Good day, everyone, and welcome to Netflix's Third Quarter 20 10 Earnings Q and A session. Today's call is being recorded. At this time, for opening remarks and introductions, I'll turn the call over to Deborah Crawford, Vice President of Investor Relations. Please go ahead.
Thank you, and good afternoon. Welcome to the Netflix Q3 2010 earnings Q and A session. We released earnings for the Q3 at approximately 1:0:5 p. M. Pacific Time today.
The earnings press release, management's commentary on the quarter's results and the webcast of this Q and A session are all available at the company's Investor Relations website at ir.netflix.com. As is our standard practice, this call will consist solely of Q and A and we are going to conduct the Q and A via e mail. Please e mail your questions to irnetflixnetflix.com. We may make forward looking statements during this call regarding the company's future performance. Actual results may differ materially from these statements due to risks and uncertainties related to the business.
A detailed discussion of such risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10 ks filed with the commission on February 22, 2010. A rebroadcast of this Q and A session will be available at the Netflix website after 6 p. M. Pacific Time today. With that, let's begin the Q and A session.
The first question is from Youssef Squali of Jefferies. How important is exclusivity of content to Netflix when doing digital deals?
Youssef, it's Reed here. It's not inherently important to us, but many of the other buyers are exclusive and uninterested in non exclusive content. So we end up doing exclusive sometimes, basically to play with the way the market is today. And that has some benefits for us also, but it's not yet a core strategy. Over a sufficient number of years, it could become a core strategy, but we haven't made that determination.
2nd question from Youssef. What is the percentage of the but it's pretty flat
in recent quarters. So, but it's pretty flat in recent quarters. So, it's still a nice little part of the business and it's fine for us.
The next question is from Mike Olson with Piper Jaffray. What are your current thoughts on pricing? I realize you are in grabbing share mode, but our opinion is that growth ads and churn would not be significantly impacted by a $1 per month price increase. And you could argue that higher pricing would allow you to spend more on new content, thereby attracting new sets and reducing churn. How are you thinking about this?
It's Barry. You know from previous calls in
response to questions about pricing, we frequently remind our listeners that we're testing all the time and some of you will observe that we had some price tests in the marketplace currently. Obviously, the pricing in Canada is working well for us and maybe that will or will not play a role for us in the U. S. And as we continue to read test results, we'll continue to update our thinking about pricing.
The next question is from Mark Mahaney at Citi Investment Research. When you expect the relatively higher mix of TV show consumption via streaming versus via DVD to continue going forward? Or would you expect it to come down as you build out more movie selections? Is there something about streaming usage that tends to lend itself more to quick TV show consumption?
Mark, I'd say that we're trying to figure out what mix consumers want as opposed to trying to guide it. And so we're trying to get a broad selection of content, both in movies and in TV shows. And currently, the subscribers are choosing those in about equal proportions. And the way we measure it is by not by stream starts or session starts, but by total minutes watched. So movies get a little bit of an advantage in minutes watched because they're longer.
But we're not trying to drive it one way or the other. We're just trying to build out a whole lot of content that our subscribers want to watch.
And second question from Mark Mahaney. Are your earlier indications that recent free subscribers convert to paid subscribers at the same rate as they have for you historically?
Sorry, it's a question. Is the P1 conversion rate holding constant with historical levels? The answer to that question is yes.
Our next question is from Steve Frankel at Dougherty and Company. You commented that the increase in free subscribers was a reflection of both faster U. S. Growth and the initial push into Canada. Would you expect free cash to remain at this higher level relative to the historical norm or will it normalize in the next quarter or 2?
Well, it may normalize eventually, but particularly in Q4 tends to be seasonally see fast subscriber growth around the holidays, which tends to be back end loaded and Q1 tends to be front end loaded. So for at least Q4, that trend likely continues.
Next question from Steve Franco. Can you clarify for me what your current operating margin goals are? And do you anticipate that expansion beyond North America in the back half of twenty eleven would, at least in the early going, drop operating margins materially below that level?
Yes, I think you can infer
from our guidance forecast for Q4 based on
the midpoint of earnings, the operating margin come in for the year roughly 12.5%. So slightly higher than the 12% that we've spoken about. And in Reed's commentary, you know that for 2011, we're guiding towards 12% on the North American business and that we if we continue to track in Canada on the current trend line to move towards additional investments internationally. And in his commentary, Reed spoke about a $50,000,000 investment to support that expansion.
One final question from Steve Frankel. We commented that the company spends $500,000,000 per year in postage. This is down from the $600,000,000 figure the company has mentioned in the past. Has the increase in streaming already scaled back your postal expense by that amount?
Steve, no postage is still rising. It's between $500,000,000 $600,000 So my comments in today's script was over $500,000,000
Next question is from Matt Schindler, BofA Merrill Lynch. Several years ago, when the 2 out at a time option was your most popular, you said that the average user rented about 5 DVDs per month on average. Now with the 1 out at a time option becoming dominant, where has this number gone? Also, have you seen the change to the average DVDs rented by customers as you add additional streaming content?
Well, as it relates to DVD usage, we haven't for quite some time reported on the average usage across the base, except to say that it's declined. And there have been 2 principal drivers. 1, of course, is a mix change in the business with the increased popularity of 1, unlimited subscribers and secondly has been the growth in streaming and the substitution behavior. Now having said all of that, regardless of whether it's a 3 unlimited, 2 unlimited, 1 unlimited plan, if we look to use it year over year for just DVD, we would see a decrease on average for paying subs.
Next questions are from Ryan Hunter at Wedge Partners. First, can you talk about the penetration rate for the lease?
Ryan, it's been very strong with the Wii. It's a very popular device. It's often connected to the living room TV. It's more family centric than more hardcore gaming consoles. And so it's been a great platform for us.
The second question, what is the subscriber count for Canada?
Well, in Canada, we're not releasing a subscriber count. But I can tell you, our experience has been great in Canada. We've been hitting and exceeding all of our numbers and we're on track to be profitable in Canada late next year. So really just a super performance living up to our high expectations.
The next question is from Jason Chu at ABR Investment Strategy. Would you be willing to offer some color on the video game console opportunity With an installed base of 75,000,000 consoles, PS3, 360 Wii, what's the net subscriber opportunity for Netflix? How often can you market to that installed base? And what has been the net subscriber yield?
Jason, most subscribers will watch content on a multiplicity of devices. So they'll watch on their PC, they'll also watch on an iPhone, they'll watch on a game console. And so don't think of it as a sub that controlled or influenced by a single device, especially with multiple TVs in a household. There'll be a Blu Ray player in one room that runs Netflix and a video game console in another. That being said, to answer your question on marketing opportunities with both PS3 and Xbox were advertised on the screen in various ways.
So it's easy for a subscriber to click and get a direct lead to Netflix or get directed to sign up right there on the screen.
I had one additional question. Are you experiencing an acceleration in net set adds from consoles that now that the no disc is required?
That only the no disc requirement has only lifted 3, 4 days ago. So we're just in the process of rolling that out. We'll be able to comment more on that next quarter.
The next couple of questions are from George Askew at Stifel Nicolaus. The streaming only test in the U. S. Offers a streaming only plan for $7.99 per month and a streaming plus CBD plan at $9.99 per month. Other than price, is there a difference between the $9.99 plan you are testing and the existing $8.99 streaming plus DVD plan?
Also, if you launch the streaming only service, does that mean the $8.99 price point will go away?
George, that's one cat sell of many that you're referring to, which is the $7.99 to $9.99 variant. And to answer your precise question, the $9.99 in that test cell is the same as the $8.99 today.
2nd question from George Askew. An important driver of growth has been the consumer electronics partnership. At this point, with the exception of Android, Netflix seems to be on most major connected platforms. What platforms or devices are yet to be penetrated by Netflix?
George, you're right that we've had tremendous progress in getting integrated. The big push over the next 2 years will be as more and more TVs are Internet TVs. They have Wi Fi built in, and we'll march along with that. So today, there's still a fair amount of TVs sold that don't have Wi Fi. So that's the big push in terms of breadth.
And then in terms of quality, we're upgrading the user interfaces in all of these devices really at web speed in the search of what the best user interface is for TV and that will vary somewhat by screen and input device. So we've got a big investment program across all of those platforms.
The next question is from Ben Rose at Battle Road Research. How does Netflix think about the cable service providers? Are they long term collaborators or adversaries?
Well, there's 2 parts to a cable service or at least 2 parts, 3 parts, voice, data and video. To the video side, we're mostly competitor except that we're at a very different price point with a very small fraction competitive. To data or huge ally drives a lot of data adoption, larger plans, so very aligned and voice, no interaction with them.
The next question is from Jason Helfstein at Oppenheimer. Among the content available on Watch Instantly, are you seeing greater demand for movies, broadcast TV shows or pay TV shows like Showtime? What is the average number of minutes per streaming session? And do people tend to come back and finish the movie and show if interrupted?
Jason, with the content availability, we don't see greater demand for 1 or the other. We don't divide it by broadcast or pay or cable network. We're just looking for great shows that we can license for our subscribers. We don't disclose the average number of minutes per streaming session. And yes, lots of people come back to finish movies and TV shows.
They'll be watching on the television and then they're in the car and they finish on the iPad and touch and or the iPhone and there's all those different and they move to a different room and then they get to restart. And of course, our software is smart enough to restart them in the right place. So that all works very well as you would expect an Internet oriented service to work.
The next question is from Daniel Ernst at Hudson Square Research. Do you have a sense of what percentage of subscribers are viewing Instant Watch on their televisions versus a PC?
Daniel, for us, they're all just screens. There's 4 inches screens that are on mobile phones. There's 9 inches screens on iPad, 12 inches screens on laptops and then a wide variety of television sized screens from 20 inches to 100 inches And that's not a key determinant for us and it's not something that I can give you any more color on.
2nd question from Dan Ernst. Do you have a sense for what percentage of subscribers in the quarter or perhaps year to date that are returning subscribers, I. E. Previous subscribers who have come back to Netflix?
Actually, the percentage historically has been running about a third slightly higher and with the acceleration in growth, that percentage has fallen a little bit.
The next question is from Brian Fitzgerald at UBS. How do you think about streaming content costs per user in the future in light of the recent and upcoming content deals? Will it be pretty balanced in terms of streaming content costs being offset by analogous postal decreases? Or will it be lumpy as certain deals come in or maybe build to an inflection point?
Let's see. There's likely to be some lumps. It's not going to be completely smooth. FX is a great example where we're stepping forward on that one and that's pressuring the margins in Q4. And as we grow into that over next year, that will smooth out.
But in terms of the long term margin structure, we would like to try to keep it between 30% 35% gross margin, replacing the postal costs with content costs.
Another question from Brad Fitzgerald at UBS. There are now 200 plus Netflix enabled products that will result in 60,000,000 plus devices sold in 2010. Could you give a rough break, the percentage that is maybe exclusive and maybe rough estimates of what these numbers look like for 2011? Any rough thoughts on TV plus set top boxes versus tablets versus PCs versus mobile phones?
Let's see. I don't think there's no material set of the devices that are exclusive. Basically, with software, it tends to be application store architectures. And so none of the devices or at least there's no material ones that I can think of that are exclusive. In terms of the number of devices, that's probably not the relevant thing that is the next 100 devices are the 100 smaller devices than the initial 200.
So really it's coverage. Again, the big change over the next 2 years is Wi Fi getting built into more TVs. And as that happens, whether it's got the Google TV software built into it or it's got our native client, both work really well, That's the big change in the industry.
The next few questions are from Andy Hargrave with Pacific Crest. Do any of the content deals you signed give rights for global distribution or you have to renegotiate for each geography?
Andy, the general pattern is per geography because it mirrors the other distribution channels.
Next question from Andy Hargrave. Are the majority of the streaming deals you are signing still fixed?
Well, Andy, we like to think of them as fixed because they generally are in the short term. But then when it comes renegotiation time, it ends up in some long term basis sharing our upside with the content owners as we grow.
And the final question from Andy Hargreaves at Pacific Crest. Can you explain in more detail the music rights impact? Where, why were you paying 3 $500,000 for music rights before?
I'm not sure if the question is requires an explanation of what music rights are. They're the public performance rights for the notes and the words associated with the music that synced in the TV and movie content that we distribute upstream over the Internet. There is public performance rights acquired from 1 of 3 rights societies, ASCAP, CSAC, BMI. 2 of those ASCAP and BMI
involve
rate courts for the setting of rates. Rates are in dispute. And so as a consequence, we through time have made estimates about whether it relates to our expectations for license fees associated with the public performance of the music and that did some recent decisions in the courts, which have caused us to rethink the amount of money we had set aside for the public performance rights. So it's a monthly accrual. And then eventually, when the licensees are struck, there'll be an exchange of monies and we'll move on.
But right now, it's a hanging accrual on the balance sheet.
And coming back to an earlier question, I referred to us trying to target 30% to 35% gross margin that is as new content deals replace the postage. And that is true in North America. If we do global aggressively in the short term as we launch, that would be different. But that statement the goal statement is true in the long term globally and on an ongoing basis in North America.
The next question is from Wayne Chang at Canaccord Genuity. Could you talk about the level of adoption or activation levels you're seeing with the variety of web enabled devices in the marketplace, such as web enabled TVs, Apple products such as the iPad or other tablet like devices and even gaming consoles. Are mobile handsets becoming a key driver to driving new subscriber activations, or does
the opportunity remain still relatively early? Wayne, for music services, mobile is the core and then the more living room based formats are in auxiliary. And with video formats, it's the inverse. So the living room formats and the laptop formats and iPad formats are quite large and the mobiles are good supplements, but it's relatively modest.
The next question is from Jim Friedland at Cowen regarding Canada streaming. In the comments, you indicated that the Canadian business is on track to breakeven in the second half of next year. Does that imply that your Canadian content deals scale with subscriber growth? Or are you paying big upfront fees for streaming content regardless of the number of subscribers?
Jim, that would be the latter.
The second question from Jim Friedman at Cowen. With regards to U. S. Streaming, do you think the long term operating margins of a digital only business are similar to the margins of the business today around 12% -plus?
The long term margins are really driven by competition because that really influences the pricing. So you'd have to tell me what the competitive environment is to guess at the long term operating margins are. It will be again significantly influenced by the amount of competition and at this point we don't know what that will be.
Next question is from John Blackledge of Credit Suisse. What would change in disc shipments per sales per month in Q3 2010 on a year over year basis? I think in Q2 2010, BIST statements were down about 20% year over year. Just wondering if you would expect the declines to accelerate in the near term or stay around Q2, Q3 levels?
John, we as I said in the answer to an earlier question, we're not breaking out the DISC usage per sub per month. I think the only color commentary we gave was in Reed's remarks. And he pointed out that total VISH shipments had grown on a year over year basis at 5% to 10%.
The next question is from Barton Crockett at Lazard Capital Markets. Impact on other forms of entertainment consumption. Our young children love Netflix, watch instantly on the iPad. For that reason, we're not inclined to buy more kids DVDs. They get more than enough content from the Pixar and Disney movies and PBS Kids shows on Netflix.
Are there other Netflix subscribers like us? Do you see any evidence that people are buying fewer DVDs as they stream more Netflix content? Could you also update us on the cord cutting question? Do you still prefer to see no evidence that Netflix subscribers are cutting the cord?
On the latter, Barton, on cord cutting, we still see no evidence that our subs cut cords at greater rates than the general population. And it's something we survey on now and then on. On your personal experience, it's all over the map. We have tons of anecdotes of people who the streaming stimulates their usage in other formats, others for home, like you said, that streaming meets most of their entertainment needs. So quite a lot of variety with 17,000,000 members.
The next two questions are from Michael Patrick at Wedbush. The press release says that in Q4, the majority of Netflix subscribers will watch more content streamed from Netflix than delivered on DVD. That is more content, mean more hours of content or a greater number of streaming sessions than DVD transactions?
Michael, that's more hours. We're measuring everything to combine it by the hours.
Second question for Michael Pachter. Also, the following sentence says that the business will have transitioned from mostly DVD to mostly streaming. If more than 50% of users consume more than 50% of their content via streaming, I can see how you could say mostly streaming for those customers. But I presume that the 34% of customers who don't use streaming get 100% of their content via DVD. So I don't see how you conclude that more than 50% of content is streaming.
Would you please clarify what you're talking about and give us the split in terms of hours spent? It really doesn't make sense and the second sentence implies that over half of all hours spent are spent watching streaming, but the metrics you provide don't support that.
It's just a math question here, Michael. If we track how many DVDs we ship and we track their run length and we make an assumption that each DVD is watched once. So you could say some are never watched and some are watched twice, but we assume watched once. And then we look at the streaming hours that we're delivering and compare those. So we're seeing 2 things, which are independent.
One is that the total number of minutes of entertainment delivered by Netflix is higher on streaming than on DVD. 2nd, a majority of our members, so more than 50% in Q4, will watch a majority of their content by minutes on streaming than on DVD, which basically gives you a distribution measure. It says that it's not that say 10% of the streamers are watching an enormous amount of content and everyone else is majority DVD. So it's 2 views, total view, we're more streaming and from a subscriber view, a majority of our subscribers consume a majority of their content on streamings and DVD.
The next question is from Doug Mitchelson at Deutsche Bank Securities. How much of your churn comes from subscribers that are on free promotions? Asks another way, how low is your churn rate on core Netflix subscribers? Say those who have been subscribers for over 3 months or 6 months or 1 year, however you measure it. The obvious reason for the question is you do not typically see consumer subscriber businesses grow so fast while sustaining such a high churn rate.
It should settle down to a lower level to the extent you are offering a good price value.
Hi, this is Barry. Let me tackle that question. We don't normally see subscriber growth businesses grow this fast. So there are 2 cohorts essentially to focus on with respect to churn. They're the pretrial subscriber as you referred to.
And we see slightly lower what we anticipate we're seeing slightly lower conversion rates in Canada than we see in the U. S. So let me just focus on the U. S. Where we have a rich history.
And we've said repeatedly through time, and it remains true today, that about 9 in 10 subscribers who take a free trial become a paying subscriber. So great conversion rate, but that implies 1 in 10 free trial subscribers drop out, that's a 10% churn rate. So point 1, as it relates to the paying subscribers, the churn declines over time. And if you've been here for 12 months or longer, and more than half of subscribers have been here for more than 12 months, and your churn rate is in the 2% range or lower. So not terribly dissimilar from churn rates for basic cable, which is in the, what, 1.5% range.
And of course, whether
or not that churn rate is sustainable from a financial perspective also depends on what the acquisition cost is. And of course, we're at historical low acquisition cost because of investments we've made in improving the quality service and streaming. And then I suppose a follow-up question might be, well, how does retention rates for streaming customers compare with retention rates on DBD only customers? And because of the improvements we've made in the quality streaming service, we can now say that actually retention for streaming customers has just crossed over the retention for I'm using the word yes, retention has just crossed over retention for DVD only customers. So it's actually better now for streaming only.
And that's important, of course, because the majority of the growth is streaming related.
The next question is from Edward Williams at BMO. As subscriber growth has grown due to streaming, how have the demographics of the Netflix subscriber changed?
Not significantly. We're still pretty much the broad Internet demographic that has credit cards.
The next couple of questions are from Scott Devitt at Morgan Stanley. Given the number of deals you made on the content side in Q3, are you still seeing opportunities to continue to aggressively invest in digital content?
Scott, we're pretty spent up for Q4, but then we're 3 weeks into the quarter already. So that probably makes sense. And we have a lot of opportunity next year as the subscriber base continues to grow.
2nd question from Scott Devitt. With the rollout of the new disc 3 applications on Wii and PS3, you seem to be focusing a lot on reducing friction, improving the user interface and increasing search functionality. Are there any other areas you hope to focus on in order to differentiate your Xumi product from other video applications from a technology standpoint?
Not particularly, Scott. I would say that any technology advantage quickly gets copied. So we try to do great work and we're improving the UI. But obviously, all the great work that we do there will be quickly copied within a year or 2 by anybody who wants to.
The next questions are from Eric Wold at MCS. In the prepared remarks, you state that Q4 will experience year over year reductions in marketing spending. Are you referring to the overall dollar amount or SAC?
Both.
2nd question from Eric Wold. Should DVD shipments continue to slow or even decline in certain markets like the Bay Area, at what point would you consider closing distribution centers or would those always need to stay in place for the next day delivery benefit?
Mostly the latter, Eric. Over a sufficient number of years, if the volume comes down by 50%, there might be some small closure, probably many, many years out.
The next question is from Tony Wybel at Janney Montgomery Scott. Do you believe MSOs will move to usage based billing as part of the FCC debate over Title II? Do you see an opportunity to use compression techniques to minimize bandwidth if that is the case? Yes.
No, that's a key question, Tony, and a good one. We have some vulnerability depending on capped usage and what happens. Comcast has a cap, but it's 250 gigabytes. And so most users feel that they have an unlimited experience and it gives us plenty of room to deliver high def streams. On the other hand, AT and T mobile data on an iPad is now capped at 2 gigabytes.
So not enough room to deliver hours and hours of high def. There's not a lot of improvement in compression techniques, but what we can do is just deliver a lower bit stream, a lower quality video experience. So for example, not too high def. So that's one possible way to partially mitigate that impact. But we're definitely sensitive, as you pointed out, to in the long term, as most of the industry end up at 2 50 gigabytes or 2 at the other extreme.
The next question is from Arthur Mangreates at Fox Point Capital. Please elaborate on your comment that the international competitive window will only be open temporarily.
Arthur, broadband is growing rapidly across the world, and that creates an opportunity for us and potentially for others. And 5 or 10 years from now, you'd have to believe that if we're not there, other people will be. So that's what we're referring to.
Next question is from Doug Anmuth at Barclays. Is that down more because you deliberately pushed marketing dollars towards content costs or as a result of the strong subscriber growth, I. E, did you go into the quarter intending to spend a bit less on acquisitions?
We spent to our plan. Marketing spending as a percent of revenue was up slightly on a Q over Q basis on a year over year basis. And the decrease in SAC reflects the increase in the organic growth, which is a function of the increased investment we've been making in the licensing of stream content. So historically, you have heard me talk about the interrelationship between gross margin SAC and churn and the way in which we play one off against the other in order to increase the overall growth rate and enterprise value associated with the growth in subscribers, and that's what you see at play here.
And as Barry mentioned in his written comments, as part of absorbing the epics lump, we'll be spending lighter on marketing in Q4 than historically we would, and that will have, therefore, lower gross margins and lower SAC than you're used to seeing from us.
Another question from Doug Anmuth at Barclays. What are you doing differently in terms business to decline? I know you're focused on continued automation and efficiency, but do you have broader plans yet on how you will ultimately scale back these facilities over time?
Nationwide, our DVD shipments are still growing about 10% year over year. So right now, we're trying to figure out how to handle the increased load and get our new automation deployed quickly. So I'm sure someday we'll have to think about the issues you referred to, but not in the near term.
Another question from Michael Olson at Piper Jaffray. Question for Barry. With your comment in the prepared remarks regarding Q4 guidance where you say year over year reductions in marketing spending will mostly fund the increased content spending, suggests that Q4 marketing spend on a dollar basis will be down year over year in Q4? Or are you saying it will be down year over year as a percentage of revenue?
It will be down as a percentage of revenue and it will be down Q over Q.
The next question is from Doug Robinson, a private investor. When will the Android cell phone be supported for streaming app?
So, Chad, we're working on Android now. And as soon as we have something to announce, we'll announce that.
Sorry. I'd like to supplement my previous answer as it relates to marketing spending to make a slightly different point.
I want to remind everyone on
the call that earnings is a managed outcome. And so there have been many quarters in the past, by way of example, the Q4 of last year, where if memory serves me during the quarter, because the business was much more profitable than we forecast it was going to be. We allocated during the quarter an additional spending marketing of something like $6,000,000 So we delivered the earnings number we forecast we were going to deliver and we were also able to deliver more growth in part because we are able to invest in more marketing dollars. So if as Q4 unfolds, similar dynamic occurs relative to our forecast and we have the wind at our back and we would be anxious to invest additional money in marketing because it will further accelerate our growth. But based on our plan, we're expecting the answer I gave, which is a decrease both on a percentage basis and a decrease q over q in terms of absolute dollars spent on marketing.
Another question from Bart Pinclockett at Lazard with regards to the Starz sale. Starz received net affiliate fees of close to $2 per subscriber per month, while providing its flagship Starz Encore package to cable. In my observation, the lineup of Starz content on Netflix is better than on cable due to more title availability, easier notification, etcetera. In the renewal talks with Starz, is it conceivable that Netflix could pay rates for subs for Starz content comparable to what cable pays? Can you comment generally on your optimism or skepticism about a successful renewal of the Starz deal?
Well, Barton, obviously, I can't comment on the specifics. And I'm optimistic in the long term. That is we have money to pay and they're in the business of collecting money. So there's no reason in the long term, strategically, it shouldn't work out how soon and whether there are hiccups along the way like you see in so many content supplier relationships, that's TBD. But with the breadth of our content offered, we'll be fine.
And we look forward to working on that deal.
Final question is from Michael Factor at Redbush. Since postage hasn't declined precipitously, they're really saying that overall consumption of entertainment is up a lot, DVD usage down a little and streaming up a lot. That's a high cost problem and suggests a higher value proposition. Could you confirm that I'm reading the response correctly?
Michael, the only thing that I heard in that question was that DVD is down, but DVD is actually up. It emphasizes your theme that DVD is growing slowly for us at DVD shipments and streaming is growing rapidly. But I'm not sure Deborah heard the question. That was the question.
So you're really saying that overall consumption is up a lot. So, use let's see, usage per sub down a little and streaming up a lot. DVD usage. DVD usage on a per sub basis down.
But sub growth is growing overall.
Yes, right, right.
That's 50% sub growth with only 10% shipment growth.
Yes, I think the question is on a per sub basis, are you seeing greater consumption? Are you seeing greater consumption of entertainment? And I think the answer to that is yes. So said differently, subscribers are extracting more value from the surface than they have historically, which I think explains in part, 1, the increased organic growth and the decline in subscriber acquisition costs and 2, the continued decrease in churn.
Great. That's the last question I have. Before we conclude the call, I'd like to turn the call back over to Reade for a few brief closing remarks.
Thanks for joining us today. Hopefully, we answered all your questions efficiently. There's a lot to talk about this quarter. The year over year subscriber growth at 52% and accelerating more content, more device partnerships, our entry into Canada and by any measure, our evolution to a streaming company has just been phenomenal. I think you'll see that evolution even more clearly when we report our Q4 results and look forward to talking with you then.
Thank you. Thanks, everyone.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may now disconnect.