Netflix Inc.'s (NFLX) CEO Reed Hastings on Q2 2018 Results - Earnings Call Transcript

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About: Netflix, Inc. (NFLX)
by: SA Transcripts

Netflix, Inc. (NASDAQ:NFLX) Q2 2018 Results Earnings Conference Call July 16, 2018 6:00 PM ET

Executives

Spencer Wang - VP, Finance & IR

Reed Hastings - Co-Founder and CEO

David Wells - CFO

Greg Peters - Chief Product Officer

Ted Sarandos - Chief Content Officer

Analysts

Todd Juenger - Bernstein

Spencer Wang

Good afternoon, and welcome to the Netflix Q2 2018 earnings interview. I'm Spencer Wang, VP of IR and Corporate Development. Joining me today are CEO Reed Hastings; CFO David Wells; Chief Content Officer, Ted Sarandos; and Chief Product Officer, Greg Peters. Our interviewer this quarter is Todd Juenger from Bernstein.

As a reminder, we will be making forward-looking statements and actual results may vary.

With that, over to you Todd, for your first question.

Question-and-Answer Session

Q - Todd Juenger

All right, thanks Spencer. So let's start with the obvious. So for the first time in I think five quarters net additions came in below your own forecast, both in U.S. and internationally, so whoever wants to, maybe you could help us walk through where was the source of that shortfall and what do you attribute it to? David, you want to hit that?

David Wells

Yes sure, Todd. So, in general I would say acquisition which is up year-on-year, but wasn’t up as much as we thought it was going to be. So and it was pretty broad across multiple markets, it wasn’t even one area of the world. And as you pointed out, after four consecutive quarters of under-forecasting the business we over-forecasted the business.

And you know, we strive for accuracy, we clearly didn’t have the number, but we think based on the rolling 12 months of growth that we've had compared to the prior rolling 12 months of growth the U.S. up slightly, internationally up significantly that the background and underlying characteristics of the business haven’t changed.

Our total addressable market is intact and hasn’t really changed based on those 90 days of actuals. And in general we think that the conversion and growth to internet enabled entertainment is intact and people are loving it. People are adopting Netflix around the world increasingly more in our newer markets as well. And so I think we're still on track for a strong growth year this year and maybe it's going to come in a little bit differently than we expected and others expected.

Reed Hastings

And Todd, you noticed probably that paid net adds are up compared to year ago and forecast to be up on year-over-year in Q3. And the fundamentals have never been stronger. Our viewing is setting year-over-year records that shows that we have coming, so we are feeling very strong about the business.

Todd Juenger

Terrific, I'll stay on this for just a couple more follow-ups and then we'll move on to broader things. Just wonder over the course of the winter there were some well publicized essentially global pricing increases, I wonder if you think that had any impact on either retention or gross adds relative to your forecast?

Reed Hastings

Oh we don’t think so Todd. I mean if anything we are all of 2017 we sort of had rolling increases in various different parts of the world we were able to grow continually through that and we continue to, so I don’t think that is contributing to the strength.

David Wells

And Todd, we've seen this movie of Q2 shortfall before about two years ago in 2016 and we never did find the explanation of that other than there is some lumpiness in the business and continued to perform after that.

Todd Juenger

Great. Let me hit on Q3 really fast or else I wouldn't be doing my job, so you are kind enough to always give us a forecast for that and it just stood out to me that I think it's slightly below net added from year ago, I only had a quick chance, I think that's I don’t know that's some paid or total or both?

David Wells

It's all total Todd. So as we pointed out, paid net adds are actually up year on year, but again we try not to focus too narrowly on like a couple of hundred thousand, right, around any one particular quarter. If you kind of look at Q2 and Q3, it's essentially kind of flat with last year and last year we had sort of 5 million, about 5 million global net adds in Q1, 5 million Q2 and 5 million Q3 and then 8 million in Q4.

Years prior we've always had very strong growth in sort of Q1 and Q4 relative to Q2 and Q3 and we think that pattern is going to happen again this year and so again we tend to focus on 12-month rolling over 12-month rolling not only in particular quarter because as we pointed out we've seen this movie before and we've been through these cycles of growth and we think the sort of background fact of people adopting internet entertainment including increasingly more international adoption is going to drive really strong year-on-year growth in international with U.S. hanging out in that 4 million to 5 million net additions band that has been for the last four to five years.

Todd Juenger

All right, one final sort of segue on to bigger things, so has the results or any learnings from this quarter caused you guys to change at all your internal forecast longer term for either sub growth or revenue growth or free cash flow?

David Wells

No, you know, as Reed indicated, I'm David, I'll take it again and others can chime in, but the business fundamentals the on track for 10% operating margin we indicated we do not support exchange headwinds, they kind of push us towards the bottom end of that range, but everything else is sort of tracking according to our target and plan. And so again we feel pretty good about it.

I mean obviously when you have sort of a million net adds we are going to manage within the band of marketing spend and other things to protect that operating margin growth in the short-term, but long-term nothing has really changed.

Todd Juenger

All right. Don’t worry Greg and Ted, I've got plenty for you, but moving to the other elephants that was already in the room, and just checking a bit on the competitive landscape, obviously a lot going on between Disney and Comcast and Fox and Sky. So I need to check in and hear what you are thinking in terms of what impact on Netflix. However, that result turns out and is there any particular results better or worse for your own competitive fortunes?

Reed Hastings

Yes, there's a lot of new and strengthening competition with Disney entering the market, HBO getting additional funding, the different French broadcasters coming together, so that's all normal and expected. So it is what it is, we're not going to be able to change it and then our focus is on doing the best content we've ever done, having the best user interface, the best recommendations, the best marketing, all of the things that we've been doing for many years in the past and we'll keep doing for many years in the future.

Ted Sarandos

And the other thing I would add to that Todd is, the market for entertainment is so big that there can be multiple firms that are successful, so you've heard us talk in the past about how we've been able to grow dramatically in the U.S. in HBO and other networks have also similarly been able to growth at the same time, so it's a very large market.

Greg Peters

And in our programming we've always been focused on keeping people entertained and satisfied on an absolute basis, not relative to any consumer. So we're just trying to -- or any competitor, so really by keeping an eye on our members and our consumers we're better served than hyper focusing on competition.

Todd Juenger

So one of the most frequent sort of investor questions related to this topic is access to content, licensed content, particularly from Disney and Fox. Let me start with this very specific one, there is a wide, wide, variance in degree of opinion on how much content on Netflix comes from off network licensing of Disney and Fox content, care to narrow that down for investors and give us some sense of just both from a availability perspective and from a different viewership perspective how much is there?

Ted Sarandos

No, I don’t want to narrow it down anymore than it is, but I would tell you that it's been a number that's been on the decline for several years. You should think about it the way we looked at this long-term is that our competitors will want that content on their own services. That was a bet we made a long time ago when we go into original programming and every year since that we've been doing less and less off net business with Disney and Fox. And our bet is long term, that they'll want all their content on their service. In the short to medium term, we're still licensing content off net from them and they're also producing original content for us like Nurse Ratched from Fox or the Marvel series from Disney.

Todd Juenger

I know you've answered this question Ted, I think the last two or three quarters consecutively, but I've got to ask again, any reason to expect those types of -- sort of original shows that you get from Disney and Fox to change given the new information that from what they are doing?

Ted Sarandos

No, those shows are for us to cancel and we're super happy with the performance of them so far, so and the Nurse Ratched and some other Fox original titles are still upcoming.

Todd Juenger

So speaking of your own originals, I want to touch on a couple of sort of relatively newer areas of focus for you and just check and see how it's going, so one is unscripted, right and it seems, and you talked about this last quarter, it's been a sort of recent elevated higher priority for you guys, how is that going, what's your experience been, is it being enjoyed by your members as much as you thought?

Ted Sarandos

Yes, and we're super excited about the variety of the shows and how they are landing with consumers. Similarly we thought a long time ago that the unscripted networks are also going to want to keep their own content for their own services and we started investing our own unscripted programming and have had some really great out-of-the-box hits with Nailed It and Fastest Car and Queer Eye that are doing great with our watchers relative to building an audience and also you saw Queer Eye did quite well at the Emmys, the nominations announced last week. So we're really excited with the progress and the speed to market and we've been able to do our unscripted shows at really high-quality.

Todd Juenger

On the original movie side, another not quite-so-new area of focus, but still more recent, what is your assessment of your progress versus where you'd hope to be on that front?

Ted Sarandos

We're moving as quick as we can with and still delivering what have been movies that people want to watch. So we saw on the letter, we talked a little bit about the results of our romantic comedy, Kissing Booth and there was much made in the press this summer about our romantic comedies have all been pretty successful, Set It Up just after Kissing Booth.

And so these are movies that are not really being made in the market much and we're doing and moving into those, but we're also doing a lot of the big event films with A list directors and these are long lead production times and we're really excited with the way they've been delivering in terms of viewership and we think that we'll see similar trends that we saw in television, but it will take another year or so as we get into it.

Todd Juenger

And one final one I wanted to check in on which will allow us to move forward here with what I'll call non-English language for lack of a better word. It seems like you're making more stuff in other places of the world, it seems like that's having success all around the globe. I wonder if you could confirm that and talk about your own assessment of the returns you're getting on those sorts of program investments?

Ted Sarandos

Yes, similarly fast ramp up an early success. So we've been producing shows that are incredibly relevant in their home territories and the nice windfall is they get viewed all over the world. So we saw that recently with Reign and Dark. We certainly, in India we saw great success recently with Sacred Games, that really people - really excite the market and these are places where our global business play well too.

So it's really I think accelerating the brand perception of Netflix as not just an out-of-towner, but someone who is producing content you care about in every part of the world. Upcoming this year we have new seasons of Chicas Del Cable from Spain, Ingobernable from Mexico, we have initial from Spain called Elite coming out in Q3, Ghoul in India coming out in August and these are shows that are produced at a level that are really high that consumers get really excited about and it helps them get really excited about Netflix if they are not quite sure who we are yet.

Todd Juenger

All right, so now that we've moved on outside of U.S. I think we should - Western World, can I check in just a little bit, specifically on Asia and carve out India for a second, so I'm going to come to India specifically later, but just – so Asia is a huge reason generally I think we've talked in the past how the content tastes there are a little different, the business model you are hoping to find the exact right formula. How is your growth going in Asia, generally what is driving it, is it at a similar pace at the same stage other markets in the world, any deeper info you can give us on that part of the world anybody?

David Wells

Reed, why don’t you take it?

Reed Hastings

Sure, you know I'd say Todd, we're starting to turn the corner in many other nations where our viewing is climbing up as we're continuing to improve the programming and when we get high viewing in every other market that has brought in a fast growth. And so we've see that, it's varied country-by-country, I'll include India in the description and say we are really pleased with our progress and tracking we're making since we launched two and a half years ago. And we just have a lot of work and a lot of opportunity ahead.

David Wells

And Todd, the only annotation I would say is, look it's still early. We launched with a very sort of a skim model approach and we've out augmented that, right. We're adding payment methods, we're adding more content. We are working on all the playbooks that has been successful for us in other markets of the world and you see that through increased investment and so that sort of last wave of expansion for Netflix is still relatively early and that's affecting our growth numbers, it's affecting our levels of investment as well where other marketers are sort of growing in profit, that actually those markets collectively are growing in loss and we have more growth in the profitable markets than we do in the loss markets and that's what's growing the overall margin.

Greg Peters

Yes, and we've been very thrilled with our original production of anime that's being viewed quite and regionally throughout Asia and of course in Japan, our scripted series and our unscripted series like Busted! from Korea or Terrace House from Japan are viewed throughout the region which are building brands bigger and bigger.

Todd Juenger

So thank you for sort of carving out India separately only because - for a number reasons right? As such a place with huge potential, I think numerous executives have been quoted into various places recently talking about the potential there. You've got some new original shows there. So specifically in India, if you could dive a little deeper into where you are on the growth curve there. How you see the path to success and how big that could be for you in the next many years?

Greg Peters

Well Todd, we’re way behind YouTube, Hotstar. Those are really the leaders on the internet. And there is so much TV viewing at Linear TV that could be internet viewing. And the advantages are tremendous in India for internet viewing because you don’t get the ad load that you see that’s so high in all of the other platforms.

So Netflix is having great success getting established, getting a reputation going and with this triplet of Lust Stories, Sacred Games and Ghoul, we're really getting some nice momentum in our India growth. Now it still – we’re still as David said a niche product, we’ve got a long way to go to expand languages and many other aspects to able to cover – be a broad Indian product. But in terms of our beachhead, I’m very pleased with what we’ve been doing.

Todd Juenger

Greg, there seems like there is some maybe seemingly obviously particulars about the Indian market from a product perspective that might be peculiar. How much of that is, just from the infrastructure that exists and the affordability in the marketplace. Is that true and if so what you’ve got up your sleeve to try and make Netflix easy for everybody in India to enjoy it?

Greg Peters

There are definitely a few specific things that we’re doing there to get payments and how sign-up has to happen. We just rolled out some improvements on the sign-up flow on TVs. So we are making that easier for non-members to become members in that dimension. But actually a lot of the work that we do that helps our members in India is actually applicable in some sense globally as well. Whether that’s more efficient encodes to make the viewing process higher quality, start faster that obviously is great for our members in India but it’s great for members around the world.

Downloads is another great example where now we've rolled out downloads for when you don’t have great connectivity or you don’t want to use the data in your data cap. Now we’ve just actually rolled out the next iteration of that smart download so we can make that process even more fun and easy by having episodes you watched, automatically delete and get replaced by new episodes whenever you come back on our Wi-Fi network. So it’s a mix of both India specific and just globally relevant.

Todd Juenger

Yes, I know you talked about payments and just that whole stream. It’s a question that comes up a lot with me with investors is just a thought about the affordability of the products relative to relative incomes, that comes up a lot in India. I'm going to broaden the question to just various places in the emerging world. How much room do you guys feel you have there in India and other places, are you – do you sense you're reaching a limit in any sense in terms of the utility of the product compared to alternatives and customer’s ability to pay that would affect retail ARPUs anytime over the near horizon?

Greg Peters

I would say we’re far from reaching a limit in terms of the addressable market given the pricing structures we have right now, we've got a lot of room to grow in a reasonably affluent part of the society in India and other markets around the world. So much more runway, but having said that we’re constantly testing our pricing models what pricing strategies work best for our members around the world and trying to find what features, what tiers we can add to make that – a both a revenue positive but also a consumer friendly and consumer fair kind of approach.

David Wells

And Todd just to build off that a little bit, when we’re talking about India a little bit as homogenous, but breaking this apart, Reed has mentioned it, Greg has mentioned it. We may have an issue where there's three or four different sort of growth patterns within India in terms of different demographics, different segment and groups as we address one segment and then we start addressing another and so forth and so forth. And each one has a specific set of challenges with it and we’re in the early days of sort of that first segment. So yes, expect more from us in terms of getting into segments two, three, and four.

Greg Peters

I don’t think that the price point is mostly relevant to the value proposition. Our Indian consumer is finding a lot to watch on Netflix and having a great time doing it and if there are that price point becomes more of a value proposition than a premium proposition.

Todd Juenger

Yes, just picking up on that, once statistic that you guys sometimes mention and sometimes don’t. I don’t think I saw it in the press release was a notion of engagement as one good perhaps indicator of value received by your members. Any comments on where engagement I guess defined as hours streamed, hours streams per member, so this quarter, is it still growing in line with content growth any thoughts?

Ted Sarandos

It is indeed still growing Todd on a year-over-year basis our viewing and actually mostly measured by median view hours is growing. So we’re super excited about that. And we’re still a small fraction of as of every society’s overall viewing so I think there’s still room to grow there.

Todd Juenger

Got it, one more on pricing, just because I know you’re always testing we all know that, but one of your tests got picked up in the press we actually stumbled across it, is this idea of an ultra plan seems to be a test for HDR viewing that you’re experimenting with. Just any thoughts you want to share on the theory behind that and the marketplace acceptancy you think might exist for that type of a plan?

Greg Peters

I'd say more generally rather than speaking specifically to end results because that’s still very much in progress. We want to test it both ends of the spectrum here and try and figure out ways to add more value for those members who might see that being good value while we’re testing it’s more accessibility how we can create a way to access Netflix for a broader group of people. But a test that’s still in progress and no results to discuss at this point.

Todd Juenger

Fair enough, so another way that you’ve been going to market increasingly it seems is with these partner deals and maybe there is a better internal word for them and they were mentioned again in the shareholder letter, I'd love to check in on a couple of things on that. So first of all is anybody willing to tell us roughly how important these are to your net add growth to your overall subscriber base. Any sense of proportionality there other than what you said in the letter which is basically a supplemental channel, but the majority is still direct?

Reed Hastings

I think I had to reiterate that the vast majority of our acquisitions still comes by consumer signing up directly with us. You were fairly new when it comes to these partner bundles we’re excited and optimistic about it. So I think that that will grow as a percentage of our acquisition. And what we’re really excited about is actually allows us to sort of more efficiently address different consumer segments.

So take the U.S. for example a market we’ve been relatively well penetrated in by doing a deal like with Comcast allows us to put the application on the setup box where consumers that might be less early adopters or more late adopters are already watching traditional television by being included in a bundle we get to remove a separate purchase decision. We get to eliminate the sign-up flow which just makes it super simple and easy for consumers to sign-up via that mechanism.

David Wells

And Todd just to be consistent with what we said in prior quarters it is a growing element of our acquisition right. As Greg said, as we penetrate into demographics in established markets that may not be on the early part of that as of adoption and also our newer emerging markets where partnerships may allow us to do things like partner billing and tap into consumer trust that’s a little bit earlier in the cycle that if we establish that ourselves.

Todd Juenger

Is there any feedback you’re in a position to share from the partners themselves in terms of how these programs are working for them? Not a single -- T-Mobile comes to mind just because they have been added in the States the longest, but any place in the world you characterized their feedback to you?

Greg Peters

Yes I think, it is something that's very important to us because obviously we want a sustainable model around this where it's adding – it’s valuable to the partners, perceived as valuable by them n supporting their business so that they want to continue to invest in it and expand it. And again market-by-market its different, but it's either a differentiation strategy where our partner is seeking to position themselves slightly differently, but oftentimes it just actually a way of them communicating to the consumer the value that they are investing in their network or the quality of service and like that and having Netflix, an amazing content that we have and having a really high quality experience with that is a great way of just telling that story to their customers and their customers to be.

Todd Juenger

It creates a great narrative that that they’re a good video source because when you’re talking about Netflix it becomes the symbol of a great data system right?

Greg Peters

Especially when you think about we’re trying to be super innovative on the video quality and audio quality all those things that you unlock by having a great network and a great service.

David Wells

And just add on Todd, we’ve been doing partnerships with other partners for many, many years and we’ve had many multiyear relationships with many of our different partners. So as Greg said we want to be sustainable and because we have had these for many years, I think you can extrapolate from that that they are very successful for both parties.

Ted Sarandos

And Todd it's not a radical thing, NVPDs bundling another network, that's pretty [well tried] territory on their side.

Todd Juenger

One of the things that these partnerships gives to you is also some marketing investment which is done on your behalf by them. Coming into the year, one of the themes that seems to that I interpreted from you guys was a little bit relative increase in the emphasis of your own marketing investment behind your content and your service, just checking and had so and I guess we've see that in financials too. So just how is that going? Are you seeing the returns that you hoped for? And any specifics? Can you may be help give us some examples of specific types of marketing programs and how you measure your investment of that where you're spending these incremental dollars?

ReedHastings

We’re very pleased with growth and our ability to invest. A lot of it is behind title brands and seeing how do we help title brands really maximize their potential within the overall system and we're doing lots of tests trying different methods in different countries, learning what’s the most efficient ways to build demand for a title. So there's tremendous amounts of learning going on there and then we're also doing acquisition marketing and learning on that side. David, did you want to add to that?

David Wells

No, I think that's great. Just to remind Todd it's been a while we've been out of the sort of, we spend this much on marketing, we grew this much directly in a quarter. We - only a fraction of our spend is oriented around direct acquisition. What Reed is saying is like the majority of the marketing spend call it 80%, 85% is oriented around building title brands and we've got good evidence that we can do that. We're just parsing through what the most efficient mechanism is to market those titles and also where the right amount of spend is as well as we grow our content library.

Reed Hastings

And what we see a lot is that the channels themselves vary by the top - around the content itself too, so learning more about how to get more and more refined about which channel is for which content, get the best results are the things that we're learning right now.

Todd Juenger

And Ted, were you pleased with the Emmy nomination campaigns?

Ted Sarandos

I was thrilled. So we took the record obviously it was the most, but the thing I was most proud of is we had 40 different shows nominated, to kind of give you an idea of the kind of different variety of things that we're doing, scripted, unscripted, comedy, drama, talk shows, everything across the board, everyone was represented, it was 40 shows we were the very happy people last week and millions of fans around the world too.

Todd Juenger

Well, here comes the world's most inelegant segue, but being respectful to your shareholders, the single most popular question I got in prep for this, so I'm going to share it with you out of duty to that. I'm sorry was it revolving net neutrality and so I guess we have a new administration relatively here, not that new but between that and some other…

Ted Sarandos

Around the world the net neutrality has won as a consumer expectation and some countries have net neutrality laws, other countries don't. But broadly around the world consumers have the expectation and ISPs are delivering it. So I would say the net neutrality advocates have won the day in terms of those expectations. So we don't see any changes of that in the U.S. or other countries. So it's quite a positive outcome for changing cultural expectations in a positive way.

Todd Juenger

Okay, flipping back in elegant way to my more core line of questioning and speaking of big investments Ted, I didn't give you a chance yet to talk -- you've got some big new partners in terms for your producers on overall deals, it caught the attention of investors obviously, your Ryan Murphys and your Shonda Rhimes and your Jenji Kohan not to leave out anybody. Can you help us think through are there more of those to come? A as one question and more deals like that and more people like that? And sort of secondly related what's the timeline, when - has development started from any of these resources and how long before we see the output of their work on -- starts to show up on Netflix?

Ted Sarandos

That's a great question and they are - you should think about it's a pretty rare creator who has an ownable sensibility who produces a lot of content prolific and successful. People like Shonda and Ryan and Jenji and Jason, they have a brand and they care about the brand and they want to create on that brand, they want to be - and they want to create a lot. So we could give them an infrastructure to do that at Netflix because we have a great history of finding -- connecting an audience for all those different shows.

So that’s not true of all creators, but it has been with the shows that we're doing so far and we're looking and we will probably do more, but it is a pretty rare breed of creator. And then we just physically moved Shonda into her new home here at Netflix and we're thrilled. She has a couple of shows percolating now that we can't announce yet, but we're really thrilled with the direction she's going. Ryan's finishing up his work at Fox and then he will be full steam ahead. Remember his last two shows at Fox are going to be our first two shows actually with The Politician and Nurse Ratched. So we’re in the Ryan Murphy business in a big way. And then Jenji going from Weeds to Orange Is The New Black, and to GLOW was exactly I'm talking about being prolific and successful, so we’re really thrilled.

Todd Juenger

All right. Moving David to your very specific world and then a popular question I received. So and you answer this every quarter. Just regarding your continued use of debt to finance your current free cash flow deficits especially in an era of rising rate or current environment of rising rates, just need to check in and make sure we understand your logic and your continued ability or plan to finance the company and the future deficits for next [year]?

David Wells

We continue to see debt as the most optimal choice, the most cost effective use of capital or sorry source of capital for the company. Obviously we'd love to get to that point where we're organically and self-funding content and we do see a point where we can't get there, but until we do, we see debt as the right choice in terms of cost to capital.

Todd Juenger

Another popular question, I am getting through as many as I can before Spencer tells me time is up, so here is another one and probably for either Ted or Reed, you guys get this a lot. Investors still want to know your desire or appetite for sports type of content rights, for news oriented type of content rights or for other expansions of your platform, you either get into audio or gaming or selling other people's products any of those sorts of new genres or potential expansion theories where you are on those?

Ted Sarandos

No change in our long-term views that have been as you referred to expressed over and over, we have such an opportunity in movies and TV shows of many types around the world that it's consuming every bit of energy and excitement that we have.

Todd Juenger

Got it. Let me if I can move to what I think might be sort of the seminal question, two questions, for long-term Netflix shareholders which is really you've got about 130 million global members now. How long is it going to take you to get the next 130 million and if you double your members, are you going to need to double your spend in content and marketing to attract and retain them?

Ted Sarandos

Well it's kind of hypothetical to think about the P&L structure, we’ll learn as we go. We've been very attentive to all the key factors which is we want to invest enough on content to make our subscribers incredibly happy because that's how we grow. So you know it's a really smart investment for us on the content side. We want to invest in product and marketing to make the whole service better, to make the shows be more aware.

We also want to steadily increase operating margin over the next several years, and so as an example, we've got some adjustments to make because of foreign exchange rates and we know we'll make those adjustments and we'll grow into that. So I think of ourselves continuing every year to figure out how we make certain adjustments to keep the operating margins growing, the subscriber base and revenue growing, and that's been a basic way we've been operating over the last several years.

So it was more of the same, and in terms of the dartboard as you know several years out on when we double, the answer is not soon enough. We're always pushing hard to figure out how can we get even more growth, but we're awfully pleased with what we've got to.

Spencer Wang

Todd, I think we have time for one more question.

Todd Juenger

All right. So I guess I'll use that just to expound on the big dartboard I just asked and maybe start with Greg and then anyone else who wants to come in. When you think about the product itself which is the underpinning of the belief you have in the growth, what's on your short-term and long-term list of things that you think your members most desire would move the needle most from a product perspective, from a content perspective, from a overall pricing and value perspective and therefore drives your agenda I guess each of you over the rest of this year and into the coming decade?

Greg Peters

It’s a long, long list and we want to make really almost everything better about the product. I'll just sort of highlight one that’s fun and happening right now. We talked about sort of improvements in the mobile UI and smart downloads but I don’t want to leave out TV and it was all of this amazing content that we’re bringing out.

We’ve been working really hard over the last several months and quarters even testing and researching, how do we make that TV experience faster, more fun, easier to find, the stories that our members will love and we’re actually going to roll some improvements out to that experience and make that better starting tomorrow. So starting this week you’ll see those and that’s what we expect to be a long line of incremental improvements that make that experience even greater for finding the stories that you love.

David Wells

And I'd say in the short term we’ve got, I have got the great pleasure of trying to make people very happy and in the short term we’ve got new seasons coming up the second half of this year of Orange Is The New Black, Ozark, Iron Fist, Daredevil, Narcos, the finale of House of Cards, the followup series for Making a Murderer and we have some brand new IP coming up with new shows like Insatiable, Maniac with Emma Stone and Jonah Hill, Disenchantment from Matt Groening, the creator of the Simpsons doing animated comedy for us, a new show from Greg Berlanti's company, the Chilling Adventures of Sabrina a spinoff of Riverdale that's been hugely popular for us.

And that all ramps up to bigger and better feature films too for our fans around the world starting with the Christmas chronicles from Chris Columbus later this year and Bird Box from Sandra Bullock with the great Susanne Bier directing. That will lead us into next year we have movies from Martin Scorsese and Alfonso Cuarón and all these fantastic directors and the opportunities are just limitless.

Spencer Wang

And then for me and Reed have the honor of going there and wrapping this up, but I would say we've got 130 million members and the prospect of adding, wherever that is 104 million the next 130 million, all of those folks enjoy connectedness and as we grow to enjoy more stories that are sourced from wherever in the world I think the ability for all those folks are a great portion of those folks to enjoy and see a story and discuss that story, in the same moment is great and Netflix being an enabler of that will continue to do that and I look forward to the 8 billion of content growing from here. We think we can grow operating margin, but we're also going to grow content spend which will enable more of that content.

Reed Hastings

And Todd for me it's about connecting the world and sharing the stories all around the world. I think we've got so much more we can do with that as we learn the various arts of dubbing and style and I think that will make a really profound contribution to the world in addition to just entertaining everyone which is very joyful to work on.

With that, let me thank everyone for participating in the call and look forward to spending time with you guys investors over the quarter. Thank you very much.