Good afternoon, and welcome to the Netflix Q3 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, CFO, Spence Neumann, and COO and Chief Product Officer, Greg Peters. 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 to Kannan for his first question.
Thank you, Spencer, and thanks everybody for joining us. Broadly, Spence, if you could start with you. Given the subscriber numbers, despite your cautioning us last quarter about growth, all of us can't help ourselves from getting enthusiastic every quarter about your subscriber trends. Maybe it might be useful to just contextualize the net add number this quarter. Could you help us understand how the gross additions trended from Q2 to Q3? Would you expect gross adds to come down a bit sequentially? How much of this is an account of churn? If you could just break down the quarterly sub numbers a little bit and give us some color, that might be useful.
Yeah, sure, Kannan. Thanks. First, sort of stepping back, if you think about the Q3 subscriber numbers, it was really very much as expected for the quarter. To look at Q3, the biggest impact was really the first half of the year and that giant pull forward in subscriber additions in the first half of the year with COVID. When we have that much pull forward, we expected and knew there'd be some level of slowdown, and we tried to project it as best we could. It's super difficult to forecast with perfect precision given all the unknowns and factors. We actually came pretty close. To land within 300,000 members on a member base of roughly 195 million, that's pretty much forecast noise. There's a number of ins and outs, but the general underlying metrics, as you say, are very healthy.
Retention remains at very healthy levels, better than we were a year ago. Acquisition remains strong. You're just seeing a natural, because of that pull forward effect, some slowdown. I don't want to lose sight of the fact that to measure our business, it's really not based on any single quarter of growth fluctuation. It should be measured in multi-quarter and multi-year trends. If you look at the past three quarters, year to date through Q3, we've grown by little over 28 million members, which is more than we grew all of last year. Super healthy growth and the underlying both top-line and bottom-line growth and retention trends in our business are healthy.
Kannan, maybe if I could just add with respect to more context on the subscriber trends. As Spence said, we just really don't over-focus on any 90-day period. Just to give you an example, if the quarter was 48 hours longer, we would've come in slightly above our guidance forecast. Again, as Spence characterized it, I think really just forecast noise more than anything else.
Got it. Looks like organic ARPU in LATAM was particularly high. I know you had some price increases earlier in the year as a tax pass-through. Did that have any impact on growth? Because that was one of the regions which seems to have come in a bit lower. I guess also if you could contextualize guidance for next year. You did point out that paid net adds will be down next year, first half at least, based on your expectations. How are you thinking about the impact of pull forward while modeling next year's numbers? If you could just give us some color around that, might help us understand it a bit better.
Greg, maybe you want to take the LATAM price question, and then I'll take the next year and then pass it over to Spence.
Yeah, sounds good. I think, Kannan, again, it's easy to over-rotate on what we're seeing specifically quarter to quarter. If you look at sort of the nine months, we've seen five million paid net adds in LATAM, which is a very healthy growth for us on that period. I wouldn't overread anything specifically, and it's more, I think, the pull forward effect. Then over to you, Reed.
We've been doing high 20s net adds per year for four years. This year, on guidance, we'll be 34 million. We'll set all kinds of new records this year. The pull forward into next year is relatively modest. It's sort of that five or six million delta as opposed to the second half of this year, again, where the pull forward effect from the first half is very strong. It's probably a little bit of the effect in Q1 from the pull forward. Maybe a little bit less in Q2. It'll wash out. It's not a permanent or long-term. I think in terms of modeling it, there's the underlying quality of the service. How many hours do we generate? How much word of mouth? That's improving at some relatively steady rate.
Our growth sort of seesaws around that number, depending on the particular conditions going on in that quarter. Year after year, it's fundamentally followed that improvement in the service growth curve. Spence?
I think you both hit on most of it. I would just emphasize that in the letter, Kannan, we were really talking mostly about the year-over-year comparison for the first half of 2021 versus the first half of 2020, and that's because of the dynamic that Reed was mentioning. If you look at the first half of this year, again, we grew by 26 million members in the first two quarters of 2020. That's more than twice the level of growth we had in 2019. Again, we're sort of growing through that big acceleration in our member base.
Be comparable.
Got it.
Just try and temper that enthusiasm, Kannan, real quickly.
That's fair. I guess, one component which can help us understand this a little bit better may be the engagement levels. Obviously because of the work from home environment, there was an engagement lift across the board on streaming services in general. In some ways, you guys are able to benefit from almost a pure experiment in some ways, as different countries reopen at different times, and you're able to see what that does to engagement levels. As this process plays out around the world, is there any structural lift in engagement you guys have seen in markets that have opened up versus markets that may still not be open? How much of a tailwind could that be structurally longer term or how much of that could become a tough comp next year?
We do look at some of this, but we try not to get overly focused on the COVID effects, because they're very one-time in nature. By and large now, engagement, churn, all of those metrics are like we would have expected from a year ago. Think of that as a minor background effect and there was the temporary learning when there's no sports. It's like, well, it's not really that interesting a finding because it's just not relevant to the world. Now we're back in a world with partial sports, and it's fine and we're growing. Again, we compete so broadly. We compete for time against TikTok and YouTube as well as HBO, as well as Fortnite. Really the limiter for us is what's the quality of our service?
How often, how many nights can you say, "Oh my God. I want to go to Netflix and watch the next show.
Ted, I guess from one of the comments in the release was the goal of shooting 150 productions by year-end.
Yeah.
How does that compare to what your initial plans may have been? The free cash flow number this quarter is really strong, which tells me that there's probably a lot more content you were initially planning versus what's happening. If you could just give us some color around the cadence.
Yeah. Like we pointed out since the COVID shutdowns, we've completed production on over 50 productions, and we expect another 150 before the year is over. All that ramp-up puts us back to nearly fully operational in most parts of the world. Those productions may go a little slower than we had planned. Materially we're back in business and production in most places of the world, including in North America, that have come on slower. I think we're looking at the 2021 slate. Everything that we forecast for 2021, we expect to hit in 2021 with a few minor exceptions and some may be a little more back weighted than we had planned for last year. We've planned it all coming out.
I think the thing that we've really been amazed by has been the adaptivity of our production communities to step up to the plate in these new COVID protocols and get the work done in such an incredible way, and then so safely. We've had a couple of shutdowns, I really think that we're in a place right now where we should expect that to happen, that we'll have production shut down. The art of it is how quickly and safely can you reopen. We've been going through that in different parts of the world every day. Right now I'd say that we're back to near steady state in physical production.
Got it. Greg, from your perspective, when you think about the price increase decision, recently, I think there was a price increase in Canada and Australia. Is this based more on some kind of an algorithm around content release slate and subscriber momentum? Or is this based more on the strategic goal of where you want to be with respect to ARPU over a given time frame? How should we think about the cadence of price increases going forward given that productions are restarting now?
Yeah. No magic algorithm, but the core model we have is, and we think really our responsibility and our job is to take the money that our members give us every month and invest that as judiciously, as smartly as we can in creating new, amazing stories. We've got titles that are coming out across an increasing range of genres. Amazing movies like "The Old Guard" and "Extraction" and more animation like "Over the Moon" and "The Willoughbys" and "Klaus." Just basically delivering more value for our members, better product experiences.
If we do that well and we seek to basically every day be better about pretty much every component of how we're investing that and make that efficiency and that effectiveness better, we will deliver more value to our members, and we'll occasionally go back and ask those members to pay a little bit more to keep that virtuous cycle of investment and value creation going. As we said before, we look at every country independently. Instead of an algorithm, we're just basically assessing, okay, how many new popular titles have we delivered? What are local language originals in that particular country looking like? What's the slate that's coming looking like? What are the fundamental metrics, right? Engagement and churn, what do those look like? Then we do an assessment. We say, do we believe that we're really delivering more value to our members?
If so, do we think it's the right time to go back and ask them to pay a bit more so we can again keep that cycle going. I think the one other important thing to note here are something north star that we hold close to our heart in this whole process is we think that we are just incredible entertainment value, and we very much want to remain an incredible value as we continue to improve the service and grow.
Now that you're in a more normal pricing environment, and some of the metrics that you mentioned just now in terms of engagement levels and churn and so on, when you analyze different markets, is there room for the recent price increases in a couple of markets to expand as we go forward over the next few quarters?
Yeah. I won't comment or speculate on any specific changes, but that basic model that we just described, if we continue to do a great job at investing, and we feel like there's ample opportunity to deliver more value. You heard from Ted the number of original productions that we're doing, increasing even under these conditions, that number. If we do that, then we feel like there is that opportunity to occasionally go back and then ask for members where we've delivered that extra value in those countries to pay a little bit more.
Got it. In the U.S., you've also done away with the free tier recently, and I think U.S. is one of the last markets where you've done this. Is this because most of the new additions in the U.S. are now people who already have been subscribers in the past? Could you help us understand the decision to walk away from the free tier in the U.S.?
Yeah. Like most things that we do, we're constantly assessing and testing and trying to understand what's working, what's working best, how do we improve? We do that with our marketing and promotion tactics as well. What are the most effective ways to introduce Netflix to people in different countries around the world? Based on that testing and that actual performance, we've shifted those tactics, as you note, in many countries, including the United States. We also seek to innovate and come up with what are new ways that we can use to introduce Netflix to new members.
An idea that we're excited about, and we'll see how it goes, but we think that giving everyone in a country access to Netflix for free for a weekend could be a great way to expose a bunch of new people to the amazing stories that we have, the service, how the service works, really create an event, and hopefully get a bunch of those folks to sign up. We're going to try that in India, and we'll see how that goes. That's just an example of the kind of innovation that we seek to do in this space.
That's interesting. I guess that dovetails into a question I had for Ted, which is more around some of the shows that have been licensed or reverse licensed, if I can use that term, to cable networks as well as services like Pluto. Obviously, some of these are not your productions, they're owned by somebody else. Is this a bigger opportunity in general with your originals and the opportunity to stream Netflix for free, either as an event or even as a starting tier, as a mainstream product with your licensed content or your legacy content, which may not be as productive anymore with your existing base? Is that something that you're willing to explore in a bigger way?
Yeah, I think we're always looking at new, different ways for people to get a sample of the content that everyone's talking about, including trying the service out here and there in different ways. I think licensing our content to other people, mostly, I think it's helpful for us to keep our original content on Netflix so people understand the value proposition of Netflix. We have seen our ability to grow a show that was on another network or a smaller outlet pretty meaningfully, but we've not necessarily seen it the other way around when we've experimented in the past. With things like actually with "Narcos," when we licensed it to Univision in the past to try to get people to try to sample the show. We don't own that show. Gaumont does.
The deal that they did was something that it'd be interesting to see if it lifts the awareness and interest in "Narcos," but it's on a relatively small platform relative to Netflix.
Got it. Reed, from your perspective, there have been, and I guess, Ted, this is for you as well, there have been a bunch of management changes recently or over the course of the last year, starting with Spence, of course. There have been changes in the marketing leadership and recently on the content side. The voluntary churn, like you point out in your book, I think voluntary churn at Netflix is really low compared to other organizations. It feels a lot more deliberate in some of these choices that you're making. Could you help us think through what drove these changes, and are these changes more or less done? Organizationally, where are you right now?
Well, I could talk to you about one of the major changes that we're really excited about, which is I restructured the content team to be more like our film team and more like our animation team and have one global organization. To run that, I tapped Bela Bajaria, who's been with Netflix for a long time, has came in to start our unscripted group, brought in that team from scratch, and they developed this incredible unscripted outlet slate that we have today. She moved over to our local language original team, hugely successful. These are two areas of the business that are going to grow three or four times over the next three to five years. I thought that she was really well suited to take on that organization.
In that English language scripted series business, she joined us from Universal Television, where she was the president, and had brought us such shows as "Unbreakable Kimmy Schmidt" and "Master of None," and she also orchestrated to bring you on as a Netflix original and delivered that first great season of "Witcher." I think Bela is going to be phenomenal running that group. There's some changes after that whenever you put new change at the top, there's some downstream effects as well.
To come on to your broader questions.
Yes, we're always trying to broaden our talent as we take on bigger challenges. Greg took on head of product about three or four years ago. Spence, CFO, about a year and a half ago. Spencer, IR, about eight years ago. They all have grown into those roles. It's a normal model. No one gets to keep the job for free. You got to earn it every year, which is intensely challenging, and we all love that part of it.
Got it. Hence my next question may make you squirm a little bit. Reed, last month in an interview, I think you said something that at least I hadn't realized was essentially a keeper test move, which was the change in CFO last year. You mentioned it was deliberate, and you needed an entertainment company CFO, and therefore it was time for a change. To make a change at that level, to deliberately seek a CFO more attuned to what an entertainment company looks like, it seems like a phase shift in how you think about the company, about what Netflix today is versus maybe a decade ago. Is that the right way to think about or interpret that comment?
Yeah, I think so, broadly. We've been moving towards being an entertainment company for many years. Our former CFO, David Wells, is an extraordinary human being and a great CFO, and we offered him the chance to move to L.A. and to really lean into that. He demurred. He had done so well as a generalist and tech CFO, he wanted to stay with that. We felt super fortunate to recruit Spence Neumann, who's been the dream CFO for Netflix. It could not be better, and so super fortunate.
That's great.
I thought I was gonna get a keeper test right here.
That would've been a first.
Create it live.
That would've been a first.
One of the things, I guess, which has surprised me over the course of the last year is the way most of you have spoken about the impact of content on growth. Right? I think this started around Q2 of last year when there was a big miss, and one of the reasons attributed was the content slate at that point. Now we increasingly talk about comps versus last year when you have a big show like Stranger Things. I would have expected the opposite, to be honest. When you have 200 million subs and when the content slate is so big, singular pieces of content should, in theory, become smaller parts of overall consumption. Seems like it's starting to have a bigger impact. Could you help us think through the content skew in consumption?
Is that skew more or less over time, and why is that seemingly having a bigger effect, or is that just me reading too much into some of these comments?
It's just a little bit of math, Kannan. Let's say there's a 5% variation because of content on the margin.
5% used to be a small part of the growth, so then you really didn't notice it that much. Now 5% might be half of the annual subscriber growth, so you notice it much more. I don't think it's particularly changed. We are a little more sensitive to it. Again, on the growth, remember that if you have a theatrical business, you have up year, down year, the variation is in revenue. In our case, the revenue's going up and up and up. There's a little bit of wobble in that direction. I think that's what's happening. I don't think it's particularly more sensitive. Like you say, we've got lots of hits, and we have The Crown coming up and kind of big returning series with The Witcher coming up. There's a lot of big things coming.
Got it. It's fair to say, I guess, that when you have a show like The Crown or The Witcher or Stranger Things coming on, every year that goes by, the impact of these shows to overall growth on a normalized basis keeps coming down. On an absolute basis, it still has an impact. Is that basically the way to read some of these comments?
Correct. Because the growth rate's been steady, let's call that $30 million a year.
Right
round numbers, a percentage on the base is a bigger fraction of that, so you feel it more.
Yeah.
From a practical standpoint, as investors, it's a bigger deal. Remember, it's variations in the growth. The stunning thing is just big picture.
Yeah.
Outside of COVID, how steady the growth has been year after year after year. Back to this, the underlying growth model is like diffusion of word of mouth. Netflix is a better way to go.
You capture a little more of that when you have a big show, and then you have a shadow under that. Think of it as like a big general diffused model, and then you're just seeing little surface variations that are happening.
Got it. In terms of the total number of titles, if I have this right, I think the total number of shows that you have on Netflix today is actually significantly lower than what you had when Netflix started streaming more than a decade ago. First of all, I don't know if that's true. If that is true, then is that deliberate, and how do you determine optimum volume? I guess that's the broader question. How much is too much?
It is true that there's less because in the earlier days of Netflix, remember, we were trying to figure out what we could stream, and we were licensing in bulk and volume, just a lot of content just to see what worked well, versus today, where we're much more deliberate about the programming. We really don't focus that much on the title count. Remember, in the early days of streaming, that was the marketing war, was how many titles you had. It turns out that isn't that meaningful if people don't watch them. What we've really done is concentrated on the titles that have a lot of impact and can aggregate big audiences and move the business forward and add a lot of value for our members. We really don't focus on the title count.
you are correct, it's significantly lower than it was when we first started streaming I'd say more 10 years ago, where we used to license an entire library of 800 films from somebody, and nobody watched any of them. it's really not a chase for how many titles, but are these the titles you can't live without?
Got it. I guess, Ted, in one of your recent interviews, you indicated that the goal was to scale up to six animated feature films a year. If I'm not wrong, I think you guys are already doing more movies than the top five Hollywood studios put together. When you think about that kind of scale to build content, is quality a trade-off? I mean, how do you maintain that balance between building scale on originals versus quality?
I'll tell you the thing that we've been working on and trying and doing, if you think about how many more original series we produce today than we used to, and how many more we're producing relative to everybody else in the industry and around the world. Yet last year, we had 160 Emmy nominations for our television slate, which is the most honored single season of television in the history of the Emmys. That kind of quality attracts more quality. We're doing that today in how we're building up our animation slate. Last year, we released two feature films that were nominated for the Academy Award for Best Animated Feature. Both were pretty popular. "Klaus" was extremely popular. Also won the BAFTA award for Best Animated Feature and six Annie Awards, which is a celebration from animators of the best work of the year.
That kind of quality keeps attracting more quality. We're deep into our 21, 22, 23 animation slate, working with some of the greatest animators in the world, like Chris Meledandri and Jorge Gutierrez, Nora Twomey, Chris Williams, Alex Wu, all making the projects that they've been dying to make and making them at Netflix. We're really excited about it. We think that there's no quality trade-off for quantity. We think that there's a big appetite for film and a big appetite for animated features at Netflix.
Got it. Greg, if I could switch to a slightly different topic. Recently, there have been headlines around the Google Play Store changes in payment terms, especially for in-app purchases. Obviously, this has been a broader discussion with the dispute between HBO, Peacock, Roku, and so on. We touched on it last quarter a little bit. If you could help us think about not just the near-term impact of the Google move, but also bigger, longer-term issues. I mean, how do you plan to deal with aggregators? Is this becoming a bigger deal than it used to be in the past? How would you expect to cope with some of these issues going forward on the pricing front?
Sure. On the Google Play Store specifically, I won't comment on the details of any given partnership, but you can look at our position on iOS, where for quite some time, we've been signing up new members on those devices through the mobile browser using our own payment method. We're not dependent on the App Store for discovery. We're not dependent on the App Store for payment. We've seen steady, solid growth through that channel, so it's been quite effective regardless. I think that's relevant to note when you think about that dynamic. To your point, look, the world is shifting to streaming and to internet TV, and a bunch of new players are coming in. I think, the dynamics between those relationships, aggregators, and device manufacturers and new streaming services are being worked out.
We have been in this business for quite some time, and we've invested in relationships with device manufacturers and platform owners for over a decade. We really, really focused on making this a positive experience for them, adding more value to their devices because we're there. Making it great for us because we get to use those devices to access new consumers around the world. Making it great for the people that purchase those devices because they have these incredible experiences with Netflix and the amazing stories that we tell on those devices. I don't see any significant change in that sort of positive model. We're going to keep investing in it. We have whole teams who basically just do nothing but make it great for our device manufacturers to take our technology on and deliver them great experiences to the consumers who buy those devices.
Got it. Greg, I think last quarter, one of the things you had mentioned was the promotional impact of Netflix itself. Like instead of spending on marketing, you could use Netflix itself and the scale of Netflix as a promotional tool, going forward. I think the folklore, and I don't know where this data came from, but it's quoted all over the place, is that 75% of your viewing comes from the first page, in terms of your recommendations. I don't know if that number is true at all, but would be great to get some context around how much of content consumption is actually driven by the recommendations that you put up on the screen versus other sources, potentially.
Yeah. A very significant majority is driven by the recommendations that we present. I think to your point, the model that we're working with is that millions of people, millions of our members, show up every day to our applications, our interfaces, looking for something great to watch. We really have a tremendous opportunity to fulfill that interest and fulfill that demand. If we do a good job through the recommendations, the titles that we select, how we present those titles in a compelling way of giving each of those members something satisfying in that moment, then they're happy, they're fulfilled. That means the next night when they're thinking about what do they want to watch or how do they want to be entertained, and you think about the wealth of options that are available to them that sort of Reed went through.
If we've done a good job the previous night, they're going to turn to us again, and we have an opportunity to fulfill again and to sort of keep that positive feedback.
process. we're really deeply invested in that. We have hundreds of people who wake up every day and devote their entire professional existence to making every aspect of that work better and better. we know we're going to be doing that for decades to come, which is super exciting. </edited_transcript
Yeah. I guess this also means that, as you evolve this process, some of the KPIs internally that you measure performance on also changes over time. I think Reed, in your book, you mentioned an interaction with your chief marketing officer at the point, I think this was in 2016, where she pushed back against customer sign-ups being used for measuring performance of the marketing team, instead of retention. I think ultimately you guys went with retention. Over time, a number of these KPIs seem to have shifted internally. Could you help us understand how you measure performance, to the extent you're comfortable doing this, how do you measure performance for the content team? Has this focus shifted from origination to retention? Is that a bigger part of how you think about the business broadly or even features such as engagement, for example?
For at least the last five years, we've realized there are no gimmicks, there are no techniques. It's fundamentally about member satisfaction. If we please you on a Wednesday night, you're more likely to come back on a Thursday night. Again, you can juice a given title, if you wanted to, but you're going to pay for it downstream, because not everybody got the best title for them. You can juice sign-ups, or you can juice any particular metric, but it's all just very distorting. The fundamental for us is member joy, which we look at how much of your viewing time do you choose to spend with Netflix, how many repeat days, what's retention, all of those aspects. We're really focused on the fundamentals of that pleasing and what does seem to please our members, and that's how we grow.
Now, we augment that with a lot of conversation because we want our titles to be the most talked about titles in every nation. Because when you watch "Enola Holmes" and then you see all these activations that we're doing in London, with Enola Holmes statues, it locks in, it's something fun to really talk about, and it is a great top spin on a fundamentally great piece of content. That interplay that we use across product, content, it's how we do budgeting decisions, how much do we want to spend in each area, is driven fundamentally by our guests on member satisfaction in each country and how that works. Ted, you've thought a lot about this, so let me turn it over to you.
Yeah, I would agree with you. I think one of the things, going back to what Greg said, it is not unusual for a Hollywood studio to spend 50%, 70%, sometimes 100% of the production budget of a film in marketing to get people out to the box office on opening weekend.
Now, we do a fraction of that in terms of paid advertising for our films, and yet we're getting 70 million, 80 million, 100 million folks turning out to watch those movies in its first 28 days, which is like a billion-dollar box office in terms of cultural impact. When I look at that, and I think that's the enormous promise of the scale and the recommendation engine, the value of the recommendation on Netflix, to make sure you have a great experience and come back looking for the next one. Primarily what we're trying to do in our marketing is get people to talk about those things that they're watching, and get it into the conversation, get it into the zeitgeist. That the heavy lifting of the watching is being handled by the recommendation and the presentations on Netflix on that first page you talked about earlier.
What we could do is do really creative marketing, really clever events, to activate the fan base and to excite the fan base so that when they're talking about a movie, they're talking about a Netflix movie. When they're talking about a TV show, they're talking about a Netflix TV show. That's the thing that we're building toward every day.
Got it. I guess, in terms of the content itself, Ted, there's probably a lot of opportunity right now, given the shutdown in theatrical and the slow reopenings there. There's a lot of content in the pipeline, and the window between movie releases next year is significantly smaller than what it was last year already.
Yeah.
If this gets pushed out another quarter, potentially a lot of movies would probably come to you or Amazon or somebody else. How are you thinking about that pipeline of content as you go into next year? Is that a big opportunity in terms of content acquisition?
It's pretty short-term opportunistic. There will be some things. Reed mentioned "Enola Holmes" is one that we bought that would've gone theatrical, that turned out to be a nice hit for us. We just released "The Trial of the Chicago 7" that we picked up from Paramount under similar conditions, which is great. We have to remember, we have a very healthy pipeline of films coming out already in the rest of this year and next and '22. We're looking at all of them, and we'll be at the table. I would look at it as a fairly short-term opportunity while the studios refigure how they're going to release films. In different parts of the world, this past week in Japan, theaters reopened with 100% capacity.
I think they're looking at the impact of that around the world and how long they're going to have to make new plans, and what are they going to do with their '21 and '22 films, if they are sitting on their '20 films. I do think there'll be some short opportunities. We'll pick up some, not all, but we'll certainly be in the mix.
Got it. In terms of some of these newer opportunities, is this also potentially a way for new business models to open up? There's also been a lot of experimentation by the likes of Disney on the PVOD side, as well as releasing some of their movies directly to consumers on streaming. Live music, we've seen a lot more of this as well. Do some of these opportunities during COVID also open up potentially new avenues for monetization from your perspective as well?
Look, I think what's been happening with consumers' desire to see films at home has been growing, and we've been satisfying it. I think that was a natural migration that was already happening, that this may have accelerated in some dimensions. I think at some point, theaters are going to reopen and people are going to go back out to the theaters. I hope so. Like I said, I'm a fan of doing it myself. I do think people crave the social interaction to go out and see a film with an audience sometimes. I don't doubt that that's going to come back in some capacity, so I wouldn't look at this being that radical a change. I just think it's probably an accelerated change that may have already been in the works.
Okay.
Hey, Kannan.
Go ahead, Spence.
We have time for one more question, Kannan. </edited_transcript
Got it. Spence, I guess, the mandatory free cash flow question that we have to get to, now that you have potentially $2 billion in free cash flow over the course of this year. Obviously, there's a lot of lumpiness in this, just given the cadence of content production. Broadly, when you think about maybe a three-year, four-year kind of horizon, you are getting to a point where cash flow use is going to be more than just about content. What's the use of cash once you've turned free cash flow positive?
Yeah, sure. Well, thanks, Kannan. The free cash flow story is an exciting one for us right now. As you can see, the free cash flow profile's improving. Obviously, this year was a bit short-term with not just improving profitability, but also the reduction in content spend. As we look forward to 2021, already we guided to negative free cash flow of negative $1 billion to break even. Vastly improved from our peak negative free cash flow in 2019. We're not yet sustainably free cash flow positive or ready to call that, but we're rapidly closing in. Given the more than $8 billion of cash on the balance sheet, we are at a point where at least you could probably pretty safely say that we can self-finance our growth without needing to access the capital markets.
We're still, obviously based on our guidance, probably a couple of years away at least from sustainably being free cash flow positive. It's probably a little too early to call our long-term capital allocation approach other than to say that you can trust that we're going to remain disciplined, and we're going to take an approach that we believe will maximize the long-term value for our shareholders. More to come on that front.
Got it. Thank you so much. Thanks all for the time today. Hopefully we'll chat again next quarter.
Reed, the big pictures that you referred to there. Next time we get together, we should be over 200 million members completing a year of 34 million all-time record. Free cash flow positive. Got an amazing content technology and marketing engine humming. Really looking forward to next year.
Thank you so much, Reed