Good afternoon, and welcome to the Netflix Q4 2022 earnings interview. I'm Spencer Wang, VP of Finance, IR, and Corporate Development. Joining me today are Executive Chairman Reed Hastings, co-CEOs Ted Sarandos and Greg Peters, and CFO Spence Neumann. Our interviewer this quarter is Jessica Reif Ehrlich from Bank of America. As a reminder, we'll be making forward-looking statements, and actual results may vary. With that, Jessica, over to you for your first question.
Thank you, and thank you so much for having me today. Reed, the big announcement about the management changes, could you give us some more color on the process and how you came to this decision?
You know, Jessica, it feels like yesterday was our IPO. We were covered in red envelopes. We IPOd at about $1. Hopefully, some of you have held the stock, the full 21 years. When I think of the evolution, the three of us and so many other incredible Netflix employees to go from DVD service to streaming leader in films and television and emerging player in games and now to have over 230 million members, it's just. Well, Jim Collins probably said it best. He called it a good start. We've had a good start. You know, honestly, we dream of the whole world finding their favorite entertainment on Netflix, and we shorthand that as entertain the world.
The three of us have been working together for 15 years now, trying to figure out how do we get through this issue, that issue, how do we grow, and I couldn't be happier to complete our succession process. It really started about 10 years ago with the board, trying to think through, how could this work. They both have such amazing talents and gifts, and to find a platform, where they've been able to contribute is fantastic. About two and a half years ago, we took a partial step. Ted is co-CEO. Greg is COO. We continue to just make super progress and, you know, frankly, more and more they've been leading the company, and this is acknowledging really, in formal terms how we've been operating, you know, for at least the last few quarters.
You know, it's just a great feeling. When I think about the stock appreciation over the last decade, I know that they wanna beat that record. I'm all for that. I'll be Executive Chairman, helping them everywhere I can, but it's really theirs to lead and to do that energy and hustle and intensity that we've been doing. They're very ready. That's what's driving the timing. I could not be happier. Back over to you.
Thank you. Subjectively, I'll just add that this may be the smoothest transition we've seen in media for quite a while. For Ted and Greg, what does this mean for Netflix? Does this signal a change in strategy or approach?
Jessica, let me start with first and foremost to thank Reed personally and professionally. He has been, and I trust will continue to be, you know, a role model, a mentor, a friend. In 22+ years, Reed has positively changed my life in every way imaginable, he leaves some big shoes for Greg and I to fill. Fortunately, we have four feet to do it with, so that's a good thing. In so many ways, the way that Reed's been able to see around corners, that's why he's been thinking about the succession for the last decade. He generously opened up more of a co-leadership model over a decade ago for the for he and I, and like he said, two and a half years ago made it a little more formal.
In that time, delegating a lot of the day-to-day to Greg and I. In that time, the two and a half years we've been working together, we've been working together for 15 years, Greg and I, but in the last two and a half years particularly, you know, we've been able to build a really trusting, respectful, and complementary partnership, in many ways the same way I have with Reed over the years. I really do believe that this kinda shared leadership model is gonna help us to move fast and to challenge each other, to challenge the company, to raise the new heights. I'm just incredible, what we're able to do.
To your point, this is the leadership team. It's been pretty stable, and that's why that this steady transition feels so steady. The stability of this team has helped us build a great foundation, and a culture that can absorb complexity and change, and as you saw in this last quarter, can rise to any occasion. Greg, I just wanna say I'm thrilled to be in this with you, and Reed, we can't thank you enough.
Thanks, Ted. It's a real honor to be asked to take on this responsibility and join you as co-CEO and frankly, a pleasure to be able to continue working with some of the most amazing leaders that I've ever had the pleasure of working with and frankly, in my opinion, the best leadership team that Netflix has ever had. I'll just echo Ted's comments. It's been a real fun and rewarding experience to work closely with him over the last couple years especially, and I'm tremendously proud of the partnership that we've developed and the shorthand and really how we have been able to take, you know, what are sort of a complementary set of skills and perspectives and seeing different angles to different situations.
Basically, you know, at the end of the day, we are I've always found are ultimately motivated by the same things, which is that we wanna serve our members, and we wanna grow our business, and that is an incredible and powerful aligning process to those different perspectives. I'm proud of the work that we've done over 2022, in the latter half especially, to get some more momentum into the business. I'm even more excited about continuing to push that into 2023 and follow, you know, the model that Reed has always had of, you know, continually seeking excellence and always striving to be better. Looking forward to that. To your specific question, Jessica, you know, we there's no big strategy shift or big culture shifts.
You know, Ted, Reed, and I have been working and sort of grinding through our individual perspectives on this for a long time. Really, we look forward to, you know, taking things forward as we have been for the last little bit and responding to a dynamic industry and doing the changes that we think are appropriate. We don't have a bank of changes that we're that we've been holding for this moment. Mostly it's continuity and move forward.
Great. This was originally for Reed, but now given the change in leadership structure, maybe for all three of you, for Reed, Ted, and Greg. One of the best quotes recently was from John Malone, who said shareholders should build a monument for Reed Hastings. John and Rupert Murdoch ran the dominant global media companies in prior decades and were one of the few media executives who've been able to see around corners. Ultimately, they both sold the bulk of their assets. Netflix is now one of the most dominant global media companies, if not the dominant. What is your view of the next five-plus years? Do you need to get bigger? Stay the course?
The one thing I'd point out is that what's happening now and what's going to be happening over the next couple of years is that the consumer is moving to streaming. The way that they watch content at home, delivered to them on internet, on demand, free of the linear schedule and all those things, that is a change, a fundamental shift in the business, and you've got to be where the consumer is. That's what we've been focused on since we started streaming doing original content 10 years ago. But really realizing that we're, you know, we really have benefited from being a customer-first company and meeting the customers where they are. We've also had this blessing of not having to unwind our traditional media business as we built into this one.
We've always been focused on the future and where the consumers are going. I think our ability to continue to stay focused on that, 'cause this is really, I know as we've been talking about it for a long time, Jessica, but this is really in its infancy. I mean, you think about as big as we've become and all these things that are happening, and in the U.S., we're about 8% of TV time still. It's an enormous amount of growth ahead, even in markets where we are very well established. That's the key for us, and it's think being able to focus on consumers first, and it has been, really been our biggest benefit, and I think it's what led us to, those milestones that you just referred to. Greg?
Jessica, I would say I think that that translates into being bigger. I think that means being bigger in terms of touching more members around the world, delivering them incredible entertainment. We'll see that in terms of being bigger, in terms of the amount of engagement that we can drive, the amount of, you know, hours that we're satisfying them. It'd be bigger in terms of the culture impact just too. I mean, you've seen, you know, I mean, just incredible cultural impact in terms of Wednesday, Stranger Things. The, you know, the ramifications that these shows have in terms of the popular culture are significant. That's gonna get bigger too. It also means bigger in terms of revenue and profit streams. We're looking forward to those as well.
Right. Losing subs in 2022 and the market reaction or valuation reset is akin to August 2015 when Bob Iger called out the early decline of paid TV subs and the impact for Disney's ESPN. It will take a while for Disney to build ESPN+ into a sports streaming giant, and actually they may never replace the profitability of ESPN at that point in time. Your pivot seems more broad-based by extending genres and going to new areas, whether it's games, fitness, live, et cetera. Do you see any similarities or differences to that momentous inflection point? You know, which has certainly shifted Wall Street's view from subs to profits.
I'll take a shot at that, and then Ted maybe weigh in. Sure. I think it's a fundamentally different situation. If you look at where we're at, a significant part of what we need to go do is essentially take the core model that we've been operating, you know, since we've been starting in streaming and just execute it better in all dimensions. So, you know, whether it's, you know, the incredible content that Bela and Scott's teams are producing constantly, how we're talking about that content through the marketing and conversation that we do, the product experiences and business model innovations that we're doing. A lot of it really fundamentally is about executing that core model better. We're not, you know, there's not a lot of, you know, massive pivots away from a traditional legacy business model that we have to go figure out.
We're planting some seeds, you know, in terms of games and things like that, you know, if we execute well, and we're excited about the progress we're seeing so far, will represent, you know, the, you know, future potential for us in terms of growth and more profit opportunities. That's exciting. Essentially a lot of this is just, you know, continue to execute the play that we've got and do it better and better.
I don't know about what the similarity is, but I would say that this business is really completely about engagement, profit, and revenue. We've got to grow all of those things, and all those things are really tied to executing on that, on the content. When the content's working, the business is working. We grow engagement, we grow revenue, we grow profit. There's an interesting thing, you know, starting in July, and you think about from Stranger Things season four, from the phenomena that became, and what we've been able to offer up to our members from that day forward.
They went from Stranger Things to Extraordinary Attorney Woo, which is, was a phenomenal success in, throughout Asia and in South Korea, but also it built a big cult fan base in the U.S. Straight into Sea Beast, which is our biggest animated film ever. Straight into Purple Hearts and Gray Man, two of our most watched films ever on Netflix. Then to August, to Sandman and Never Have I Ever season three. September, Cobra Kai season five. Empress, Cyberpunk is this animated adaptation of a video game that's been hailed as one of the greatest of all time. Narco- Saints, another monster hit from North Korea. The Jeffrey Dahmer story, monster. Straight into Watcher, so back-to-back hits from Ryan Murphy.
All Quiet on the Western Front, which just today became the most nominated non-English film in the history of BAFTAs. Only Gandhi has gotten more nominations in the history of BAFTAs. And that's from Germany with the great Ed Berger. Then straight out of there into Enola Holmes 2, a big monster success sequel to with Millie Bobby Brown. You look at all these things that go back and forth, and they go all the way into January now. We'll end the month with You People, Eddie Murphy and Jonah Hill. Any outlet would kill to have any one of those months as their entire year. It's our ability to fire on those cylinders and create hits, but more than that, create the expectation that as soon as you're done with this one, there's another one waiting for you.
Let's move on to some, sorry.
Jessica, may I just one thing to add. I know we're going on, but I just think the analogy is kind of fundamentally different. With ESPN and the example you gave, that was a fundamental kind of shift in the industry from, you know, 100+ million pay TV connected homes to cord-cutting that's on a path down to, you know, mid to high single-digit reductions in that distribution platform each year, moving in that direction. It's kind of a shrinking, you know, core distribution platform, where you see in our earnings letter, the world is shifting from linear to streaming. You know, there is no country where streaming is more than 40% of share of TV time, and in many big countries, as you saw, it's less than 5%.
Less than 5%, it's less than 10%. There's an incredible runway still in the shift from linear to streaming. For us, it's about growing into that shift and also obviously competing well and continuously innovating and improving. What you saw, or what we saw and felt when we had that decline in subscribers was really near term limiters in growing into that big market. The big market is still growing as opposed to fundamentally long-term limiters in that ESPN shift that you described.
Right. Let's move on to some of the drivers of growth, both near and medium term, and start with advertising. Your advertising platform's been open only two months, and you've amazingly given some money back to advertisers, indicating in one way that demand is exceeding supply. You guys have consistently said you're gonna crawl, walk, and run. How is the crawl stage going relative to your expectations?
Yeah, like you say, it's two months, and I think the hardest part is actually that first step when you're crawling because you don't really, you know what exactly to expect as you get it going. Now, you know, with two months, you know. It's ridiculously early, but we, you know, we've learned a bunch already, I would say. You know, just ticking through this, I mean, I'd say first and foremost is that we were able to launch this very, very quickly and, you know, the tech is all working, the product experience is good, and that's really testament to lots of hard work from both Microsoft and Netflix teams who, you know, worked very hard to make that happen and it's really rewarding to that, to see.
The other, I'd say pretty significantly fundamental thing is around engagement, and we see that engagement from ads plans users, is comparable to sort of similar users on our non-ads plan. That's really a promising indication. It means we're delivering a solid experience, and it's better than we modeled, and that's a, you know, a great sort of fundamental starting point for us to work with. Furthermore, now we're seeing take rate and growth on that ads plan is solid. It's great because partly that take rate and that growth is due to incremental subscribers, coming into the service because we have a lower price point that's $6.99 in the U.S., €4.99 in Germany, just to give you two examples.
That elasticity is a real, you know, not only a benefit to sort of growing our ad scale and sustainability, but also to the general business. I expect to see that continue to actually grow over the year. That take rate, you know, fits sort of within the middle of our other plans, which is another really healthy sign. It means that we've got a complementary set of offerings that are working to sort of satisfy different needs for different consumers at the right mix of features and price points. That's quite good. Another important one I think for the investor community, because it came up a lot before we launched, was plan switching.
We aren't seeing as expected, you know, much switching from high arm subscription plans like Premium, into our ads plan, so the unit economics remain very good as we modeled. These are all, you know, really good initial sort of progress points, but I think it's, you know, important to reiterate that, you know, as you mentioned, you know, we're crawling, and we'd like to get to sort of, you know, move to the walking phase. We got a lot to do to get there. There's a bunch of technical improvements in terms of, you know, ad delivery, validation, measurement. We've got progress already on that. More to do in the next quarter or two.
Targeting improvements, which will be better for consumers, more relevant advertising, better for advertisers in terms of more, you know, value delivered, a better set of offerings, products for advertisers to buy. We got a long list of experience improvements that we know we can deliver that'll deliver more value to both subscribers and advertisers. There's just also some nuts and bolts stuff that we are learning and improving. Just, you know, things like how do we, you know, do a better job with Microsoft at the ad sales and operations processes? There's so much that we need to do, both companies need to do to better serve advertisers, serve an increasing number of advertisers and meet that demand. We're just getting started.
We're constantly improving. We see the trajectory ahead of us. Really our aspirations are, you know, ultimately, successively over a period of years to basically build, just like we have, you know, essentially in terms of the streaming experience, you know, the best, most effective, highest quality premium connected TV ads experience as a win for consumers, and advertisers and, for us as a business.
Right.
Hey, Spence and Greg. Sorry, Jessica. Spence and Greg, maybe give a little context on Hulu, you know, what we know about Hulu's advertising. They've had a 10-year head start, and sort of, you know, how many years will it take us to sorta pass them in all of these key dynamics?
Greg, you wanna go first or you want me?
No, I'll hand it over to you.
All right. Let's see. I mean, Hulu, it's yes, they've had a longer head start. They started in the ads business. They have, you know, we would estimate, Reed, and we obviously don't know exactly, but roughly half of their membership is on the ads tier. It's, you know, a multi-billion-dollar business for them already, and that's a domestic business, U.S. only. Lower reach, lower engagement than us. You know, the, I guess the short story there, Reed, is we have...gi ven what we've seen and what Greg just outlined in terms of the engagement on our ad plan, the strength of, you know, the performance in terms of the monetization, kind of the unit economics and our ability to kind of scale in a way that is even better than the kind of comparable ad-free plan, plus providing clearly choice that our members or consumers are seeking out because of the sign-up flow that we would expect to be, you know, as large or larger over time certainly, in just our U.S. market and more from there.
I just wanna emphasize, it's a multi-year path, so we're not gonna be larger than Hulu in year one, but hopefully over the next several years, we can be at least as large. We wouldn't be getting into this business, obviously, Reed, if it, as you know, if it couldn't be a meaningful portion of our business. We're, you know, we're over $30 billion of revenue, almost $32 billion of revenue in 2022. You know, we wouldn't get into a business like this if we didn't believe it could be bigger than, you know, at least 10% of our revenue, and hopefully much more over time in that mix as we grow. That's, that's kinda how I see it without putting a specific guide on it.
You're committed to an upfront market spot, taking CBS's prior spot, CBS now Paramount's spot, which really indicates your long-term advertising goals of being a major advertising platform. Given this is a prime spot on a critical week for advertisers in premium video, like, it's just, it is, it's amazing how quickly you just took that slot away. What's the run stage, and does, you know, how would you, how and what's the timeframe to get there?
Well, I think as Spence talked about it, you know, it will be an iterative process. T o your point, it does signal we have big aspirations here and we think there's a big potential opportunity. You know, we're committed to incrementally execute against that opportunity. You know, just back to Spence's point, we are starting from a, you know, a zero base essentially. We're also starting from a history where as a non-ads platform, we had a lot of folks who basically join Netflix, you know, fully as, you know, non-ad subscribers. I think, you know, that we'll be working through that over a period of time. Again, you know, our goal and aspiration is that this is a very meaningful, and significant source of revenue and profit for us over many years to come.
I mean, when you think about the pool of money that you're targeting, you know, linear, let's call it $50 billion-$60 billion business seems the easy money. Viewers, as you've mentioned already, viewers are shifting from streaming, you know, to streaming from linear. We've seen all of the, you know, kind of eyeballs move. Now you have like, you know, basically more scale and more reach, the digital pool is much larger. In the past you've made comments, the company's made comments that you can't compete with Google and, you know, Meta, or it would be incredibly difficult to compete with them. Has this changed? Has your view changed?
Not really. I would say that, you know, initially we're competing mostly with that sort of traditional, you know, TV advertising pool. Now I think we can layer into that over time components of what has made digital advertising so effective. So you think about the targeting capability, the fact that we're 100% signed in, fully addressable. If you think about the growing relevance of first-party data and how we do that, those are real, you know, big advantages that we can bring relative certainly to the traditional TV world. Again, you know, the form that we have at least, you know, for the next couple of years, will still be in that sort of lean back, primarily in that lean back experience. That, you know, lends itself to certain kinds of advertising and certain kinds of advertising goal.
A lot of the demand collection component that, you know, a Google or a Facebook is really good at, you know, we won't be well-suited to compete with that for at least some time to come.
Jessica-
And-
Just to add to that, you know, the good news, as you saw in the letter, is that that branded video, ad market that, Greg, talked about us focusing on is about $180 billion globally, ex China and Russia. We have plenty to do, and, you know, a lot of opportunity ahead of just in that area alone.
Yeah. No, it's an enormous opportunity, but there's also, besides advertising, there's the an enormous opportunity in incremental subscribers, as you have mentioned. You're the lowest priced service, at least now you're the lowest priced service. Can you frame the opportunity in terms of sub growth or how you're thinking about it?
Sure. Just to comment on lowest priced, I mean, again, we don't really think about the pricing question from a competitive perspective. You know, again, we're, you know, think of ourselves as a non, you know, substitutable good. You know, when you know, when you think about "Wednesday" or you think about "Glass Onion," these are titles you can only see on Netflix. That's extremely powerful. You know, Scott and Bela are delivering more incredible titles that are non-substitutable in that regard. So really we think about the pricing question as how do we offer a wide range of options for a wide range of consumer needs.
We wanna make that spectrum even wider as we seek to serve more, you know, members around the world and trying to deliver, you know, appropriate value at those different price points, we're doing a good job expanding that range. You think about, you know, there's sort of two pools then of incremental subscribers. There's a bunch of, you know, people around the world in countries where, you know, we're not deeply penetrated, we have more opportunity to go attract them. A component of that is we've got folks that are watching Netflix who aren't paying us, you know, as part of basically borrowing somebody else's credentials.
You know, our goal is over this year to basically work through that situation and convert many of those folks to be paid accounts or to have the account owner pay, you know, for them to get a Netflix subscription. Either way, you know, we're seeking to sort of monetize the viewing value that we're delivering. Beyond that, you know, it's back to Spence's comment. You know, even our most penetrated market, we're 8% of, you know, total TV time, which is a, you know, potentially a relatively narrow lens to think about the broad competitive entertainment offering. We have huge opportunity to grow the engagement component of that, several x, you know, we feel like we can get to if we do a great job of executing across all fronts.
That represents a tremendous, you know, opportunity for more entertainment value delivered, and we believe that the revenue, you know, flows from that in time.
Before we get to password sharing, just one last advertising question. You now have roughly a decade of producing your own IP. Any thoughts on offering a FAST service over time, free advertising-supported television?
Ted, do you wanna take this one?
Look, we're open to all these different models that are out there right now. We've got a lot on our plate this year, both with the paid sharing and with our launch of advertising and continuing to... this slate of content that we're trying to drive to our members. We are keeping an eye on that segment for sure.
On the password sharing, what will drive consumers to pay $3 or $4 for sharing versus becoming a sub with their own profile? Is it affordability? Is there something else? What do you expect?
Yeah. I think there's a range of motivations for different borrowers. You know, some of it is economically driven, and so part of, you know, what we're trying to do is make sure that we are being responsive to that and finding the right price points, whether in terms of an individual account or, you know, an extra member affordance. Obviously, you know, the ad-supported plans give us the opportunity to present a lower consumer-faced pricing in those countries where we have advertising. Part of it's just what we call casual sharing, which is, you know, people could pay, but, you know, they don't need to, and so they're borrowing somebody's account. Our job is to give them a little bit of a nudge and to create features that make transitioning to their own account easy and simple.
We have this basically, you know, profile export feature, which allows you to take your viewing history and all the great recommendations with you. You know, to your point, there's a range of motivations and I think a range of solutions that we'll be able to offer to land people in different places.
Can you provide any details, including the timeframe for converting borrowers to paying accounts?
Yeah. You know, we've been working hard at this and trying to do some sort of thoughtful experimentation to let our members really speak to us in terms of what set of solutions work for them. That's the testing that you've seen us do over the last couple of quarters. We feel like we have gotten to a good set of features. It's the, you know, the profile export that I mentioned, but there's also a bunch of account management features that we think are important to making this experience work for folks. We're ready to roll those out later this quarter. We'll stagger that a bit, you know, as we sort of work through sets of countries, but we'll really see that happen over the next couple of quarters.
You know, I think it's worth noting that this will not be a universally popular move. There will be current members that are unhappy with this move. We'll see a bit of a cancel reaction to that. We think of this as, you know, similar to what we see when we raise prices. You know, we get some increased churn associated with that for a period of time. Generally what happens is, you know, both from the, you know, the specific changes that we make, we'll see folks come on as new subscribers, essentially borrowers creating their own accounts or incremental monetization through the extra member that'll happen shortly thereafter. Clearly our job is to continue to grow value, right? To have more amazing titles that people cannot wait to see.
Whether that's satisfying those members, you know, who, to make those transitions or, you know, winning back essentially folks who have turned off the service and bringing them back onto the service over the months and years to come.
And then just on-
Jessica. Sorry, I just maybe just 'cause we touched on it a little bit in the letter, but just to kinda reinforce a little bit of what that looks like in terms of timing and guidance. Those dynamics that Greg just walked through, because of that, as we kind of start to roll this out later in Q1, based on the timing, what we talked about is that, you know, we'll have modest growth we expect in paid net adds in Q1, kind of atypical seasonality, where typically Q2 would be a softer paid net add quarter. It'll probably be a larger paid net add quarter. Most importantly, what we're most focused on is obviously revenue. That is our primary metric.
What you see is in the guide, these revenue initiatives between paid sharing, rolling out and then scaling ads, you don't see much of that in Q1, which is why we're, you know, we're forecasting 8% growth, FX-neutral in Q1 revenue, but throughout the course of the year, we would expect to see accelerating revenue growth as we roll out paid sharing, you know, broadly across our business and then obviously scale ads throughout the year, which is a more gradual build. I just wanna kinda highlight that and that that's kinda what you're seeing in the guidance.
Given the revenue drivers of paid sharing and advertising, you know, how are you thinking about price increases in the current year? Is it just too complicated? How are you thinking about it?
Well, I would say that the two initiatives that you described represent the bulk of our pricing strategy in 2023. you know, we anticipate that they'll both be, you know, revenue positive, revenue accretive, significantly so, in the, you know, according to the details that Spence just offered. you know, having said that, you know, our core sort of pricing approach and theory remains the same.
We're gonna look, you know, at the metrics, you know, that our members are, you know, giving us and telling us, and look for opportunities where we've, you know, think we've done a good job at creating more value for them and, you know, for a certain, you know, customer segment in a certain tier in a certain country, we think we've, you know, done a good job at delivering more entertainment for them. Then, you know, we'll go back and, you know, opportunistically ask for them to pay a little bit more so that we can sort of keep this, you know, virtuous cycle going and really invest that back into incredible content and stories. Maybe, Ted, I don't know if you wanna highlight anything that you see coming on that side?
No, I would just say that, you know, it's the must-see-ness of the content that will make the paid sharing initiative work. That'll make the advertising launch work, that will make continuing to grow revenue work. It's across film, across television. It's the content that people must see, and that it's on Netflix gives us the ability to do that. We're super proud of the team and their ability to keep delivering on that, you know, month in and month out and quarter in and quarter out, and continuing to grow in all these different market segments that our consumers really care about. That to me is core to all these initiatives working, and we've got the wind at our back on that right now.
You amazingly continue to expand the genres of content, which as you guys have mentioned, clearly drives engagement. The most recent new genre, which you introduced on your platform in, you know, at the very end of last month, is fitness.
Just in time for your New Year's resolution, yes.
That's it. I mean, one class online could be the price of a Netflix subscription. You know, while many of the workouts are bite-sized, I mean, some are longer, they're, you know, simple but deceivingly effective.
Yeah.
Can you talk about what your plans are in this area? You know, to the extent you develop more content, it really, as I said, drives value for anyone who would work out anywhere else. How do you define success, and is there anything you can say about, you know, partner economics with Nike?
Yeah. We can't comment on the partner economics, but I would tell you that we've historically stayed away from the fitness category 'cause it's abundantly available online, in many cases for free, as you know. We thought if we could partner with a great brand, and Nike is certainly a leading brand in fitness, with really well-produced content, which this content is, let's go out to our members and see if it's something that they value. We'll see that in the engagement and see where we could take it from there. I think in that way, you know, working with a great partner and the high quality, to your point, of the content itself, you know, will put it a really good test.
Do people want to use Netflix to get in shape or to get back in shape? If they do, we'd like to keep serving that. If they don't, we'll keep poking around. It's a way we're able to test the market at a very high end with a premium brand partner.
There's constant speculation that you will experiment with sports, which is an expensive rental business, you know, for many. Yeah. Does having an advertising offering change your views on offering sports? Any thoughts that you know, on like WWE, which is for sale, that could be potentially, you know, I'm just saying that could be owned content. Like, any views on sports?
Yeah. Look, I would say, you know, in sports, our position's been the same, which is, you know, we really, we're not anti-sports, we're pro profits, and we've not been able to figure out how to deliver profits in renting big league sports, in our subscription model. Not to say that that won't change, we'll be open to it, but that's where it's at today. In WWE, we look at, you know, we have a lot of M&A activity all the time. We look at all of them, but nothing we can comment on.
Right. Does Agnes Chu play a role in your investments into live events? You know, while live comedy specials seem to have a value outside of the live window, other events, like you just announced that you're gonna, you know, host the SAG Awards, sports obviously, you know, they these have fairly short useful lives. How do you balance the investment in live versus the potential to drive advertising dollars?
I would look at this as part of just like a other crawl, walk, run scenarios, where we are really looking at our content that would benefit creatively from being live. The results show for one of our competition series that we have, or a reunion show that drives news, or like the SAG Awards, an opportunity to engage audiences live. Because we've got the shelf space, we can, you know, do hours of shoulder programming around the live event and all of those things that our members may enjoy. Think of, There's nothing particularly novel about live television, as you know. We are dabbling in it, starting with our Chris Rock live concert, to try to create the excitement around live for those things that are uniquely more exciting to be live.
Right. The theatrical release of Glass Onion was incredibly successful in its limited release. You know, for some it looks like you left a lot of money on the table by not continuing beyond the first, that one week. Do you have any regrets or, you know, can you give us your thoughts on your evolving film strategy?
Well, I'm thrilled with every aspect of the release of Glass Onion, you know, starting with Rian Johnson and his great film and Scott Stuber and the film team for bringing it to the table. I think what you saw was a lot of excitement. We drove a ton of buzz with that theatrical release, and we created a bunch of demand. That demand we fulfilled on our subscription service. Our core business is making movies for our members to watch on Netflix, and that's where we're really focused, and everything else is really a tactic to drive excitement and around those films.
You know, when you have a massive global hit like a Wednesday, you know, there seem to be so many ways you could drive monetization. I know like for just staying with Wednesday for a second, like the Wednesday makeup was sold out in every MAC store in New York City. You could not buy it anywhere. Do you participate in these types of, you know, consumer products, or is it just a way to, you know, fuel fans, you know, fuel engagement?
It's a little bit mostly to fuel engagement and fuel fandom. We actually do participate in it. Our own content, we do drive a lot of revenue in our consumer products business, but mostly the motivation is that is to drive fandom. Greg alluded to this earlier about this impact on the culture that this content can have on our platform. In our newsletter, we mentioned the Lady Gaga song that, you know, came back after 11 years because of Wednesday. That, you know, doesn't mention the four songs this year that we actually jammed back into the charts, some that never charted and some that were off the charts for 40 years, from Metallica, Kate Bush, The Cramps. That impact on culture, Sofia Carson's music career took off because of Purple Hearts.
Jenna Ortega picked up 10 million social media followers in the first week Wednesday launched on Netflix. All of these folks who build these gigantic careers on Netflix then go on to own their own companies, sell their own makeup in many cases, and become incredibly powerful influencers. All that business is drawn because of the impact that this distribution platform and this incredible UI that basically takes something like Wednesday, which was not a slam dunk for people to predict that people would love it as much as they do, and the UI could pick up on that activity in the early going of the release and push it out to where it's gonna be, you know, one of our most watched shows in our history all over the world.
We do use consumer products as a way to intensify fandom, and it could be anything from makeup from Wednesday, you said, or maybe even a hand on your shoulder, Spence.
You never know where Wednesday is gonna show up, or at least Thing. You know, I didn't get my chance to kinda talk at the risk of going back to the management changes and say, you know, I am thrilled with the changes. I'm gonna miss maybe not seeing Reed as frequently as he's supporting Greg and Ted. I just brought in a little bit of reinforcement with Thing, even though Reed's not going anywhere. This way I've got a little daily reinforcement.
Sticking with content for a few minutes, the local language hits are building, but so are your U.S. hits. How do you think about allocating your $17 billion or so content budget between, you know, genres or languages? Is there any way, like, you can kind of parse it out?
Yeah, look, it's a, it's a big task. Like, watching where viewing is growing and where it's suffering and where we are under-programming and over-programming around the world is a big task of the job. Spence and his team support Bela and her team in making those allocations, figuring out between film and television, between local language and what's really interesting is there aren't that many global hits, meaning that everyone in the world watches the same thing. Squid Game was very rare in that way, and Wednesday looks like one of those too, very rare in that way. There are countries like Japan and by as example, or even Mexico, that have a real preference for local content, even when we have our big local hits.
Every once in a while, something like Squid Game is even a big hit in the U.S. Think about in Q4, we launched a top 10 non-English series nearly every week of the quarter from South Korea, from Spain, from Colombia, from Japan, from Poland. The benefit of that kind of local language investment and the benefit of doing that early was that we become exceptional on the ground in those countries. Those content teams generate not just content people wanna see, but content that's leading the industry. To have Netflix produce the Academy Award entry film for both Mexico and Germany has never happened in the history of the Oscars. It's really phenomenal. I mentioned earlier the All Quiet on the Western Front and the success at BAFTA.
Keep in mind that these investments are important because it actually increases the total addressable audience for Netflix around the world, because if we were just doing English content for the world, we would be mostly attracting Western-centric viewers. Our addressable audience is anyone who's watching TV anywhere in the world.
And then last-
Thanks, Ted. Jessica, we have time for one or two last questions.
Okay.
Just wanna make sure you have a chance to ask about margins or anything else you might wanna ask.
Let's move away from content. Free cash flow, first of all. What an inflection point, $1.6 billion in 2022, roughly $3 billion in 2023, $4 billion+ probably in 2024. You know, can you talk about, you know, historically you've been more builds than buy. Is there any change in philosophy as cash starts accelerating? Can you talk about overall capital priorities, and what's driving that operating margin increase?
Well, Spencer, why don't you go first with the capital allocation philosophy if you like.
Sure. Thanks, Jessica. As we wrote in the letter, no change at all to our capital structure policy or allocation guidance, which is to first and foremost reinvest in the core business and selective acquisitions after that. Those are the main priorities. Beyond that, if we have cash in excess of our minimum cash levels, which is roughly two, equates to two months of revenue, then we'll return that to shareholders through our share buyback program.
Yeah. Yeah. I can pick up with margins. Yeah, I can start with it's a bit of an explanation, but if you like, in terms of just in the near-ish term, our outlook for 2023, then just generally what's driving our outlook. What you, what you saw in the letter, it kinda dates back, frankly, if we, if we walk back to where we were in the beginning of 2022 when we saw a slowing revenue growth, we said we're gonna manage to a target operating margin of 19%-20%, FX-neutral at those January 2022 rates. We ended the year at 20%, so at the high end of that range.
Now as we kind of turn the page to 2023, you know, first I should say with everything we talked about, we're quite optimistic in terms of our path forward. I also just want to highlight there is also a kind of short-term, unusual amount of less visibility than typical because. You know, these things we're talking about in terms of our revenue initiatives, whether it's scaling our ads platform, launching paid sharing, which hasn't globally rolled out yet, these things are early days. Also, you know, all multinationals have a level of macro uncertainty. That's a bit of a caveat in terms of the variability in the forecast.
What we see is, we see with the our path to accelerating revenue growth and our high confidence there, that as we, you know, turn forward to 2023, we're guiding to now 21%-22% FX-neutral operating margins at those same January 2022 rates. We're now in a new year, so we take it forward to January 2023 to current rates, and that's a range of our operating margin guidance of 18%-20%. Now FX-neutral for 2023. We're gonna manage within that band to deliver at least within the 18%-20% operating margin guide. That is growing margins, growing absolute profit. Really what's reflected in there is that this.
We have high confidence in our ability to accelerate revenue throughout the course of the year as we scale ads and we launch paid sharing. We've got high confidence in improving, you know, the service and the strength of our content slate with everything that Ted discussed here on the call. We're also continuing to manage our cost structure with increasing discipline. You saw that in the back half of 2022 with our slowing expense growth, and we'll carry that through similarly in 2023. That all lends itself to, you know, our focus, which is kind of healthy, growing and, you know, double-digit revenue growth and accelerating that revenue growth throughout the year, expanding our both our pro-absolute profit and profit margin and then growing, you know, positive free cash flow.
That's all reflected again with the big caveat that there's a bit less visibility than typical in this, in this near term. That's something we'll continue to work through. We'll obviously know a lot more over the next couple quarters, few quarters as we roll out paid sharing, and we'll update guidance as appropriate. That's what plays through and then also plays through to that cash flow generation that you see where we believe with all those dynamics and managing at about the same level of cash content spend, that we'll have more than $3 billion, at least $3 billion of free cash flow in the year.
Thank you, Spence, for that answer and Jessica, for that last question, all your questions. Before I turn it over to Reed for closing remarks, I just wanted to say as a longtime Netflix employee, formerly prior to that as an analyst covering Netflix for many years, Reed, it has been a real privilege to work alongside you. On behalf of all Netflix employees, we thank you for everything you've done for us and the company over the past 25 years, and we're all super excited for the next chapter with you as our Executive Chairman and Ted and Greg as our co-CEOs. With that, over to you, Reed, to take us home.
Hey, wait, Spencer, 'Cause I can't just deal with the thing. I just wanna thank Reed as well. This is not a goodbye, I know, but it's been fantastic. You, you know, I couldn't have asked for, a more incredible experience of the past four years with you as our leader. Learned so much across everything from work to humanity and I'm so thrilled with the next chapter with Greg and Ted and you and so super excited and thanks, Reed.
Reed, you might be muted.
You're muted, Reed.
Thanks, you guys. Certainly not goodbye. You know, I'm heavily invested in Netflix success. You know, it's been 83 earnings calls now, I honestly have loved them. I love the interaction. It's time for Greg and Ted and the team to lead, I'll be in the prep sessions, but this will be my last earnings call on screen. Overall, I would say our first 25 years were good, and I'm super excited about Netflix's next 25 years being great under our broadened leadership team. You know, pleasing our shareholders and members is so satisfying, I just wanna thank all of you for your support and look forward to continued more progress. Thank you, everyone.