Top Investor Questions

 Our financial goals are to sustain healthy revenue growth, expand our operating margin and grow free cash flow.

We have plans based on concurrent streams, picture quality, and other features, and in some markets, ad-supported and mobile-only plans. We don't think tiers of content would be the best way to grow the business at this time. See our Plans and Pricing page for further details on our current offering.

The Company does business in over 190 countries and has exposure to over 45 currencies in the normal course of our business operations. Currency movements will impact both the value of our revenues as well as the value of our operating and content costs. Our FX exposure is disclosed in our 10-Q and 10-K filings. In 2023, we commenced an FX risk management program. Our F/X risk management program will allow us to better balance delivering on our near term financial objectives without having to over-react to short term swings in F/X rates (by either immediately reducing expenses and/or raising prices should the US dollar appreciate vs. other currencies). Over the medium term, we’ll continue to adjust our pricing and cost structure as appropriate given fluctuations in F/X. 

In terms of our approach, we’re using standard forward contracts with the goal of reducing volatility in our operating profit. We won’t hedge all of our currencies and are focusing on the currencies where we have the largest exposure and greatest risk/volatility, among other factors. Therefore, we’ll still have exposure to foreign currency movements, but to a lesser extent than without hedges.

In setting financial guidance, we use the prevailing FX rates at that time, adjusted for the impact of hedged currency positions. For example, in April, when we provide guidance for Q2, we use the (1) effective average hedge rates for all hedged currency positions and (2) FX rates at the time in April for all unhedged currencies. We also slowly adjust pricing over time to mitigate foreign exchange moves over the longer term. However, when unhedged currency movements are rapid, they may affect our near term operating margin. We’ll tend to outperform our near term operating margin targets on dollar weakness and underperform on dollar strength.

We care about membership growth, but primarily focus on long-term revenue maximization. With that in mind, our primary metric for growth is revenue. We seek to grow revenue because it allows us to invest in more and better content and to improve our service and deliver profits for our shareholders.

We offer several different price points so that consumers can select a plan that best fits their circumstances and needs. Additionally, we periodically adjust pricing as this allows us to invest in the service to better serve our members. We also test different approaches to pricing (including different plans and price points) to better understand consumer demand.

For an overall view of our original content slate and upcoming premiere dates, please click here.

We evaluate the performance of our originals several ways. We measure the impact of our originals on our ability to acquire new members and engagement, which is correlated with retention of existing members. We also seek reasonable economics relative to other exclusive content on a cost per hour viewed. We also take into account critical acclaim and awards for our originals and the impact original series may have on enhancing our brand and attractiveness of our service which helps with member growth.

We utilize detailed statistical models to determine expected hours of viewing for each piece of content over its license period. We compare cost per hour viewed against other "like" content deals (i.e. exclusive versus non-exclusive, TV versus movies, etc.) We look for high engagement and cost efficiency. For renewals, we look to renew content that performs well (based on hours generated relative to the cost) and do not renew content where the price doesn't make sense relative to the value generated. We feel we have good breadth of content so that no specific title or set of titles is must-renew.

Given the success we've had with our original series and films, we have increased our investment in this area over time and originals represent the majority of our content spend. We will also continue to license titles to complement our original programming and invest in newer content areas, such as gaming. Over the long term, we expect our total content investment to increase.

 We believe great stories transcend borders. There are amazing creators of content from all parts of the world and our global footprint allows us to showcase these storytellers to members across the globe.

We already invest significantly in local content around the world because we believe great stories can come from anywhere and can be enjoyed everywhere. Over 70% of our members are now outside the US and we offer more and more great, authentic, local stories to further satisfy them and grow engagement in these regions. We are now producing or co-producing in over 50 countries and languages with the goal of delighting local audiences. It is well known that Hollywood content travels very well abroad, but we also see that our biggest local language titles also find audiences in many other countries, including the US, and can go global as we saw with Squid Game (Korea), Money Heist (Spain) and Lupin (France). 

We announced our entry into games in late 2021. We started with mobile and over time hope to expand onto other devices, like TVs. We believe we can build games as a strong content category, leveraging our film and series, by connecting our members, especially fans of specific IP, effectively with games that they will love.

We follow the guidance of ASC 920, Entertainment - Broadcasters, which provides the accounting framework for licensees of films and TV shows as applicable to our business. We follow the guidance in ASC 926, Entertainment - Films for the costs associated with the production of original content.

We generally license content for a fixed fee and a defined time period with payment terms varying by agreement. The signing of a license agreement to obtain future titles creates a streaming content obligation which we include in our Contractual Obligations footnote disclosure in our 10Q's and 10K's. If the minimum obligations are quantifiable, the amounts are included in the tabular disclosure. For deals with unknown future output, the obligation is added in the table when the title and its cost become known. Once a title is made available for us to use on our service, a Content Liability (current for the portion due within one year and non-current for the portion beyond one year) and a Content Library asset are recorded (current for the portion to be amortized within one year and non-current for the portion beyond one year) on the Balance Sheet. We also produce some content. For productions, we capitalize the costs, including development cost and direct costs. These amounts are included in "Non-current content library, net" in our balance sheet. For certain content where we expect more upfront viewing, due to the additional merchandising and marketing efforts, the amortization is on an accelerated basis. For more details on our content accounting, please refer to this overview.

Our streaming contractual obligations represent content that we have committed to licensing in the future that will eventually be recognized in our income statement as content costs. This provides us with access to an ample amount of content over the next several years. Other TV networks that enter into multi-year programming commitments (such as for sports rights) have similar obligations.

Yes. We have entered into certain license agreements that include an unspecified or a maximum number of titles that we may or may not receive in the future and/or that include pricing contingent upon certain variables, such as theatrical box office performance. As of each reporting date, it may be unknown whether we will receive access to these titles or what the ultimate price per title will be. Accordingly such amounts are not reflected in the Contractual Obligations table but they are expected to be significant and the expected timing of payments could range from less than one year to more than five years. Traditional film output deals are an example of this type of license agreement. Once we know the title that we will receive and the license fees, we include the amount in the Contractual Obligations table.

Streaming content amortization is included in and comprises the vast majority of our Cost of Revenues.

Yes, other content costs outside of content amortization include expenses related to content personnel, physical production, post production, music rights, and overall deals. These are included in cost of revenues.

Cash payments for licensed originals are weighted more upfront (relative to P&L) and for content that we produce, we fund the production cost during the content creation process prior to the completion and release of the title, when amortization begins. These timing differences can result in content cash payments being higher or lower than content amortization on our P&L in a given quarter or year.

Our cash payments for content can be derived from our cash flow statement. The sum of Additions to Streaming Content Assets and the Change in Streaming Content Liabilities equates to our cash spending on streaming content.

As we found success with our originals, we quickly grew our investments in  original content since our first original series debuted in 2012. This expansion weighed on FCF, as cash payments are more front end loaded than second run content licenses. Now that we’re past the most cash-intensive phase of building out the original programming strategy, we plan to deliver substantial, growing FCF.Additionally, we no longer have a need to raise external financing to fund our day-to-day operations.

We fund our investments through operating profits and, historically, by raising debt. Given that we are sustainably free cash flow positive, we believe that we no longer have a need to raise external financing to fund our day-to-day operations.

Our capital allocation strategy is to prioritize profitable growth by reinvesting in our business, maintain ample liquidity, and return excess cash (beyond several billion dollars of minimum cash and any used for selective M&A) to shareholders through share repurchases.

Additionally, we have a $3B revolving credit facility and we expect to refinance upcoming debt maturities. We don’t currently have plans to increase leverage to buy back stock or issue a dividend, as we value balance sheet flexibility.

The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy, not conservatism, in our forecast as under-estimating revenue growth would result in under-investing in content, marketing and other aspects of our business. This means in some quarters we will be high, and other quarters low, relative to our guidance.

Since the early days of streaming, we have partnered with a wide array of companies to make it easier for consumers to discover, sign up, use and pay for the Netflix service. Our partners include consumer electronics device companies, game console manufacturers, pay TV and mobile operators, Internet service providers, mobile device and set top box manufacturers, and brick and mortar retailers (gift cards). Some partnerships include marketing arrangements to increase the general awareness of Netflix and to attract new members. In turn, our partners benefit through customer acquisition, the opportunity to upsell higher value packages of speed/data/content, lower churn and increases in brand affinity. For the majority of these partnerships, we recognize revenue from new members acquired via partners on a gross basis and payments made to the partner as marketing expenses. If a partner bills on our behalf, the associated payment processing fee is recorded in cost of revenue alongside our other payment processing costs. In cases where the price that the member pays for the service is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

As discussed in our Long-Term View, we compete with all the activities that consumers have at their disposal in their leisure time. This includes watching content on other streaming services, linear TV, or series/film rentals or purchases but also reading a book, surfing YouTube, playing video games, social media, messaging apps, going out to dinner with friends or enjoying a glass of wine with their partner, just to name a few. We earn a tiny fraction of consumers’ time and money, and have lots of opportunities to win more share of leisure time, if we can keep improving.