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Netflix, Inc. (NFLX)

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Netflix, Inc. (NFLX)

JPMorgan Global Technology, Media and Telecom Conference Call

May 20, 2014 10:40 AM ET

Executives

David Wells - Chief Financial Officer

Analysts

Doug Anmuth - JPMorgan

Rod Hall - JPMorgan

Presentation

Doug Anmuth - JPMorgan

All right. Good morning everybody, my name is Doug Anmuth, Internet Analyst here at JP Morgan. It’s our pleasure to have Netflix's CFO David Wells. So Netflix world's leading internet subscription service for movies and TV shows. Company has about 36 million streaming subscriptions in the U.S. 13 million internationally and 7 million DVD subscriptions in the U.S. David has been CFO since December 2010 and prior to that head of FP&A. So, welcome David, thanks for being here.

David Wells

Thanks Doug.

Question-and-Answer Session

Doug Anmuth - JPMorgan

So, let's get into some sort of general questions first, but so Comcast, Time Warner cable, AT&T Direct TV, what is negative consolidation in the multi-channel space mean for Netflix?

David Wells

On a video buyer basis, they have greater scale, so it's going to be more leverage brought to there on their carriers negotiations. But I think for us, we are mostly concerned about consolidation on the broadband side, not necessarily on the video side.

So, we'll read the formal filing on Direct TV, AT&T, so won't say much there. But there was a mention of rolling out additional 15 million broadband household that would be a plus for Netflix I think. On the Time Warner cable side, Comcast side, we're mostly concerned with the fact that cable modem is a dominant technology in the provision of internet services and it's not equivalent competition for DSL and other things.

So, when you combine that dominance in the technology with the perspective to have 60 million pass broadband households, you combine scale with dominant technology and you get concerned about concentration of market power there.

Doug Anmuth - JPMorgan

Okay. How do you think about Netflix [System], both in the U.S. and overseas over the next five years? Why is 60 million to 90 million subs in the U.S. potentially achievable?

David Wells

Well, I don't think -- so our point of view hasn’t changed on that. We still think 60 million to 90 million is the right addressable market for us. We think those, that defines to set of folks in the U.S. that would be interested and able to pay for our service. And you get there a number of ways you've got 30 million households for HBO or thereabout in the U.S. for a non-direct product to consumer, they're at a much higher price point, we offer a lot more content for our service at the $9 level. And we are direct-to-consumer so we feel like with the direct product there would be a much bigger subscriber level and Netflix would be able to address that market.

The other way you would get there is looking at pay television households and thinking about 90 million to 100 million of pay television households. This just defines a set people that pay every month $40 plus for video services, so they're interested in video, they are able to pay for it and we're able to provide the superior aspects on demand with a great content set.

The other thing I will point out in the, when you look at our long-term letter which this is sort of laid out. I would say, we also intend and expect to continue improve our service, so you've seen a better product over the last year, which is much better in terms of content, it's much better in terms of the way it look and feel and the way it performs across devices and is delivered than it was two three years ago. And I would expect that rate of improvement to continue. So we'll continue to add content originals is a big piece of that. So we're excited about what we can do over the next couple of years.

Doug Anmuth - JPMorgan

And then just taking that over to the international markets. What types of overseas markets do you think work best with your model and how do you think about the global TAM sort of in relation to HBO’s around the 114 million global subscribers I believe?

David Wells

Overseas markets, it’s not a shock that what might work best is again the ability and interest; ability to pay and the interest in entertainment. So you look at large developed media markets and there is a huge demand for western and Hollywood produced content, you can drive that through what their incumbent MVVD players pay and license in the market. You can drive that through piracy, you can drive that through consumer expectations of what to watch and the social media graph on particular titles and shows. So we have a pretty good -- we have pretty confidence that there is demand for a product like Netflix in many additional markets that we are not in today. So broadband penetration, the usual suspects would apply broadband penetration, wealth levels, the e-commerce ecosystem and the smoothness and frictionless obtainment all of those apply.

Doug Anmuth - JPMorgan

Okay. You recently announced the pricing increase, so in the U.S. $1 for new members with existing members being grandfathered in. How do you think that’s been received by consumers so far? Are you sensing any kind of change at all in terms of the brand?

David Wells

Well, it’s pretty early, it’s 11 days, and I think we have learnt to season our conclusions a bit. But I would say it’s generally as expected. We were somewhat pleased, we expected a small reaction and I think we’ve gotten that so far.

Read the rest of this transcript for free on seekingalpha.com