Netflix, Inc.

Good afternoon and welcome to the Netflix Q1 2024 earnings interview. I'm Spencer Wong, VP of Finance, IR, and Corporate Development. Joining me today are co-CEOs Ted Sarandos and Greg Peters and CFO Spence Newman. As a reminder, we will be making forward-looking statements and actual results may vary. With that, we will now take questions that have been submitted by the analyst community and we'll begin first with some questions about paid membership reporting and our results and forecast. So for our first question, it comes from Justin Patterson of KeyBank, and I'll direct this at Greg initially. Greg, could you please talk about the decision to stop reporting quarterly membership in ARM data in 2025? Why eliminate this? And since you said success starts with engagement, how are you thinking of expanding these disclosures?

Yeah, as we noted in the letter, we've evolved and we're going to continue to evolve developing our revenue model and adding things like advertising and our extra member feature, things that aren't directly connected to a number of members. We've also evolved our pricing and plans with multiple tiers, different price points across different countries. I think those price points are going to become increasingly different. So, you know, each incremental member has a different business impact and all of that means that that historical simple math that we all did, you know, number of members times the monthly price is increasingly less accurate in capturing the state of the business. So this change is really motivated by wanting to focus on what we see are the key metrics that we think matter most to the business. So we're going to report and guide on revenue, on OI, OI margin, net income, EPS, free cash flow. We'll add a new annual guidance on a revenue range to give you a little bit more of a long-term view. We're not going to be silent on members as well. We'll periodically update when we grow and we hit certain major milestones. We'll announce those. It's just not going to be part of our regular reporting. We want to do all of this thoughtfully and give everyone time to adjust this transition. So we're going to continue to report subscribers until Q1 of next year, which links into our next annual revenue guidance for 2025. So we think that provides some long range continuity and we expect that will provide an effective bridge and transition. But ultimately, we think this is a better approach that reflects the evolution of the business and it more matches and is consistent with how we manage internally to engagement, revenue and profit.

Yeah, and on engagement, Greg, just a reminder, we currently report our engagement on our biannual engagement report, leading the industry in viewing transparency and granularity. And we're going to look into building on that both in granularity, which would be kind of tough. Our current report covers about 99% of the viewing on Netflix, but we'll look at the regularity in different ways that we can make it even easier to track our progress on engagement and uh but importantly why we focus on engagement is because we believe it's the single best indicator of member satisfaction with our offering uh and it is a leading indicator for retention and acquisition over time so happy members watch more they stick around longer they tell friends uh which all grows engagement revenue and profit are north stars uh and so and we believe that those are the measurements of success in streaming