Sina Technology News October 20, Beijing time morning news, according to reports, the US video streaming service providerNetflixToday announced the third quarter financial report for the 2021 fiscal year. The financial report shows that the company’s third-quarter revenue was 7.483 billion U.S. dollars, an increase of 16.3% compared with the 6.436 billion U.S. dollars in the same period last year; net profit was 1.449 billion U.S. dollars, an increase of 83.4% compared with the 790 million U.S. dollars in the same period last year.
After the financial report is released,Netflix Co-CEO Read Hastings, Co-CEO and Chief Content Officer Ted Sarandos, COO and Chief Product Officer Greg Peters, CFO Spencer Neumann (Spencer Neumann) and Vice President of Investor Relations Spencer Wang (Spencer Wang)Other company executives attended the subsequent earnings conference call, interpreted the key points of the earnings report, and answered questions from Fidelity Investment Analyst Nidhi Gupta.
The following is the main content of the Q&A session for the analysts of this conference call:
Nidhi Gupta: The number of paying users in the company’s fiscal quarter has increased beyond expectations. Could the management please explain the reasons?
Spencer Newman:The performance in the third quarter is still in line with our previous expectations. We believe that the operational fluctuations caused by the epidemic have entered the final stage, including the advancement of growth and production delays for the whole year of 2020 brought about by the epidemic. The overall situation in the third quarter is very smooth. , Similar to the first half of the year, the user churn rate is still at a low level, and has declined compared with 2020 and before the epidemic in 2019, and the user retention rate is also very good. Although the viewing time of each user has decreased slightly compared with the third quarter of 2020, the viewing volume has increased compared with the same period in 2019. The growth in September is as good as always. I hope that this momentum will continue after the launch of new works, including the blockbuster episodes mentioned earlier, “Squid Game” and “La Casa de Papel) Season 5, the first episode, of course, also includes many other shows “Never Have I Ever”, “He’s All That”, “The Chestnut Man” and “Copenhagen” (Copenhagen) and so on, these repertoires will further promote the company’s growth.
Nidhi Gupta: Can the management analyze the reasons for the slowdown in the company’s growth in Latin America and how to look forward to the future growth of the business in this region?
Spencer Newman:Yes, the growth of the Latin American business in the third quarter was relatively weak. In the third quarter, we increased the paid prices in the Brazilian market. As expected, such actions will slow down the growth in the short term, but as Greg said, our prices Adjustments will bring more value to users and are good for the company’s long-term growth. We also mentioned that Latin America and UCAN (UCAN) regions are more mature than other regions and have a higher market penetration rate. Therefore, it takes more effort to achieve growth, but we believe that these regions will have a long growth in the future. period.
Ted Sarandos:We hope to produce shows that users in Latin America like to drive the company’s growth, including the new season of “Sintonia”, from Brazil, our largest market in the region, and the series “Luis Miguel” produced in Mexico. “Luis Miguel” (Luis Miguel), the new season will be broadcast soon, and these programs will also strongly boost the company’s growth in the region.
Nidhi Gupta: What impact will these new possible hit shows have on the company’s changes in the number of users in the fourth quarter? Is its impact less than that of the whole year of 2020?
Spencer Newman:We will not make special predictions about the situation in a certain quarter. What we are concerned about is the changes throughout the year, including the healthy retention rate that I have introduced, and the growth level after the economic restart, not because of the impact of the epidemic. The early growth that comes, we are concerned about the overall change situation, including the return of a large number of English dramas, such as “The Witcher” (The Witcher), “Cobra Kai” (Cobra Kai), and including the scriptless reality The international documentary “Tiger King” (Tiger King), as well as the previously mentioned non-English drama “The House of Banknotes” will also air its finale later this quarter, and the movie “Red Wanted” (Red Wanted). Notice), as well as “The Harder They Fall” (The Harder They Fall), and many other shows will be broadcast one after another to enrich our programs. Coupled with the arrival of the peak season, I believe it can help us achieve healthier users. Retention rate level.
Reed Hastings:What Spencer meant is that we are now in a completely new situation. The amount of content in the fourth quarter is unprecedented. We need to cross the river by feeling the stones, hoping to help achieve better growth next year.
Ted Sarandos:Yes, we have launched so many blockbuster movies in one quarter, and there are so many previous hit dramas that have returned. This situation is unprecedented. Whether it is before, after, or during the epidemic, we need to constantly evaluate The possible impact on operational performance, but overall the impact we see is still positive.
Spencer Newman:You can also refer to our forecast for a net increase of 8.5 million paying users. This outlook is consistent with our level in the past few years. The level before the epidemic was in the range of 8 million to 8.8 million.
Nidhi Gupta: The situation may become clearer as the whole world restarts next year, and we need to continue to observe. Does the management believe that the company is capable of returning to the level of 27-28 million annual user growth? I am still more entangled in asking this question, because our inherent impression is that the company can maintain the level of growth that has been there for many years. Is this view of ours itself wrong?
Reed Hastings:Overall, no one can give an exact answer. After experiencing the chaos during the epidemic, we cannot confidently predict the situation in the next two years, but we will still go all out. Overall, the number of users we serve a little over 200 million is still quite small. Therefore, just from the perspective of catching up with the pay TV market, we also have a lot of room for growth. The streaming media industry is in a period of rapid development, and various devices and competitors are constantly developing this market. Obviously, competition is a factor, but the content and scale of entertainment we have, and the way we operate, are as incredible as “Game of Squid”. But this drama was not filmed at Ted’s request, but was realized through an efficient distribution system constructed by Ted. We appointed a manager in South Korea two years ago, but we may not be very familiar with all local content managers. Of course, we hope to understand them better. These successes belong to them, and we will continue to work hard. Help them to achieve greater success after the epidemic passes and the world restarts.
Spencer Newman:Reid was very accurate. In the end, what we need to continuously improve is the ability of service and content, as well as the ability to discover content and communicate with related parties, so that progress can be achieved. If we can do well in these areas and become the first choice for the consumption of entertainment content, we can achieve sustained growth and drive the growth from linear TV to streaming media. As for the long-term trend, I think it is relatively easy to predict. For example, we have seen the growth in the third quarter and can achieve the growth outlook for the fourth quarter, which can achieve an average growth rate of 55 million in two years, which is 27.5 million in a year. Reid also mentioned that we cannot fully guarantee the accuracy of the forecast, but as our service capabilities and levels continue to improve, the long-term growth trend is still very strong.
Nidhi Gupta: Many users are very concerned about the drama “Game of Squid”, as did Reid and Spencer. In the first few weeks of the show, it was watched by 142 million users, many of which were not Korean users. Even more impressive, can you analyze the reasons for the success of this show?
Ted Sarandos: This is related to our content creation experience. As Reid said, our Korean team took a fancy to this script a few years ago, and they think this drama is likely to become the most popular this year. The repertoire is really very good. What I can tell you is that our team at headquarters has the same vision. Outside of South Korea, Netflix has performed very well in various teams. The content produced in local languages has achieved very good ratings. We have also worked hard for more than 10 years. This is an area that other companies have not tried before. . Of course, we may not be able to accurately predict which content can have a phenomenon-level impact, but once such content appears, its influence must be very huge, and the content it provides must match its influence, including in the short term The amount of viewership and topic discussion, and the spoof imitation of “Saturday Night Live”, because this drama has been brought up, a word I like very much: Zeitgeist is the kind of feeling that makes us immersive, so there is It’s still a bit difficult to predict at the time, and it will have a perceptual deviation in the influence of certain episodes, but this “Squid Game” is really a very influential film. Of course, in addition to “Squid Game”, our teams around the world have also produced films with very large local influences, such as “House of Banknotes” in Spain, “Lupin” in France, and “Lupin” in Germany. “Blood Red Sky” (Blood Red Sky), and “Sex Education” (Sex Education) in the UK, etc., more and more outstanding dramas have emerged from all over the world. This is also the direction our teams around the world have been working hard on. , To create an influential blockbuster. Other lesser-known works include “Sintonia” (Sintonia) for the Brazilian market, and “The Chestnut Man” (The Chestnut Man), which is achieving great success in the Danish market. In the fourth quarter, there are also “Call My Agent!” in the Indian market, “The Hand of God” in Italy, and the new release of the Mexican drama “Luis Miguel” (Luis Miguel). In one season, these will become works with great influence, and will be loved by local users. If they can be successful locally, they will be promoted all over the world. Since the company started to produce content in 2008, the number of views of non-English content works has increased threefold. We are also paying attention to and thinking about the role of such content in promoting growth and absorbing excellent scripts from all over the world.
Nidhi Gupta: I expect that the company’s content has reached nearly 1 billion TV users worldwide. How will the company’s ability to obtain excellent content in the international market be affected by the contribution of “Squid Game” and other dramas around the world in the future? Especially in those markets where there are not many local content buyers?
Ted Sarandos:The best content must be scrambled by many parties. We are always looking for competitive content in the industry. One thing we can guarantee for international content creators is that we can provide them with an experience similar to “Squid Game”, such as The social media fans of the leading drama in the South Korean market rose from 400,000 to 15 million within five days. Netflix can do this experience because we have a highly engaged user group, as well as identifying and helping content creators understand user preferences. What kind of interactive system for programs, even if these users have never watched Korean dramas. Content is of course very important, but it also needs an excellent distribution system that can help users find content.
Nidhi Gupta: The company started producing original content nine years ago. Ted, I have noticed that excellent dramas are continuously uploaded to the Netflix platform. They have always been at the top of the list of most popular dramas. Every year there is at least one of them. A Netflix series that has aroused users’ heated discussion, but why hasn’t it been achieved a similar degree of success in terms of movies so far? What is the difference between the operation of movie content and drama? how to solve this problem?
Ted Sarandos:One thing you need to remember is that we entered the film production industry several years later than the production of drama series. The company only started to invest the budget to produce original movies about three years ago. Even so, we have already produced five winning films. Oscar nominated films, and some films have achieved great success, we also disclosed the relevant figures in the letter to shareholders. I think this business will continue to grow, and our film business can also achieve the same scale of success as the drama business. In the fourth quarter and the first half of next year, there will be more large-scale production movies released.
Nidhi Gupta：very good. Let’s talk about user participation. In recent years, the company has made a lot of efforts on the mobile side. It has launched a package that can only be watched on the mobile side. It has also launched a mobile game business and the recent Fast Laughs trailer short video function. Do you regard mobile user participation as a strategic priority?
Greg Peters:Our strategic priority is to meet user needs. The vast majority of users interact with us on mobile devices, so we want to ensure that they can get a very high-quality experience through a mobile phone when they are out. As you said, it may be watching the trailer, it may be a short video function like Fast Laughs, or it may be connected to the “Squid Game” watched at home, and watch it for ten minutes. We can provide users with different features. Intermittent multi-screen viewing experience. Therefore, we must pay attention to these devices and do our best to let our members get an excellent viewing experience on all kinds of devices.
Nidhi Gupta: The management also mentioned mobile games. I am very happy that the company has also launched some game products this quarter. Could you please introduce some of the company’s experience in developing and launching them to the market, for example, in the Netherlands, Italy and Spain? What about the launch of mobile games and Oculus virtual reality games?
Greg Peters:We are still in a very early stage of this business. The main thing we have done so far is to ensure that all our systems are operating as expected. In fact, this is a self-verification process to see if we can achieve the desired effect. All systems are built to make content recommendation services more efficient. As Ted mentioned, to achieve the connection between high-quality content creators and the audience, this is also the ability we need to build in the game business now. The initial progress is fairly smooth, and the momentum is very good. The issues we need to pay attention to include what is the commercial value of the business, how to treat user engagement, how different types of games and games adapted from different works perform, etc. It will take months or even years for us to gradually figure out all these details, so there must be more game products to be launched in the future.
Nidhi Gupta: The management has always focused on consumers and has achieved great success in dramas and movies, so I am curious how the company can improve the gaming experience for consumers? Without worrying about commercialization, what new game experiences or new distribution models can the company introduce as soon as possible?
Greg Peters:First of all, we will expand the game business through continuous learning, just like developing other content category businesses, try to launch new products, and let users tell us what is easy to use and what needs to be improved. We are very pleased to realize that we can remove disruptive experiences from the core enjoyment experience, such as advertisements or in-app commercial operations, to provide users with a more relaxed and direct game enjoyment experience, just like we did in episodes and movies. As in business. This practice can also ensure that our content providers are dedicated to providing users with the ultimate entertainment experience, and players do not need to worry about commercialization interference. This is also related to our other work. The areas that Netflix expands, the image portrayed, and the stories told can all be integrated into the game, allowing players to explore more deeply. These experiences are not available in dramas and movies. Achieved. The game business realizes this connection and collaboration. In the future, we will continue to work hard to close the relationship between the two and form a more direct connection. Of course, what I said will take many years to achieve, and we need to explore repeatedly. No one knows what it looks like until we find a way.
Reed Hastings:Perhaps it is conceivable that in three years, we will launch works similar to “Squid Game” and a series of related interactive games will be launched. These contents are all part of our services and part of our consumer products.pictureDisneySuch companies are still doing better than us in some aspects. What they do is experience integration. Netflix is in the process of business development, so I hope that in the next three to five years we can continue to narrow the gap, and ultimately experience in all aspects. Overtake the opponent.
Nidhi Gupta: You mentioned “Squid Game” and creating more services and experiences around its IP. How does the company view the issue of IP authorization? Will other platforms be authorized to launch activities and games related to this drama? What are your plans for the future?
Greg Peters:We are very happy to see the emergence of phenomenal works like “Squid Game”. Of course, we also hope to provide users with the same interactive experience in game works. This requires design efforts and we believe that we can continue to make progress. I think this kind of creative passion should not include monopoly. You will also see related self-created videos, small games, etc. released on other platforms or by other people through TikTok. These ideas are all good, and they should be applauded.
Nidhi Gupta: It makes sense. What does the management think is the most difficult task in the process of creating high-quality game products? In what areas has the company done well, and what areas need to be improved and learned? What is the company’s comment on the acquisition of Night School Studio? Why is this company the best acquisition option?
Greg Peters:Game creation and design work in all aspects, including computer engineering, design, plot, data, and interactive arrangements. These are areas that we have not been involved in before. The difficulty lies in the successful integration of these things. Going back to your question, we have entered the field of original games in less than 10 years. We have done a good job in building these capabilities, and we have been continuously improving. We will continue to follow this development trajectory, using the same method, focusing on learning and improving these capabilities, and we will continue to try, hoping to make the game as successful as the series and movies. Regarding the cooperation and self-made games you asked, we think there are many ways to create great works for users, of course, including improving our own research and development capabilities, this ability promotes us to explore more drama/movie interactive narratives Way to form a closer integration with linear narrative. We hope to enhance our capabilities in these areas. One of the methods is to find time to acquire. This is how the acquisition of Night School Studio came. The core business of the team is to explore the combination of story and narrative methods, which fits our work, so I am very happy. Able to reach cooperation with them, I believe there will be a closer partnership between us in the future. We are optimistic about the future development of this field, but don’t expect us to make big acquisitions. We only care about high-quality opportunities.
Spencer Wang:It can be seen from the company’s past history that we are very picky about mergers and acquisitions. As Gregg said, if there are indeed high-quality merger and acquisition opportunities, and synergies may be formed, we will consider it.
Ted Sarandos:One thing to add is that we need to keep learning. After years of absorbing the experience of the game industry, even if everything is progressing as we expected, it will take years for the game business to have a substantial impact on the company’s growth. Therefore, we focus on the long-term and remain optimistic about the future development.
Nidhi Gupta: Ted, the company also acquired Roald Dahl Story Company (Roald Dahl Story Company) this quarter. What are the company’s future plans for this IP?
Ted Sarandos:The image created by the company has been loved by parents and children for many years. They have done a very good job in the field of feature films. Our commercial cooperation with Dahl will also improve the company’s animation production level, and can develop the image and book development of the company. Into a video work. We are producing a series based on the story of Willie Wonka (“Charlie and the Chocolate Factory”). Our partners are very interested in joining it. We also hope that more related works will be launched on the Netflix platform in the future. . This cooperation will also bring value to the company’s game business and also to the publishing industry. Our Consumer Products Group is actively preparing.
Nidhi Gupta: In the past five years, what is the most important thing the company has learned in the field of developing children’s content? How can related products be successful?
Ted Sarandos:This part of the content production cycle will take three to five years. We may not be patient enough, and we have been trying hard to speed up. We have the best story creators in the world, and it is very exciting to be able to work with them.I don’t think any huge system is needed to build the image of children and the brand loyalty of children’s movies. Our success is not built on these systems.idealWe need to focus on narrative, execution and enhancement of production value. We will continue to absorb the most outstanding talents in this industry, and the company will also be on the trajectory of striving for it, for a few years there will be very good results.
Nidhi Gupta: The company recently launched an e-commerce business and also announced the sameWalmartCooperation, how will the company advance plans for consumer products in the future? What are the long-term goals?
Ted Sarandos:In terms of increasing the connection between fans and content, I believe that consumer products are a very good channel, and of course it needs to be bigger. At present, the contribution to the company’s overall business is not very large, and we need to continue to work hard to increase the exposure of this business and attract more fans.
Nidhi Gupta: Let’s talk about profit margins. We talked a lot about the company’s investment in game business and other projects today. After the revenue growth rate drops below 20%, how to ensure that the profit margin level is increased by 300 basis points per year. ?
Spencer Newman:Our revenue growth is still healthy. It is expected to grow by 19% for the whole year this year. This is still a very good level. Because of the previous technology of 30 billion US dollars, it will be very difficult to maintain this growth rate on this scale. , We will continue to work hard to continuously improve our service level and content quality, and in the next few years we will maintain this level of revenue growth and a three-percentage profit margin growth rate.
Nidhi Gupta: The company previously mentioned that it spends about US$100 billion a year to produce all kinds of content. I believe this expenditure is still increasing. In this case, does the company still believe that it can achieve its revenue and profit margin growth goals?
Spencer Newman:TANDBERG has always invested in content. We mentioned the shift from linear TV to streaming entertainment in our investor letter, even in a mature market like the United States, and our viewing share is only 6 of that of traditional TV. %, and for example, in the game business, we have just started, and there is animation. Who knows how big our future will be? We are only talking about the first few years of this long-term cycle, including non-English content business. We have production teams in 45 countries, and may reach 50 countries next year, but it is still in the early stages of development and will meet 1 billion pay TV and broadband in the future. Users have a long way to go. We will continue to grow at a healthy rate, drive mergers and acquisitions, retention rates, and watch time growth to bring more joy to users.
Spencer Wang:We are full of confidence in the growth in the next few years, and the current growth trend is also very obvious. We will continue to try and sum up experience to continuously improve user participation and retention.
Nidhi Gupta: Apart from “Game of Squid”, which Netflix series or movie do you like?
Greg Peters:I chose “Chestman Killer”, the latest series produced by the Danish team. I like that kind of atmosphere. I haven’t been to Denmark for a long time. After watching this drama, I feel like living in that country.
Spencer Newman:I like to watch “House of Paper Money” and “The Floating Life of a Maid”.
Ted Sarandos:I also like to watch “The Floating Life of a Maid”, but the last season of “The House of Paper Money” is also very exciting, I can’t wait to see the next batch of them on line.
Spencer Wang:I still have two episodes of “Squid Game” that I haven’t watched. Another episode I like very much is the third season of “Sex Study Room”. (over)
.