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Netflix Inc. (NFLX)
Q3 2010 Earnings Call Transcript
October 20, 2010 6:00 pm ET
Deborah Crawford – VP, IR
Reed Hastings – Founder, Chairman & CEO
Barry McCarthy – CFO
Youssef Squali – Jefferies
Mike Olson – Piper Jaffray
Mark Mahaney – Citi Investment Research
Steve Frankel – Dougherty & Company
Nat Schindler – BofA-Merrill Lynch
Ryan Hunter – Wedge Partners
Jason Cheu – ABR Investment Strategy
George Askew – Stifel Nicolaus
Ben Rose – Battle Road Research
Jason Helfstein – Oppenheimer
Daniel Ernst – Hudson Square Research
Brian Fitzgerald – UBS
Andy Hargreaves – Pacific Crest
Wayne Chang – Canaccord Genuity
Jim Friedland – Cowen
John Blackledge – Credit Suisse
Barton Crockett – Lazard Capital Markets
Michael Pachter – Wedbush
Doug Mitchelson – Deutsche Bank Securities
Edward Williams – BMO
Scott Devitt – Morgan Stanley
Eric Wold – MCF
Tony Wible – Janney Montgomery Scott
Arthur Mangriotis – Fox Point Capital
Doug Anmuth – Barclays
Doug Robinson [ph]
Previous Statements by NFLX
» Netflix, Inc. Q2 2010 Earnings Call Transcript
» Netflix, Inc. Q1 2010 Earnings Call Transcript
» Netflix, Inc. Q4 2009 Earnings Call Transcript
» Netflix, Inc. Q3 2009 Earnings Call Transcript
Thank you and good afternoon. Welcome to the Netflix third quarter 2010 earnings Q&A session. We released earnings for the third quarter at approximately 1.05 PM Pacific Time today. The earnings press release, management's commentary on the quarter's results and the webcast of this Q&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&A and we are going to conduct the Q&A via email. Please email your questions to firstname.lastname@example.org. 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-K filed with the Commission on February 22nd, 2010. A rebroadcast of this Q&A session will be available at the Netflix website after 6.00 PM Pacific Time today. With that, let’s begin the Q&A session.
The first question is from Youssef Squali of Jeffries. How important is exclusivity of content in 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 I am interested in non-exclusive content. But we end up doing exclusive sometimes basically to play with the way that 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.
Second question from Youssef. What is the percentage of the subscriber base that get Blu-ray today versus one year ago?
Youssef, it’s up from a year ago, but it’s pretty flat in recent quarters. So, now it’s still a nice little part of the business and it’s fine for us.
The next question is from Mike Olson at Piper Jaffray. What are your thoughts on pricing? I realize you are in grabbing share mode, but I think it’s occurred to us churn would not be significantly impacted by a $1 per months 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 had frequently reminded our listeners that we are testing all the time and some of you (inaudible) price test in the marketplace currently. Obviously, the pricing in Canada is working off for us and may be that will or will not play 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. Would you expect the relatively higher mix of TV show consumption via streaming versus via DVD to continue going forward or do you expect it to come down as you build out more movie selection? 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 next consumers want as opposed to trying to guide that and so we are trying to get a broad selection of content both in movies and in TV shows. And currently, the subscribers (inaudible) in about equal proportion 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 are longer. But we are not trying to drive it one way or the other. We are just trying to build out a whole lot of content that our subscribers want to watch.
Second question from Mark Mahaney. Are there earlier indications that recent free subscribers convert to pay subscribers at the same rate as they have for you historically?
Sorry, is the question, is the P1 conversion rate whole and constant with historical levels, answer to that question is yes.
Our next question is from Steve Frankel at Dougherty & Company. You commented that the increase in free subscribers was a reflection of both faster U.S. growth and the initial push into Canada. Do you expect free subs to remain at these higher levels relative to the historical norm or will it normalize in the next quarter or two?