Don’t be surprised if analysts pose questions about HBO’s streaming plans, Netflix’ efforts to be offered within cable set top boxes, and overseas expansion efforts in Netflix’ quarterly conference call with the Street. We’re live blogging the event where CEO Reed Hastings and other execs will be interviewed by BTIG’s Rich Greenfield and RBC Capital Markets’ Mark Mahaney.
And we’re off. Reed Hastings says that the US. streaming sub growth is going strong. In every home in a decade? “That’s a pretty clear ‘yes.'”
Hastings: Netflix is pushing more and more for global rights to content so it doesn’t have to engage in country-by-country negotiations. Chief Content Officer Ted Sarandos says he did that with “Better Call Saul” and “Gotham.”
CFO David Wells won’t say which overseas markets were strongest. But he’ll give out milestones from time to time.
Wells says that Latin America was a challenging market, but it’s been growing. “People may not have taken us at our word for that.” 65 million broadband households, so “there’s a lot of room for growth.”
Still Wells – Netflix has more confidence about investing in originals as it grows abroad. Sarandos and his team are “getting smarter and smarter” about what works in each market.
Hastings: Advantages of on-demand viewing appeal to people across the globe. Some content including “House Of Cards” works around the world, including China. Netflix also augments with local programming.
Sarandos: He used to think of originals as U.S. shows, and then would see how they travel. The world wants “great story telling” with high production values.
Was “Marco Polo” a drag on Q4? Sarandos: It’s hard to get people excited about a new show. MP “had some negative reactions in the press but viewers loved it….We’re thrilled that we made a show that viewers loved around the world.” Netflix didn’t have high expectations for sub growth.
Hastings talks up social media commentary for Marco Polo. “The investor audience tends to be highly educated, so that skews toward House of Cards.” He zings Rich Greenfield: “You’re the exception.”
Wells: House of Cards will be helpful in Q1 but won’t drive Netflix’s upbeat earnings predictions.
Sarandos: Netflix will release 320 hours of originals this year. “Tastes are super diverse.”
Wells: There’s a steady march upward in profitability. It will be lumpy. (Mixing metaphors?)
Does Netflix know enough about consumer resistance to price increases to perhaps raise rates again? Wells: We’ll look at pricing in each market and grow accordingly…It takes several quarters to get comfortable. There’s still pricing power in Mexico.
How about tiering? Hastings says Netflix offers UltraHD for $12 a month. Two to four years from now there’ll be more Ultra HD TV sets, and it’s “a natural match.” Netflix could effectively raise prices by “letting the tide come to us.” Sarandos says it’s shooting all its new shows in Ultra HD.
Amazon getting critical acclaim –is competition for shows growing? Sarandos: “We’re the first or second go-to” for the projects it wants.
Is it harder for Netflix to license TV shows if it demands global rights? Sarandos: Studios like being able to sell efficiently. Netflix doesn’t demand global rights — but won’t pay full freight for something less. “They can do it. They just can’t do it for free.”
Could HBO’s online offering undercut Netflix on pricing? Wells: That would be “extremely disruptive to its ecosystem.” In the Nordics HBO is a little higher than Netflix. Even if they match “there’ll be a lot of people subscribing to both.”
Dish Network has Netflix on the set top box. Hastings won’t discuss financials. But “Dish’s competitors will want to co-opt that benefit.” As for Sling TV — the 11-channel, $20 a month streaming service — “I don’t think we’ll see any impact” although “it’s a great start.”
Hastings: Consumers in most countries use WiFi instead of cell networks to watch TV on smartphones and tablets. Too much concern about data caps.
Netflix expects to raise $1 billion in debt. Wells says the company had mentioned that is has a couple of years of investment, and interest rates are low. It also has raised cash in each of the last three years.
Wells: Overseas investments will grow in 2015. So will content costs, and originals require more cash upfront.
Hastings: Netflix is “exploring options” for China. Any investment will be modest if the company does get a license.
Hastings: Internet TV is becoming substantial. You see that with CBS All Access, Watch ESPN…Across the board you see this phenomenon of channels becoming apps. For us it’s more competition, but also more consumers coming into the streaming market making it mainstream.
Netflix pays interconnection fees to 4 carriers. Hastings says he likes the growing sense of the Internet as a utility. Shift of perception favoring Title II reclassification could “significantly insulate us from accelerating a tax for interconnection.”
What about Disney content coming to Netflix? Sarandos: “Those movies are not just movies. They’re amazing family content…. a trust brand.” That’s going to be “a very long term relationship.”
What about the DVD business (remember that?). Wells says it will have a long tail. It will continue to decline but for a lot of people in rural areas, and for cinephiles, it makes sense.
Hastings says Comcast acquisition of Time Warner Cable would give it “a tremendous amount of power.” Would be “wise” policy to block it. It makes sense also to redefine broadband as 25 mbps downstream speed. It’s “a baseline for the next five years as opposed to the last five.”
And that’s that. Investors seem to like what they saw in the earnings, and just heard: Netflix shares are +14.7% post market.
Thanks for joining us.
