Welcome to the Netflix Q1 2016 Earnings Call. I'm David Wells, CFO. I'm joined today by Reed Hastings, CEO and Ted Sarandos, Chief Content Officer. Interviewing us today will once again be Ben Swinburne from Morgan Stanley and Peter Kafka from Recode. Just a warning before we begin that we will be making forward looking statements.
Actual results may vary. I think, Ben, you have the first question, so over to you.
Sure. Thank you. Rhee, maybe you can start out by just reflecting on the quarterly results you guys just delivered relative to your expectations and maybe you can start out in the new markets you launched at the beginning of the year and how those performed relative to your expectations?
Sure. We were incredibly excited to grow to over 81,000,000 subscribers. It's an enormous quarter for us that way. Some of it was from our expansion around the world. It's 130 countries, so there's quite a bit of variety.
And remember that most of those countries, we haven't yet seen the full potential of because we're only in English and only with international credit cards. So over the next couple of years, as we further localize, we'll be able to see more opportunity. By going so broad, we've increased our rate of learning. And so we're really excited about the approach and looking forward to the rest of
the year. And how did you feel the U. S. Markets behave this quarter versus your expectations? You had noted in the letter a lot of strength from the originals that came in ahead of expectations.
I'm guessing that's on gross connects. But how did the originals perform even relative to what I'm sure were your fairly bullish expectations in the U. S. Market?
Well, the U. S. Market, we did about 2,250,000 net adds, which is nearly identical not only to last year, but to the year before. So what you see is this continued growth and we're thrilled to keep that growth steady at between $5,000,000 $6,000,000 net additions. And the content just keeps improving and that keeps the word-of-mouth growing.
So we're very excited about that formula and what we saw in Q1.
Reid, you guys have been watching Amazon for a long time. You compete with them, at least on content for quite some time. 4 years ago, you predicted they'd come out with a standalone service priced under yours. They announced that yesterday. What's your view of them now?
And And in particular with the announcement they made yesterday, do
you think they're trying to compete head to head with you for subscriber dollars or they're trying to underscore the value of Prime overall? Hulu is doing some great work. Amazon is, HBO, Showtime. There are so many competitors and everyone is working hard to build the best content. And so we're seeing growth in the overall Internet TV market.
Of course, that's displacing linear TV. And it's natural that everybody's coming in as they realize that the future is Internet TV. And in terms of our shows, we're very excited about what we're doing. Not only are we expanding the number of original series we're doing, but we're also expanding into original movies. So again, this is all part of the natural evolution from linear TV to Internet TV.
Amazon has been talking with programmers for a while about adding linear channels. So you're looking at a scenario where they might have an offering that's similar to yours for the on demand stuff, the mix of originals and older movies and TV shows, plus current content live. What does that look like to you as a in terms of the prospects of competing against that head to head?
We're very focused on global competition. Obviously, around the world, it's very fast growing for us. We're coming towards fifty-fifty international domestic revenue. And so we're focused on content that we can have around the world, which is why we're investing in original movies, original series, so that we can have that content and also producing around the world like our French series, Marseille or Spanish in Narcos. And that's very different from carrying other people's single nation networks.
So that's just a very different business. It's not one we focus on a lot. We know what we want to be, which is a great global producer and distributor of content and other people will do other things and that's fine. They may be very successful.
We throw a question out for David and or Ted about thinking about the Q2 guidance internationally, there's a lot to chew on there. The number you laid out is probably below where most people were expecting. I wonder if you could talk, David, about how you thought through putting the Q2 guide together around seasonality, some of the comp issues you talked about in the letter and whether we're seeing more sort of a more earlier than expected level of seasonality in some of these markets that are still 1 or 2 years old. And Ted, there's a narrative out of Europe in particular that the incumbents are sort of teaming up against you from a content perspective and you've got a lot of stuff coming down the pike on originals. You can talk about your relationship with suppliers overseas since that's probably an area people have spent less time thinking through.
Sure. I'll let David kick it off there and go first.
So Ben, in terms of thinking about the guide, just a reminder that we put in the letter that absent the strong performance that we saw last year from a very recently launched Australia, New Zealand market, our guide would have been up. So I think you haven't yet seen sort of a normalized pattern of growth from us in terms of a year on year growth expectation across our international markets, because we've been layering on new markets as we go. So I think from our perspective, we were super happy with the results of Q1. And we wanted in Q2 that to continue and it is, but we are mindful of the fact that we've got these large blooms of launches last year and then in Q1 this year with the rest of world markets, the Netflix global launch that aren't going to continue forward because they're addressing pent up demand. So for us, we're focused on continued growth in those markets and that's what we're seeing.
And we're focused on continued improvement from an economic sense of reducing those losses. And this year, you're seeing us continue to invest, but the U. S. Is growing. So overall, operating profit is improving as we go and into next year.
Can I just say the reaction from the broadcasters across Europe is not different than it's been anywhere else? There's always uncertainty when we come to the new market, what role we're going to play, how complementary we're going to be versus competitive. And I think everyone just likes to weigh all their options in terms of their competitive strength. We're buying a lot of pan European rights as part of our global acquisitions, which I think probably makes them a bit nervous too while they're trying to figure out what their next moves will be. But again, I don't think it's that unusual.
I mean, even here in the U. S. Where 3 of our largest suppliers teamed up to create a little bit with probably much of the same motivation.
And just as a follow-up, there's I don't think any mention of VPN changes in the letter, but that's obviously has happened. Is that impacting at all the 2nd quarter guidance at all?
No, all that change was in the Q1. It's a very small but quite vocal minority. So it's really inconsequential to us as you can see in the Q1 results.
And the only thing I'd add to that, Ben, is we were able to grow in the Q1. We had a very strong U. S. Growth. At the same time, we had a very robust Netflix global launch.
So I think it validates sort of the fact that we're seeing new demand for Netflix in those markets.
Sure.
This is for Reade. You keep getting asked this, but I want to keep asking because the question keeps coming up. Any interest in live sports in any capacity? Any interest in what? Live sports.
Live sports. Ted, I'll
let you handle that question. It worked so well for us last time we
knew that. Exactly. There is no interest in live sports currently.
Currently, yeah. What about live in general? There's a lot of interest Twitter, YouTube, Facebook in particular, and the idea of broadcasting live video over the Internet. You guys have tweaked your model a little bit or will be tweaking a bit with Chelsea Handler where you're going to sort of move away from the dumping out all the stuff in one go and sort of staggering it. So if you're not doing live if you don't plan to do live now, why not consider it down the pike?
So just to correct you,
we have never dumped anything. We have given it a proper platform with all of the great content that it deserves. A full release.
So Chelsea is near live
in that we're going to
be putting it up to our subscribers just a couple of hours after it's recorded live in front of an audience. There's not a technological reason we wouldn't want to go to live, but you should think about our brand proposition is very much about on demand. So to the extent that watching on demand is better than watching live, we bring a ton of value to it. And other people doing live, I think it's great. It's about the further expansion of Internet television to include live.
We don't have to do everything to be part of that expansion.
And rather than invest in things like live sports, we're investing in things like the Crown, which is just an epic production. And maybe you could talk a little bit about that. Yeah, it's being shot right now in
the U. K. We've previewed some footage of it to the European press last week. They just loved it. It's a massive cast, a massive production that will tell the life of Queen Elizabeth, starring Claire Foy as the Queen and will follow her life through her relationships with the Prime Ministers all the way through to current times.
So it's a very those kind of things that we think are massively global that we can produce on a larger scale than anybody else that we really think we can win the day on.
Thanks.
David, coming back to the Q2 guidance again, but on the U. S. Market, why did you decide to delay or spread the un grandfathering through the remainder of the year? You mentioned you don't expect much of an impact, but you decided to sort of spread it out and you can just walk us through what you've learned in your testing so far and the thought process around that?
Well, I think we've always been a testing company. So perhaps there should have been an expectation that this would be a gradual thing in terms of layering that out. We've got a number of markets that are coming off on grandfathering, not just the U. S. And some of those are timed 3 to 4 months as we go.
So, I think it's just about messaging it. It was important to us to make sure that subscribers sort of knew that this was happening and to put it in of them and that's what we're going to do. And we want to do that, do right by the consumer and do right by Netflix as we go. So I think we're just taking our time to do that.
And Ted, what are you seeing in terms of the efficiency of your spend as you continue to build on originals? And I'm curious, you've had more data points around film results, and you'll have more coming up. How are the films performing Relative to your expectations and relative maybe to the spending on TV series?
Well, the efficiencies are a little hard to match because you've got a couple of hours of viewing versus 10 to 13 hours of viewing on a series. But relative to how we license other movies, we've been pretty happy with the direction that it's going. We have a few films under our belt. What I'm really looking at is how broadly people engage with them, how do they play around the world. All those data points have been really positive.
And as we keep going, I think that that content can be as efficient as the series relative to other films. So we're still learning as we go, though.
Thank you. Can you guys talk about your M and A strategy? Are you looking at Paramount, which may be partly for sale? What about Stars, which is sort of unofficially for sale? And if you don't want to comment on those in particular, what are you thinking about as you consider large acquisitions?
It's been 15 years we've been public and 20 existing and we've done no M and A. So I think that probably speaks for itself.
And as you guys push into the studio film business, making your own movie, does it make sense to sort of at least do a smaller acquisition that would help you sort of get some of those competencies in house?
Well, Peter, what you're seeing not just on the films, but also on several of our series where Netflix is increasingly the studio and the network on those shows. So we are building that efficiency in house. The Ranch that just premiered a few weeks ago is a Netflix produced show, and we'll be doing a lot more of those coming out.
So you can build it out by now.
We're building it versus buying it.
Yes, we'll just hire the people that we want and build it. And that could, in principle, be a constraint on our rate of growth. But Ted's been able to attract an incredible team in L. A. And so when you look at the growth in our originals, you can see that we can deliver on that on this organic hiring basis, which, of course, is much stronger for the long term than if you tried to juice it with M and A.
Thanks.
Reid, can you talk a little bit about how investors and shareholders should look at various opportunities internationally? For example, Brazil is a market that maybe at first blush wouldn't appear to be right for Netflix given sort of low pay TV penetration, lower household income, lower broadband speeds and yet you've described that as a rocket ship, you've done really well there. And yet maybe other more sort of developed markets in Europe have been slower. What are the characteristics and things that are outside of Netflix's control that drives success and what are the things you're doing that you're doing maybe didn't do a year ago to make sure you capture the opportunity?
One of the major things I think is e commerce and payment systems to the degree that there's a convenient way to pay for airline tickets, for example, online. That's really helpful. But we're continuing to work with all the different ISPs, phone billing solutions, other things. And will grow as the payment infrastructure, the e commerce infrastructure grows. So when you think about it in the long term, everybody around the world is going to be watching Internet video, and we want to be well positioned.
So as all of these countries evolve towards Internet video, that we grow with them. In some cases, that'll be 10 years, 15 years. In other cases, it'll be in the next 2 or 3 years. But it's a long term investment. And country by country, it's worked out extremely well for us.
So that's why we're so invested in international expansion. We're very confident that in the long term, everybody's going to be watching TV shows and movies over the Internet, And we hope to be one of the leading brands for that around the world.
And then just ask go ahead, David. The only thing I would
add to that too, and I think we would say is, you can't anticipate everything. And I think, 5 years ago, when we were first launching the markets, we thought maybe we could anticipate most things. But every time we've launched, there's been 1 or 2 things that we haven't anticipated. What we have gotten good at as a company is fast learning and fast improvement. And so I think that gives us some confidence as well that as things come up, we'll be able to address them quickly.
And remember, when you look at Facebook and YouTube, which are ad supported, but viewing and consumption is generally 80% international, 20% domestic. And we've got a lot of international growth to go before we can aspire to that point.
Let me just pick up on a question Peter asked earlier that sort of talks about where the where Amazon is taking the bundle and take it from a perspective of the incumbent MVPDs. You saw I'm sure we that DISH built another sling or is building their sling offer sort of a low price point IP delivered bundle of networks. DIRECTV is going to have 3 cheaper OTT launches later this year. You're starting to see these things proliferate more. Does that change sort of your competitive position as you think about sort of this big pricing umbrella getting smaller over the next year plus and becoming more IP?
No, those are all single nation solutions and we're really focused on global content and expanding globally. And so I don't see really that much nexus between them. Again, as we said in the letter, when you think about your own experience of what do you do some night if you're not watching Netflix? Once in a while, it's cable television, once in a while, it's video gaming, it's browsing Facebook, killing time on the web generally. There's so much out there.
So our the only inhibitor in our growth is how great is our service. Can we make it so there's never buffering? So it always starts up instantly. So the recommendations are incredible and the content is exciting. And if we can do all that, we'll continue to grow globally even though HBO or Dish or others are also growing.
So their growth doesn't take away from us. Thank you.
Reid, can you explain just for the record, why you guys went ahead and sort of reduced the quality of streams on certain wireless carriers and how that's different than the complaints you've lodged against people like Comcast in the last couple of years?
Sure. Mobile generally has small data caps and very expensive per gigabyte charges like $10 to $20 per gigabyte supplemental. And so we've wanted to save data for our users by using very tight and small encodes, especially when it's being watched on a 4 or 5 inches screen. And what we'll be adding going forward is an option, so consumer can set they want to do extreme data saving, moderate data saving or no data saving at all. And so we'll evolve to let the users just do it.
But the advantage of doing it for people in the past was to save on to avoid those data plan overages that are pretty unique to mobile.
And that option you're describing where you're going to sort of opt in to sort of what quality you want, is that a reaction to the stories that came out in the last few weeks?
No, we've added lots of options over time to allow more customization. If you look, we've had one on the wired side. We just hadn't implemented it yet or rolled it out on the mobile side. So it's always been planned.
Another regulatory question or I guess FCC question. The open set top box proposal that President Obama has endorsed, what's if that goes through, what sort of changes or options does that open up for
you? For us, the open set top is the Roku or the Apple TV or the smart TV. It's a basic Internet device that runs apps. And that's what we think the future is, is that kind of broad openness. And we don't really follow very closely like the intricacies of the cable set top industry in the U.
S. As opposed to these great global platforms that are IP centric like a Samsung Smart TV.
So it's not meaningful to you if it goes through?
I don't think so.
Thanks.
Ted, I want to ask you a little bit about your relationship with your major suppliers. You, I'm sure, see the hear the rhetoric as we do growing out of Hollywood. Maybe start with Disney, how is that relationship today? They've obviously come under some pressure around ESPN and cord shaving, but is your relationship with Disney as strong as it's been? And should we expect that you may be able to expand your Marvel TV relationship in particular?
And I'd love to hear any sense for how DAREDEVILLE season 2 is performing and performed relative to the first season where that audience built.
Sure. So I mean, these have always been relatively complex relationships where you are both supplier and sometimes competitor. So in the case of Disney, they're a major supplier and they're a producing partner. They produce our Marvel Defender series. We just kicked off our 5th season of production on the show.
It's a very lucrative piece of business for Disney, obviously, and a great partnership in that way. And there's no way to kind of isolate the 2 sets of businesses completely. So while we're they're a great producing partner, they're a great licensing supplier, and we're always trying to figure out ways that we don't bump into one another competitively, but sometimes it's inevitable. DareDevil Season 2 was fantastic. The critics loved it.
The viewing numbers have really grown. And we've added an enormous number of people to DAREDEVILLE Season 1, both because of the excitement around Season 2 and there were additional territories now I didn't have the opportunity to see the show in the first go around. So it's been a real success and we're really excited to be in business with them. And all of our suppliers either produce for us or license to us and probably compete with us on some level. And we're just always trying to navigate those waters, very similar to the way networks deal with each one another and produce for one another.
And do the changes you're seeing out there impact the timing with which you may get to your fifty-fifty split of sort of original spending and acquire? You threw out in the letter 5% of your spending, I think today is on films. How would you fit film spending inside of that fifty-fifty mix long term?
Well, right now we're trying to complement our film selection between aggressively ramping up our global originals with films that people want to see everywhere in the world. Plus licensing, we're an opportunistic. We've been doing pickups of films at film festivals, particularly ones that have broader commercial appeal. Like next month, we have a film called The Fundamentals of Caring with Paul Rudd that I think fans are going to really love when we launch that around the world. And then regionally, we're also doing some opportunistic licensing.
As you know, we pick up the Disney Pay 1 output later this year. And we also like just in this quarter, we'll have Dominions, we'll have Goosebumps, we'll have Hotel Transylvania 2 and we'll have the film that won the Academy Award for Best Picture Spotlight exclusively on Netflix in the U. S. So it'll be hard to comp against those kind of numbers as we're ramping up films, because we still have a great selection of other films as well. But we're going to keep pushing on.
There's no mandate or no initiative to how quickly we're going to get there and successfully just want to keep pushing it forward.
And later this week, we'll be releasing the first trailer for the do over Adam Sandler's next film for us. And I mean, the trailer is incredible. I think you're going to find that this is a movie that really delivers for that Adam Sandler fans extended. And then that
will be global available globally as well, Nate.
Reed, maybe Ted, if I get on a plane, I can download some of Amazon's original I guess all of Amazon's original content, some of their studio stuff they have license and take it with me for offline viewing. YouTube Red lets me do that. Why not offer that for some or all of
your content? We should keep an open mind on this. We've been so focused on click and watch and the beauty and simplicity of streaming. But as we expand around the world, where we see an uneven set of networks, it's something we should keep an open mind about. And then this one
is a little more future off the distance. But how long do you imagine before some combination of VR, AR, 360, I mean, the stuff you see people experimenting with on Facebook, YouTube becomes relevant to what you do?
I think it's mostly going to be an intense gaming format for a couple of years due to the price of the consoles. So think of it like the PlayStation 5 or the Xbox 2 or something, its heritage to console gaming will be a lot of that market. And then everybody hopes that it matures into something that's lower cost and more ubiquitous. So I don't think it will have a direct effect on us in the next couple of years because I think the center point for VR will be other sorts of things than watching a TV show in a VR headset. I don't think that will be also very popular.
Thanks.
David, turning to some of the financials, you gave some color for the year around contribution losses internationally. I think looking for something around $370,000,000 for the year now, which is less than at least you had articulated and we had thought previously. What's driving that improvement? And it sounds like that's a focus for you as you head into next year. I mean, you could spend a little bit of time talking about what's moving the international losses lower and how that may trend into 'seventeen?
Well, it's nothing more
than growing revenue faster than your content spend. So I think it's just the fact that we've got multiple markets now that are improving year on year in terms of growth and economics and we stack them together and we've got a picture where collectively they're covering many of the new markets that we could have launched this year and then next year or the year after, depending on the size of that market, they could be covering them all. I think we're giving ourselves a little bit of flexibility because the more of an opportunity we see, the more we may put back into the business in terms of additional investments in content. But we feel like today that we can do all of that and still grow operating profit, which is why we continue to make the statements about meaningful operating profit next year. But we feel like we can do both.
So I don't think internally there isn't a different plan perhaps versus expectations people felt like there might be higher losses internationally, but it's been fairly consistent, I'd say, over the last 3 to
6 months. Tim, do you want to talk about the weakening of the dollar and how that affects us? Sure. So we did highlight this
in the letter. And you live by the currency, die by the currency in terms of the fluctuations. Last year, we had a lot of headwinds, especially on the international revenue line. We had to explain sort of why international average subscription price was flat in certain quarters when it still is growing. This year we're seeing the reverse of that with the weakening of the dollar at least in the 1st part of the year here where our international contribution margin is benefiting from that.
So we did highlight that for you in the letter. Thanks for pointing that out.
And David, as a follow-up, you're doing more and more global deals. Could you just remind us how you're allocating licensing costs and whether that's having an impact on the sort of quarterly movements in margin? You guys guided to I think a sequential margin step down in the U. S. How much is the allocation sort of issues or allocation thought process impacting those moves?
Yes, part of that, the U. S. P and L or the U. S. Contribution margin, we've said this before, I'll reiterate it, it is definitely benefiting from the fact that we're launching more international markets.
So the cost of that global original that Ted talks about is being spread by more markets. There's some relief to the U. S. P and L. And in terms of the allocation mechanism, it's really by media market value.
So in the early days, we were doing it by broadband households that was overcharging certain markets where if you had a very knowledgeable experienced media buyer in the market, they would say, well, there's no way that anyone would pay for this particular title at this amount in the market. So we refine that to sort of a medium market value that's validated by some third party survey information. And I would say in general, it's vetted by our own buying team internally as to what would be paid for
And then margin being tight in Q2 is really related to the large amount of content and associated marketing for launching those content that we're very fortunate to have.
You guys are moving people towards a $10 a month price point in the U. S. For the folks who have the $12 plan, what are they using that for? Are they using it to get high def or are they using it for 4 streams? What's the usage pattern for those customers?
Yes. Ultra high def 4 ks is becoming quite popular. We're the leading source of ultra high def content now. Ultra high def televisions are for sale, Best Buy, Costco. So we're seeing that ecosystem development.
And if you pay $1,000 or $2,000 for 4 ks TV, it's pretty natural to bump your Netflix to the $12 plan in the U. S. And about equal internationally to be able to get access to that 4 ks streams and see what your TV can really do.
And so that's the majority of the people who are paying you $12 are using it for the ultra high def?
That's right. The video quality is really the big driver. And similarly, our standard def plan, which is DVD quality, is great for people $7.99 and so that's a really strong option too. So we're not trying to bias people. We're trying to help them make a choice that they feel great about and that they'll stay with.
So think of us as really investing at both ends, the $7.99, dollars 9.99 and $11.99
dollars And you spell out in your letter that the price hikes that are coming this month, next month, that you'll be staggering them throughout the year. It's not all going to happen in one fell swoop. Is that a change in plan? Or is that always the direction you were going?
That's always what we thought. It's just it's a little bit cautious, but it won't hurt. We don't particularly need the revenue in the short term. So it's fine to just spread it out.
David, just going back a couple more on the numbers. The content sorry, the contractual obligations were up to I think $12,300,000,000 at the end of the quarter, which was a bit of a jump from the end of last year. Is that the Disney Pay 1 deal kicking in or any other color you'd add as to why that number inflated a bit?
It's really the Netflix global launch. So you got to think about it as we're adding more content now for the rest of the world. It's our newer markets, as we add more content. Those markets are growing in content spend more quickly than some of our more established markets. So you combine those and I think what you'll find is if you take that obligations number over our average membership for the quarter, it's still in that band of about 150, 160.
And it really has only popped up this quarter because of that new launch basically of Netflix Global.
And remember on Disney, we have Pay 1 today in Canada, and then we'll be adding it this fall in the U. S. Right.
And just on the cash outlook, cash flow outlook, should we still be thinking about $1,000,000,000 burn this year and any color for next year and when might Netflix generate substantial free cash flow? So no change on
the outlook on either this year or next year, I would say $1,000,000,000 is a pretty good guide for both this year and next year. And really on free cash flow positive, it really it depends on the size of the business. It depends on how much more we'll continue to grow the content, which does depend on the size
of the business. So on that one, I will
turn the question around and say how big will we be and then I'll tell you when we'll be free cash flow positive.
It was how big we'll
be and then how crazy does Ted go on these productions. And what we found is that these really big productions like the Crown are just terrific for us in global brand building. And so we're very excited about being able to deploy the cash to create shows like that and like the Get Down that's coming this fall also. You should kind
of think about it that those big productions play much more like a big blockbuster film and the fact that not only do they get more watching in the U. S, but they travel much better too. So, you see in all these non English speaking territories, these series performed very well.
Well, Rita, I was going to ask you, because I think you were quoted in The Guardian talking about or predicting spectacular budgets for TV series. Is that are your comments just now reflecting that expectation? And does that suggest any reduction in the return on spending that tends to do it?
No, it suggests an increase in return on spending, if anything. That is when you spend on the big items, they go much, much further than a whole lot of substitutable content. So we're interested in both spectacular content and spectacular membership growth.
And what we found is that people globally love high production quality content.
It's why U. S. Content has traveled the world historically so well, because of the production value that you're seeing. So when you see things like next month, we'll have our 4th season of Orange is the New Black, that was kind of a surprise to most people and that it didn't have any of the established movie star talent that some of the other shows have. And it built up just on the quality of Jin Ji's storytelling and then the spectacular cast and the ability to get to know them better and that as we enter its 4th season now, it's got tens of millions of fans around the world that can't wait for that show.
Sometimes you can get that built in excitement with somebody who brings their own draw and their own star power, like a Will Smith movie or a Brad Pitt movie that comes out or Naomi Watts starring in a TV series for Netflix or Drew Barrymore starring in a TV series for Netflix. This is a way that people can get more quickly get to know some of
our newer IP. And Orange is only 60 days away on June 17.
Does that bigger, better, supersize it attitude, is that going to apply to feature films that you'd like to release theatrically? Could you do a Star Wars size production? Or does the pushback from the traditional cinema distributors prevent you from really going whole hog on a movie like that?
You should look at our original films as similar to a slate of studio films. And that's Fox did have Star Wars last year, but they also had Brooklyn and a lot of things in between and that's what we're looking at too. Whether or not a movie at the Star Wars level makes sense yet, we'll see, but we're ramping up. You saw recently we announced that we're doing the next Will Smith movie called Bright with David Ayer directing, which is a big budget summer movie. In fact, it will be David and Will as soon as they come off of Suicide Squad.
That's their next film and it will premiere on Netflix in 2017 included in your subscription costs. So while we're all debating around big ticket day and day pay per view, we will be debuting that movie on Netflix including your subscription costs all over the world. But you're not going to the tentpole strategy that big studios costs all over the world.
But you're not going to the tentpole strategy that big studios have gone to yet where you're doing a handful of very, very large productions, you want a range of them? A range of productions, correct. And then you mentioned the day and date debate. I mean, you've seen the directors come out and say, we like the idea of playing with the window, what's it called, whatever they think, the screening room product. Does that mean anything to you?
Is that something you guys could participate in?
No, like I said, wouldn't mind having our films available in that product to the extent that people want to see it. Our focus is on movie lovers and movie fans trying to get them the content that they want at reasonable prices and great windows. So for us, being able to produce our own films gives us more control over those windows and the quality of the films themselves. So screening room to me would be a great way to get content in front of consumers if they're willing to pay for it. Thanks.
Reid, you've talked historically about a 60,000,000 to 90,000,000 subscriber opportunity in the U. S. And I'm just wondering, as you sit here today, if you can update us on your expectations long term in the U. S. Market.
Is there anything that you think needs to happen that isn't happening today to get you there? For example, whether MVPD set top distribution, broad distribution in the U. S. And say a new charter or a Comcast would really help accelerate the growth in the United States?
It helps a little bit. We are integrated with Suddenlink in the U. S, which is about 1,000,000 subscribers. And of course, in Europe, we're integrated in many platforms. But think of it as the fundamental draw of Internet TV.
You can get it on a smart TV, you can get it on an Apple TV. So there's a lot of ways around it where we don't have that distribution on cable, but it's one more platform and all platforms are good. It's not something we need to say get to 60 to 90. And we're continuing to see just that steady growth. I mean, to have 2,250,000 net additions in the U.
S. In Q1, basically the same as the prior 2 years, It was just felt great. So we're really excited about what the new content as it builds is able to do for us.
And Ted, one of the things we hear from particularly investors in Europe is just that there's a limit to how far U. S. Exports can get you. I don't know whether you agree or disagree with that, but I'm just wondering if you think particularly in markets like Europe and France who might have, let's say, unique content tastes that you need to go more local with your spending in those markets and maybe some of the earlier international markets, for example?
Well, I do think that what's popular in a market is much more a reflection on what's been available to that market over long periods of time. So what we've been really encouraged by is how just how international our original series have been. So you take non English speaking territory, you spoke about Brazil earlier, and not only is it non English speaking, it's a non Spanish speaking Latin American territory. And in the last 30 days, 8 of the top 10 most watched things in Brazil have been Netflix original series. So these are very these shows play very well throughout Europe as well.
Now that being said, we think it's worth it to complement the selection by focusing on some local productions in those territories throughout Europe and throughout Latin America. So we're Ria mentioned, but on May 5, we'll launch Marseille, which is our first French language show filmed in France, starring Gerard Depardieu. We're also filming original series in Spain, in Brazil, in Italy. So we are definitely investing in local language content, particularly in those markets that have shown some desire for more local programming, but as a complement to our global offering.
And David, does that mean by default those markets maybe lower margin than the U. S. Market long term?
No, I don't think that's what Ted is saying. I don't think you can equate the 2. Even when we're looking for a local original like Marseille, we're considering the economics of that production based on the total French diaspora. So not just people in France, but people outside of France that are interested in French language content. So I don't think you can you can't necessarily equate those 2 and we preference the content when we're developing those local originals for things that have potential demand outside of the original market that is producing.
And our Japanese original, Hibana, for example, we're launching this quarter and that will be available globally. So think of all that content, we're developing it locally, distributing it globally and connecting the world through that. We think that's a very powerful formulation that will help us grow for many years ahead.
The Marseille example, Gerard Du Pardieu is the biggest star in France and one of the biggest stars in the world. And we have about 2,000,000 people in the U. S. Who watch French language television regularly on Netflix. So that's where we're talking about the scale that we could bring to a production like that for France and Europe, but really for the world.
Thank you. Ted, what's your biggest non English speaking audience in the U. S? You said France is 2,000,000, France
is 2,000,000. Probably Hispanic.
I imagine it would be Hispanic. Makes sense. Were you surprised that HBO said they had about 800,000 subs after about 6 months going sort of head to head with you as a standalone product?
A little bit. I think it's a great product. I use it all the time. But then I think for many other people, they probably just subscribe to HBO and cable and they're used to that.
So you thought the number would be higher
than 800? Yes. Just because I find it. The thing I like about HBO Now is it's just easier to use. You can use it on the mobile.
You can use it on many different Internet platforms, but then I'm pretty Internet centric. So it may not be apparently, I'm not as typical of the audience. And but they're continuing to do great work. And what that does is just reinforce to the consumers how great this new Internet thing is for TV and it just sets the drumbeat. So I hope they continue to have more and more success.
Ted, there's more money coming to the market programming, HBO, Showtime, Starz, you guys, Amazon, Crackle is getting into it, Verizon is spending
a lot of money. Cisco, CBS All Access, I got a list of that, and that's just in the U. S. Does that number continue
to get bigger in perpetuity? Does it retract at some point, people say, all right, we've sort of overdone it and we're going to pull back on spend?
It's hard to tell. People talk about the growing content spend. But what we're able to do is find the shows and get the shows that we want. And we do have to pay a lot for them. But coming back to the phrase earlier, they're really spectacular what we're doing.
And I think when you see Orange, when you see the Get Down, when you see the crown, you know why we're investing what we do.
Peter, I think it's a debate around how to best monetize your content. If you believe you can over the long haul best monetize your content with your own app, then you'll go that path. If you believe you can best monetize it by licensing it to Netflix, you'll go that path.
I mean, what's been the feedback initially from members around your price points in the rest of world markets you launched in January? Obviously, relatively expensive versus existing sort of pay TV or entertainment options. Any thought about changing your sort of global price point approach in those markets?
We really haven't seen price be much of an issue. But then today, we're serving English language speaking elites around these countries. So in the model that what we're doing in targeting the high end, the price is fine. We'll see over the coming years as we expand and we may need some flexibility eventually, but nothing in the short term. Why don't we do the last two questions here?
I was just going to quickly follow-up on that topic. I'll hand it back to Peter for the last one. David, you guys are working on more local language offerings, better payment processes, other kind of operational improvements in those rest of world markets. What's the timing there? Should we be thinking about that through the remainder of this year?
Or is it a longer term timeframe? It's
kind of both. So you'll see some this year, but really it's about the next 2 to 3 years in terms of improvement. We've only just started skimming these markets. So we'll be looking at them opportunity by opportunity and you'll see some this year, but you'll see some continued into next year and even into 2018, I think. We have a big opportunity in front of us, as Reade pointed out.
Many of our Internet peers have a dramatically larger business outside of the U. S. Versus inside the U. S. So we're pretty excited about that opportunity.
And I think one of
the really exciting parts about being in all these countries is being able to discover the next great storyteller for the world. So because we're more focused on thinking about India, well, we weren't thinking about that at all a couple of years ago, we acquired this great film called Babram Naram at Sundance this year. It will be premiering around the world in June with and it really is a discovery of a great Indian director named Q, who I think everyone's going to be talking about over the few years and having that kind of global sensibility increasingly is going to help the programming for everybody, not just subscribers in those countries.
And so in a movie like Brahmin Naman, it's in English, so it's accessible to many people. But YouTube has over 50 languages. We only have about 20. So that scales for you roughly how far we've got to go.
Thank you. You guys are moving into more and more kids content. Does it make sense for you to eventually own the IP yourself instead of licensing it through Disney or DreamWorks, you can create ancillary revenue streams? We do a lot of both.
The consumer products addition to those projects relative to the content value itself is pretty small. We can look to optimize that stuff down the road. In Q2, we're launching 9 seasons of original kids content, including a new season of Hell King Julien, which is nominated for a Daytime Emmy. This year, we have 33 Daytime Emmy nominations for our kids content across 7 of our different shows. So we're really focused on building up the quality of that programming that's exclusive and original to Netflix.
Is it Ted Sarandos land or Reed Hastings land at some point? We were going
to nominate as Kafka land. So I want
to
wrap up here. I want to thank Peter Kafka, who's been with us these last few calls and is retiring from this side job. And thank you for your involvement in this. And to all the investors, thank you for your support. We had just a great quarter with 6,500,000 net adds, over 81,000,000 subscribers.
We cannot wait to break through 100,000,000 subscribers sometime next year. It's going to be a big celebration. We're looking forward to it. So thank you very much. Thanks.