there are still 70 million households in the U.S. that pay roughly $100 for pay TV. And that's with all the great stuff on streaming, the added convenience of on-demand and things of that nature. So if anything, linear TV has actually been, I think, pretty sticky relative to my expectations. And that transition in other countries is also pretty measured.
In a way, that just gives us a continued long runway as the world undergoes this change.
The irony is that what has accelerated it is the pivot to streaming. Basically, they've followed you in a very uneconomical way to try to become Netflix, and they've killed the golden goose more quickly, probably, in recent years.
Well, look, I'm not sure that's totally fair. I think to their credit, they see the trends, too. I think they're trying to adjust the best they can. They have to manage a business just like we had to manage a legacy business, which was DVD for us. So we all took different approaches. I don't behoove them, though, the way they behoove.
Okay. So on that point, it feels like the capital intensity which drove that surge in content production, Peak TV, it feels like it's slowed dramatically. So what are you seeing with regards to competitive landscape? And how do you think the meltdown across media is impacting your ability to grab more consumer engagement and attention?
Sure. I'd say relative to three-four years ago, there are more licensing opportunities from other CEOs, for sure. But I wouldn't say it's a big game changer for us. We've always had a lot of variety, a lot of quality in the catalog. Originals are present and are future. And second-run content is an important ingredient for our offering, but it's not the majority of it. And I would say the business continues to be really competitive. And we don't take that for granted. We don't take our positioning for granted. We are very respectful of the competitors. The entertainment companies all have their own unique strengths. They have really big content libraries. They have established IP and franchises. They have a proven track record of creating great television and films. So they're still really good at that.
Obviously, our technology peers like Amazon and Apple and YouTube are still investing very heavily. So I'd say the competitive landscape is still really intense. But I would say, honestly, Michael Morris, we don't spend too much time obsessing about it because there's, frankly, not much we can do about what they're doing. The only thing we can really do is focus on what we deliver for members. That's why you constantly hear us talk about trying to improve all aspects of our service because that's what we've learned is really the winning ingredient rather than over-obsessing on what other folks are doing.
So on that point, in the last shareholder letter, you talked about to sustain the healthy long-term growth, Netflix has to continue to improve and grow, I guess, the variety and quality of the entertainment offering that you're offering subscribers and potential new subscribers. So can you maybe help us think about different genres as you think about, from a company perspective, where you're focusing on improving, maybe outside of live events, which is the obvious one today? And maybe how does that translate into overall growth on content spending?
Sure. So as I mentioned, Robert Fishman, we focus on improving everything at Netflix. That includes finance, includes marketing, includes content, the product discovery experience. We're pretty religious about constant improvement. So focusing specifically on content, I think if Bela Bajaria was here, she'd say she's focused on maximizing every dollar she spends on content and the impact that comes from it across her entire portfolio, whether that is scripted series or unscripted or original film. We have a new leader, Dan Lin, who's going to make his mark on that content category as well. So honestly, we see lots of opportunity to improve across all aspects of it. Then we have newer areas like live and games, which we're still at just very early stages on. So again, it's really exciting in a way because we are trying lots of different things.
We still have a lot of opportunity in the core business to also just get better and better. In terms of the content spend also, I don't want to ignore that question. I would say we want to continue to march up our content spend steadily over time, maximizing the impact of each dollar. But we also manage it within the context of our overall margin goals, which is about a 25% margin this year on an effective basis, and then improvement annually from here.
Going to the idea of live events, it's been a year or so. The big fight's coming. What have you learned over the year live events? So what are the key learnings? What's proved to you in terms of what you guys had assumed going into it?
Yeah, we learned a lot. So a lot of it is operationally how to do these well at scale. So I think we're putting a lot of attention and focus on that. And we're getting better and better at that, more and more seamless at that, hopefully. On the programming side, as I mentioned with Chris Rock's Selective Outrage or the Tom Brady Roast, Netflix Slam, I just think we have realized that eventized programming can have an outsized impact and that not all hours of viewing are created equal necessarily. So I think, again, if you can tie in those things I talked about earlier and create big moments that really matter to consumers and that are very pervasive throughout the society or that audience cohort, it can be really impactful. And there is that not all hours are created equal.
I think we're going to have more and more powerful moments like that.
Yeah. And one of the things we'd always heard was an impediment to getting sports rights was the ability to produce them. We've heard from the incumbents, "Look, it's hard to do what we're doing. You guys may be able to produce. How are you going to produce the NFL game? How are you thinking about that?
Yeah. So we're working through the details on that. So I'd say TBD right now. But we have a rough plan in place. But probably a little too early to get into the details of it. But I'd say that's part of our learning process, right? So working on things like Netflix Slam or the golf tournament in Las Vegas, yes, not easy. A lot of work that goes into it. But we're building that muscle. And if anything, the one thing I think Netflix is good at is, as Reed Hastings has said in the past, is that we're a learning machine. And we strive to learn as quickly as we can.
That's true. Maybe the natural follow-up to that is, as you mentioned earlier, WWE. So as we think about that coming aboard 2025, how do we think about the possible expansion of how impactful that's going to be to the learning process in terms of production capabilities and also just bigger picture, live, and the potential IP that actually comes from IP?
Yeah, super excited to be in business with WWE. Very anxious to get to 2025 when we can offer this to our members. I think it's great from many different angles for us. They have a very established fan base, not just in the U.S. but across the world, in big markets for us like India, as an example, strong following there. It gives us a regular cadence also of live programming, which I think will also help us hone our skills in terms of being able to deliver that type of programming for our audience. I think with our reach, with our engagement, we hope that we can also grow the popularity of WWE for them. It's going to be really exciting. We haven't had this type of programming on Netflix. There's a lot we don't know about it just yet.
But we're excited to learn what it means to our members.
Yeah. The international angle is a really interesting angle, too.
So as we now have five years of the streaming wars to observe, perhaps we, maybe this is me, have underappreciated the massive technology advantage you have in content discovery, recommendations, ease of use, efficiency of the network. Are those advantages that others will find in time? Or do you think it's something about Netflix's culture and the learning machine that you are, that those advantages have come because of the way your company was built and founded and your ethos?
So I think it's two separate things. I think we probably have some medium-term process or technology advantage. But we fully expect our competitors, they're all pros. So they'll learn these things in the fullness of time, too. So I think that's we would expect that. What I do think is a durable advantage for us, though, is this interesting combination of things that are very interconnected. What I mean by that is, number one, our reach, so 270 million paid members, programming for over 500 million people across the world. Number two, a large content library with a lot of variety and quality of titles married with a discovery and product experience that can best match the right stories with members at the right time.
And then on top of that, a great marketing team that can then sort of fuel the fandom and the passion around each of these moments. And I think when you take all those together, that's what enables things like chess sales to skyrocket after Queen's Gambit or for the F1 to grow in popularity from Drive to Survive or for Three Body Problem book sales to go up the charts when we release that series. And that stuff largely, mostly only you hear about happening with Netflix. And the business press, I think, has dubbed it the Netflix effect or something like that. And I think that, admittedly, it's hard to quantify. So you can't put it in your spreadsheet. But I do think that is something that is quite special and very hard to replicate.
That's taken many, many years of us iterating constantly to the learning point to get this in a position that we can sort of do this. We want to be able to do it on a more recurring basis more and more.
Right. So over the past couple of years, you've clearly rolled out two major revenue initiatives as you think about the longer-term growth. Curious, over that shorter period of time, any big surprises that have occurred? One that comes to mind is the reaction that happened in Canada and how you've learned from some of those surprises.
Yeah. So I think on reflection, paid sharing has gone really well. And I have to tip my hat off to our Chief Product Officer, Eunice Kim, and her team and all the employees at Netflix that worked really hard on this initiative, which has, I think, gone very smoothly. I think they were able to do it in a very elegant manner that was as minimally disruptive to our customers and to our business as possible. And it wasn't easy. It was a lot of work. So I would say I think that's an example of the excellence we strive for as a company. It's not always perfect like that. But I think it's an example of what we really hope to accomplish when we really focus and focus on excellence. And then on advertising, for me, it's still really early.
But it's mostly a reminder that building new businesses from scratch just takes time. And so we're all impatient. And we all want things to happen much faster. But that's just the natural rhythm of starting from zero, quite honestly, in the case of ads. And so really, for me, it's just a reminder that we just got to continue to grind. And we got to continue to iterate and continue to improve every day.
Yeah. Robert Fishman's Canadian, by the way. So he was watching the Canadian experiment on Netflix. And people.
You're VPNing into your.
Well, I'm not living there anymore. But a lot of family members felt the backlash.
I'm coming back. I'm coming back.
Market research.
Yeah.
Canadians never get angry. They were getting angry when you guys went to the password sharing. We're like, wow. Then you pivoted and did very differently here.
Yeah, that's right.
Let's talk a bit more about the ad product. You said on your last earnings that 40% of all signups in your ad markets are taking the ad tier. Is there any significant dispersion by region? Or is that too dissimilar than the adoption? So basically, give us a sense of the adoption by regions. Is anything very dissimilar?
I would say it's very consistent by region, by country, sort of plus or minus several percentage points. So around that 40%.
OK. Then how different is that adoption versus the low-end plans that existed before, right? Back before this, is it consistent?
Relative to basic, very similar.
OK. So it's a way to drive net higher ARPU because it's literally the long-term play on it is just higher ARPU net advertising benefit.
In general, yes. But obviously, as we mentioned on the last earnings call, we're still scaling our ads business, right? So there is still an ARM headwind right now as we scale up our advertising business. So we've been growing our ads membership base so quickly, so 65% membership growth quarter-over-quarter in Q1 on top of 70% growth in Q4 on top of 70% growth in the quarter before that on top of 100% growth. So there's naturally a lag in the monetization of it as we grow our inventory and our supply. But that's a very fixable challenge for us. But I didn't want to paint it all as gravy right now.
What are you seeing on the behavioral side of those subscribers?
Really solid engagement, I would say, probably better than our original expectations and consistent with comparable plans.
OK. Cool. So switching over to the password sharing side, the initial communication was around this 100 million users that you were looking to target, 30 million in UCAN. So curious, as we're into it now, anything you can share in terms of the update and maybe frame the percentage of how the conversion has gone relative to expectations, at least?
Sure. So I would say that you're right on the numbers, which is we did say about 100 million+ households prior to the rollout of paid sharing. We haven't been specific in terms of where we are in that conversion other than that it's going well and generally better than expectations. And really, it's not sort of a separate initiative these days. It's really just interwoven into our operations. And so really, we think of it as just part of the business now. And just like all parts of the business, we'll continue to iterate on it and improve it. And for you all, I think the takeaway is that there are 500 million connected TV households, excluding China and Russia. We have about 270 million paid memberships today.
Now that we have this sort of operational fix with paid sharing, that allows us to better penetrate that 500 million household TAM because without it, it would have been increasingly hard for us to be able to do that. We're trying to orient folks on that opportunity as opposed to the very narrow sort of paid sharing initiative.
So one of the great successes has been Asia Pacific market, right, in Japan and South Korea. It's been a big source of growth. Same time, there's a mix shift going on on the ARPU line. Can you get us under the hood of what's happening broadly in Asia Pacific? It's such a complicated market.
It is. And you're right. There are several factors, which, frankly, is one of the reasons we're moving away from some of that paid membership and ARM reporting, which I'm sure you will ask us questions about, Michael Morris. But I would say a couple of factors. One, in APAC, many markets haven't had a price change in a while, a year plus. And we also have had several countries where, about a year or so ago, we actually lowered price. So that's been one factor. Secondly, another factor is country mix. So if you looked at APAC five, six years ago, it was practically almost all Australia. So that's a higher-income market and a higher-priced market. So the good news is we're growing quite quickly in other markets in countries like India. But Netflix is lower priced there. So that drags down the average.
We view that as actually a good thing, not a bad thing. I would say those are probably the most prevalent factors.
It's a good segue. Next question.
Yeah. I mean, we were going to ask you about India because there's been some recent developments in the market where Disney has decided to partner with Reliance. So just maybe curious, as you think about the Indian opportunity, specifically, if you want to comment about how that might impact it, but what do you see as the future for India, for Netflix?
Sure. So I can't speak much to the Reliance and Disney of it all. You probably have to ask them. But I would say India is an important country for us. It is very competitive. But again, it's competitive everywhere. And in a way, it's good for the market in the sense that consumers just have more and more choice and different options. And our job is to just improve our offering so it resonates with the Indian consumer so we can grow faster there. So I would say we don't have any sort of differential insight there in terms of what the competitors may or may not do. And we can't control it. So again, we're just going to focus on improving what we do.
I think there was comments this was going to be the next 100 million in terms of subscribers. So where are we on that path?
You know, I'd say what I can tell you is that India is one of our fastest-growing countries. So I think we're on the right track there. But again, it's still a lot of hard work. And by no means are we declaring victory. We know we still need to improve a lot there to get to that size that you talked about or that we talked about.
Just don't buy cricket rights. Whatever you do, do not buy cricket rights.
Noted. Thanks, Michael Morris.
That's a kiss of death, usually. So you've been realistic, as you are on the stage today, about the near-term impact of the advertising opportunity, right? It takes some time. What are the gaining factors to scaling that business in the U.S. and internationally?
Sure. Let me first start by saying we're generally very optimistic about advertising and the ads business. So I want to make that clear. TV advertising is a very proven business. We're not reinventing the wheel here. So it's been a core part of the entertainment and the media business for a long time. I think we're really well-positioned because we have high-quality, premium programming. We have big growing reach. We have very deep engagement on a per-member household basis. So I think we have all the right ingredients. But you're right. It's not yet material for our business, partly because our subscription business is so big. So that's one factor. Secondly, we got to do two things. Number one, grow our ad membership base, as I mentioned earlier.
Secondly, we need to continue to develop our capabilities for advertising, advertisers, specifically measurement, verification, all those different factors. We also have to improve our go-to-market sales approach as well. Lots of blocking and tackling, but all doable in the fullness of time.
So one of our bigger surprises over the years is, despite continued price increases at Netflix, what we usually see is limited negative reaction to that, which, again, speaks to how you guys continue to add value to the service and program appropriately. So curious if you can kind of take us behind the scenes in terms of how you decide and when you decide to raise pricing, given all of that? Do you factor in macroeconomic issues and just really help us better understand the price-raising strategy?
Sure. We think about all those things in general. So we have lots of big brains thinking about all those factors. So we look at, on a country-by-country basis, our current trends in retention and acquisition and engagement. We think about the competitive landscape. We do think about macro factors like disposable income. Inflation, obviously, has been a big factor in parts of LATAM, as an example. So we take into account all those factors. But I would say the primary factor is engagement for us because, again, that is our best proxy or sense of how much value we're delivering to our members. And if we're growing that, that's a signal to us that we are delivering more value. And in general, we want to price a little bit behind that value so that consumers continue to think of us as a good value for them.
And then if we can adjust prices effectively, what we then want to do is reinvest a bunch of that back into the service to improve the programming, to improve the discovery so we can continue to drive that virtuous cycle.
Kind of take it back to advertising for a second. This is Upfront. You guys have a presentation tomorrow. It's an increasingly competitive market because of YouTube and Amazon in there. So when you think about your chief differentiators, what's the go-to-market messaging that you think differentiates you from other people who are chasing CTV and.
No other way until tomorrow, Michael Morris. No, I would say, in general, it's a lot of what I talked about earlier. I think we have great programming that advertisers want to be adjacent to and a part of. I think they want to be part of the conversation around things like the Tom Brady Roast or Wednesday or Squid Game. I think that's going to be really exciting. That's our depth of engagement, I think, is also what really separates us from the pack, as you can see from the Nielsen Gauge data.
So as Craig Moffett, front row right there, as he will tell you all too well, that there's an upper bound in his industry's ability to take price and take price increases.
Professor Craig Moffett, Ph.D. in pricing.
Yeah, he is a Ph.D. in pricing. We have case studies on that. To that point, can you talk about the ARM lift that may be available to you as your advertising initiatives roll out? Think about just the balance between driving ARM through advertising versus any kind of upper band on pricing power.
So I think when it comes to pricing, again, we really think of engagement as the best way to measure our ability to grow pricing. And I think Craig Moffett right. If you're not growing the value of your service, there's a limit to how much you can charge folks for, to be honest. But if you have a really valuable product that is really critical to people, then I think your customer base will pay for it. So I think that's why we're focused on improving the engagement, improving the value to our members. And beyond that, I would say advertising, I think, is a nice option because it does allow us to segment demand better because there are a range of incomes and a range of needs among the population.
I think it's a great option for folks that don't want to necessarily pay that much and are advertising tolerant. So that's sort of a little bit of the trade-off there. And so it's a nice sort of, I think, optimization of our pricing.
So maybe taking that and, again, before all of these recent initiatives have taken effect, the market was pretty comfortable assuming long-term ARM growth and call it the mid-single- digit range. So as we think about these new initiatives and everything, back to our models, any way you can help us think about the reasonable assumption going forward as we think about this playing out?
Yeah. I would say I'm not going to give guidance on ARM specifically. Again, we're trying to orient investors around the three variables that we focus on: engagement, revenue, and profit. And I would say we're on a good track this year. So we got it to about 13%-15% revenue growth for the year. We want to continue to sustain that healthy revenue growth beyond this year. And we're not overly religious about how much of it comes from ARM versus volume versus advertising versus other factors. We care about revenue growth. And we care about profitable revenue growth.
Spencer Neumann, back when you were an analyst, you may have had a chart which looks at the correlation on affiliate fees versus ratings. What you saw in that correlation, there was no correlation.
Correct.
And so the question is, as you move into more live sports, is there a subtle hint that, look, we think this can drive higher ARM because live may be worth more to people like us than just rerunning Friends or Seinfeld?
Well, I'm not sure it's specifically live. I think it's impactful programming. So Squid Game, for a lot of people, is really impactful. And for me, I really like Beef as an example. So I think we need to have all those things for all 270 million member households. But to your point, not every hour of engagement is created equal, which is why there is no correlation in that scatter plot that you talked about. And so I do think the more that we can sort of break through moments like that, I think that's good for the business. So, but really early days. But it doesn't have to be live. Again, when we have a great movie, too, like Bird Box, that's also really impactful to the business, too. So again, I don't think it's just live. But I think live can be a big part of it.
Obviously, one of the big news items that came out of last quarter was just not specific to any business, but just in terms of disclosure.
There we go. OK.
So here we go. So in terms of the quarterly membership numbers, and clearly, we understand the focus on revenue. You just hit on it. But curious what, going back to analysts, Spencer Neumann would say about this change and just really how the investment community should think about the evolution of the business, given the disclosure?
Sure. Totally fair question. I think the analyst, the former analyst in me, would like it because it makes updating my model easier. One less variable or two less variables to worry about across four regions. No, but in all seriousness, we're not trying to obfuscate anything, frankly. And we fully intend to grow subscribers. And we'll continue to report subscribers as we pass certain milestones. So let me lead with that. Beyond that, though, I think it's really a reflection of the evolution of our business. So we have added new revenue streams like advertising, like extra member, which isn't directly tied to a paid net add. As I mentioned earlier, we've increasingly segmented our pricing, not just across countries, but even within countries, right?
So the business impact of any one given net add can vary quite a bit depending on what plan we're talking about in which country. So for all those reasons, that traditional P x Q equation, I think, is just less insightful in terms of what's happening within the business. And I would say, from a strict IR perspective, I personally feel that there's an overfocus on our quarterly paid net adds that probably adds unnecessary volatility to the stock. We're a subscription business primarily, which is recurring in nature, generally speaking. So we are very rarely off on revenue by more than ±1%. But if you look at the stock trading, it's obviously much more volatile than that. So I think this is a healthy evolution of the business. So we'll take it from there.
But again, we're always evaluating what's most helpful to the investment community in terms of external metrics. So we're open-minded to that. We did say we will provide more engagement data over time as well to add on to what I would consider industry-leading transparency on engagement in terms of what we share today. So we'll continue to build on that for you all. And then we'll go from there.
Should we expect more disclosure or maybe just more milestone announcements in terms of what advertising revenue is contributing or consumer products or even video games as you continue to build these out?
That's a potentially natural progression, right? Obviously, they're all quite small today. But as they become hopefully more and more material to the business, that would be a natural evolution to the business. So I don't want to speculate just yet. But I think that's certainly something we're contemplating to consider.
Is there about margins? The margin expansion in the past years has been just extraordinary. How should we think about continued margin expansion? I know Spence talked about this back in the fall. But how do we, on the outside dimension, potential for the margin expansion?
Sure. So I would say we've, I think, done a good job proving that streaming at scale can be a good business and quite a profitable business. We're trying to balance long-term investment and sustained growth with also delivering improving profitability. So again, our target this year is to deliver about four percentage points of margin expansion. Beyond 2024, we've talked about growing our operating margin every year. It'll probably vary a little. But it won't be this sort of consistent three percentage point thing that we had several years ago. Our intent is to gradually grow it and grow the business at the same time. So nothing more specific at this point. But our intent is to grow the margins.
If I can follow up on that and, again, given the news this morning, how do you think about the allocation of U.S. content spend versus the global spend, right? So clearly, NFL is a specific item. But as we think about just the allocation of that and as you think about that balance on margins, is it just always mostly from a global perspective? Or is there specific budgets by region?
No, there are definitely specific budgets by region, by content vertical, or category. Our team, I think, and the content team does a really nice job portfolio managing, as an example. I would say, for us, every piece of programming we've learned needs to be most impactful in the home territory or home country. The NFL is a good example of something that we expect to be very impactful in the U.S.. To the extent that it also takes off in other countries, that's sort of extra or gravy for both us as well as the creator or, in this case, the NFL. That's how we sort of think about it. We're trying to figure out each year what is the best way to allocate all that $17 billion to be most impactful to the business.
And so it is really like a portfolio approach to it.
Asking about another one of your jobs, which is corporate finance and business development, can you discuss how Netflix weighs potential M&A opportunities and maybe the buy versus build decisions in some new categories?
Sure. So I think going back to my analyst days and, Michael Morris, I don't know if you agree. I think you do. But M&A is hard. And the track record of it is, I would characterize as, at least large-scale M&A, pretty spotty. So we're very cognizant of that. And having lived through a couple of deals at Netflix, it is indeed hard. So I would say the way we think about M&A is really as a tool for us to help advance our business and our strategy.
So the primary focus on any M&A opportunity is, how does this help the business relative to similar-sized opportunities and the distraction tax? So we weigh those things together to decide if this is the best approach, buy versus build. We do all the other stuff that you sort of alluded to, the accretion-dilution of it all, the ROI of it all.
But as you know, I can make my spreadsheet kind of say whatever I want it to say, right? And really, it is about, why are we doing this, again, relative to the other ways to do it? Is this the best path forward relative to the distraction tax and the money we're spending on it?
Yeah. So given the long-term focus about video games, curious how all of that plays into build versus buy on video games. Is there an opportunity to accelerate that with potential M&A?
Yeah. So we've actually done a series of small game studio acquisitions in our first few years of games. And I would say we're feeling our way along. So really early days for games, we've had some positive signals. Grand Theft Auto in Q4 is an example of a game that did really well for us. But again, I would say too early to tell. And in terms of M&A, we'll always be open-minded. But there's nothing sort of imminent at this stage.
You're reaching the nine-year mark within Netflix. I wondered if we had asked you when you started, would it develop this way? This is a tough question, which is, the next few years, three- five years out, how different will this company look? I'm not sure if you would be able to predict it if I asked you when you started. When you see all the pieces that are coming together, how has Netflix changed three or five years from now?
It's a really good question. I would say one of the things I've learned at Netflix and, frankly, in life is change is the only constant, right? And I actually think change is a good thing. When I was younger, change would be kind of scary or stressful. But I've actually certainly at Netflix learned to sort of embrace change. I have a couple of colleagues here. I think they could relate to the change and everything that happens. And in a way, it's kind of exciting and thrilling because I think it's a signal we're trying to be bold and entrepreneurial, which is true to our heritage and our culture. And we're trying to move the business forward. So I think the whole world is changing every day across every dimension. So of course, we have to change, right? If we were static, that's probably not a good thing.
It's hard to predict where we're going to go. I would say, in general, our two North Stars as a company are, number one, we want to please our members. And secondly, we want to grow our profitability. Beyond that, most of the other things are pretty tactical, like getting into advertising or getting into games or things like that. I think we strive to be the best entertainment company in the world and to do great things as a company. And that's what we're sort of marching towards. And my guess is it'll be pretty different because who would have predicted where we are today? We started as a DVD company mailing disks in the mail, right? And now we're doing Christmas Day NFL games. That's kind of nuts if you think about it. So exciting.
I guess something that Spencer Neumann said back two years ago when he asked about advertising at Morgan Stanley's conference, never say never. I think what I've observed from you is never say never anymore. Never say never. Everything is an opportunity.
That's right.
Because you can't just say, no, we'll never do this.
That's right. And I think we've tried to sort of communicate that to you all, which is never say never in the sense that we're always evaluating things. That's part of our job is to pay attention to what's going on in the world. And we need to adjust as circumstances change. And I think that's actually a healthy thing. And so we're very open-minded to change. And honestly, that's why the culture is the way it is. If you go back to the original culture deck from 2007, we talked about the ability to be adaptable because most companies get very good at this one thing that they do. But business environments are never constant, right? It may take 10 years. It may take 20 years. It may take 100 years. But things inevitably change.
We want to build a company that can adapt to those changes and thrive regardless of the circumstances. But again, we also value focus too. So I know these things sound like they're in conflict or intention. But I think that tension is actually healthy, right? So we're always trying to figure out, where do we need to sort of focus? But also, where do we need to adapt? And I think that was one of the great learnings in 2022 when the business slowed down is that we do have to adapt as circumstances change.
Just having two CEOs with very different responsibilities and almost approaches to things, does that help in the ability to adapt quickly?
Look, I don't know if it helps in that dimension. I would say I think it's working really well, partially because I think there's a lot of great trust between Ted Sarandos and Greg Peters. And they worked together for so many years. So they're very familiar with each other. They obviously both bring their own strengths to the table. And so I think it's working well. But I think it goes beyond that co-CEO structure. Again, as I talked about, the culture, again, if you go back to our culture memo, our culture deck, is really about excellence and how do we do that and building a culture that allows us to be adaptable and very durable as a business.
Maybe just last question, big picture for you, anything that you want to leave for investors?
Well, I did get to say one thing about the NFL.
Please.
How about them Cowboys?
Oh, gosh.
So I always want to say that out loud. Yeah, it's an audience channeling my inner Jimmy Johnson. I'm a fan, as you can tell. But no, I would say, first of all, we thank you all for taking time out of your busy day to join us today. We thank our shareholders for going with us on this journey to create, hopefully, a great entertainment company. And we're excited and optimistic about the business. But we also know we've got a ton of hard work to do to more deeply penetrate that $600 billion TAM that we've talked about. So again, we don't do these conferences too often because we're mostly just sort of heads down focused on executing the best we can. And just know that that's what we're doing. And we're working hard.
Half of Netflix is here in New York City this week, I think, for the Upfront because it's a really important initiative. And we're eager to get that going.
Well, Spencer Neumann, thank you on behalf of.