Spencer Wang welcomes Jessica Reif Ehrlich from Bank of America to the Netflix Q2 2023 Earnings Interview. Ted Sarandos then states that the strikes were not the outcome they wanted and that they have been negotiating with different people in the industry to reach an agreement. He also talks about his personal experience with unions and his father's time on strike and how it affects families financially and emotionally. He emphasizes that nobody took the strikes lightly and that they are committed to getting to an agreement as soon as possible.

Netflix has been working for over a year to develop a product experience that is equitable and allows the industry to move forward. This includes features like transferring profiles and viewing history, easy device and account access, and the ability to purchase extra memberships. They have now launched this experience in almost all countries and have seen positive results in terms of revenue and subscribers.

Greg Peters explains that the business impacts of the product experience will not be seen overnight, as it will take time for people to gradually adopt the product and for certain cohorts to engage with it. He also states that there are some people who are more engaged and will transfer to their own accounts soon, while others need to be convinced with great stories, TV shows, and films.

Greg Peters and Spencer Neumann discussed the results of their subscription plans, noting that the well-qualified members that had chosen plans had good retention characteristics. They noted that they were on track to accelerate their revenue in Q3 and Q4, and that their primary objective was to accelerate revenue.

The revenue growth experienced by the company is driven by a combination of pricing, volume, and new revenue streams like ads. Most of the growth this year is from new paid memberships, largely driven by the paid sharing rollout, and this impact is expected to build over several quarters. In the last couple of weeks, the company dropped the basic plan in Canada, the US and the UK, which could be a positive driver for ARPU. This could have an impact of $5 or more per month over the course of three years.

Bela's team is offering a wide range of prices and features to give consumers access to their stories, while also optimizing long-term revenue. This includes sign up conversion, plan take rate, engagement, and retention. In the countries it has been launched in (U.S., UK and Canada), the entry prices are an amazing value. When the basic tier is dropped, people sort into either the ads plan or the standard plan. This rollout is being done iteratively to understand the impacts.

Greg Peters mentioned that the new subscribers from password sharing are well qualified and have a higher retention rate. Spencer Neumann then discussed the Average Revenue Per Member (ARM) and how it has been down 1%, FX neutral in Q2 and is expected to be flat to slightly down in Q3 due to limited price adjustments and shifts in plan and country mix.

ARM is expecting to benefit from price adjustments over the medium to longer term. They have seen nice growth in the ads tier but are still off a small base. Greg Peters mentioned that their priority is to grow the business and increase reach, which is a dominant consideration for advertisers. They have seen almost 100% quarter-to-quarter growth in ads planned membership and are rolling out well-trodden features for advertisers.

Spencer Neumann states that there is no change to the advertising ARM since the last quarter, which was at least as high as $8.50. He then goes on to discuss the work that needs to be done to establish a leadership position in defining what is the premium ads experience on CTV. This includes building out go-to-market and sales capabilities, creating unique capabilities to blend TV with digital advertising, and leveraging core capabilities such as UX testing and iterative development. Neumann believes that all the fundamentals are there and that they can build a material ads business over the next few years.

Netflix executives discussed their initial upfront advertising performance, which has seen good demand in spite of the soft advertising environment. They attribute this success to the relative scarcity of their inventory and the need to build their own ad-tech infrastructure in order to make their offering more attractive as they scale up their inventory.

Greg Peters and Jessica Reif Ehrlich discuss the gradual ramp of engineers working on the advertising capabilities of Microsoft, with Peters noting that scale and features are not a binary condition and that the company is continuing to iterate and progress. Spencer Neumann adds that they have a long way to go to reach the goal of 10% of revenue from advertising.

Netflix believes that their ad-based revenue can be a meaningful part of their business, and they are aiming for 10% of their revenue to come from this. They are currently focusing on linear, brand focused TV advertising, but they are building capabilities to expand that envelope over time and capture digital and linear ad dollars. They are aiming to be a better than TV model in the long-term.

Ted Sarandos explains that there is generally a difference in engagement between the tiers, but there has been no change over time. He goes on to explain that streaming is becoming increasingly popular, with 37% of TV time now in the U.S. being dedicated to streaming. This is due to consumer demand for streaming and high quality content. The streaming industry is very competitive, yet Netflix has been able to remain at the top with the number one show and film each week.

The second quarter saw an extraordinary free cash flow and the outlook for Q3 is expected to be positive and growing due to the success of the paid sharing rollout, move in production timing, and the impact of the strikes. However, the strikes may create some lumpiness between 2023 and 2024. Overall, the company is past the most cash-intensive phase of building original programming and expects a positive free cash flow trajectory in the years ahead.

Spencer Neumann expects to grow Netflix's cash content spend in the next few years back to the levels seen in 2022. He plans to do this in a responsible way that allows the company to scale in a healthy way and grow cash flow over time. Netflix plans to invest in ad tech capabilities and leverage its business model to provide more entertainment to its members.

Ted Sarandos explains that Netflix expects to grow revenue and profits over time and that the content cash spend to content amortization ratio is expected to be around 1.1 times in 2024. Spencer Neumann adds that Netflix is mostly looking for opportunities to acquire intellectual property that they can develop into content for their members, rather than buying assets.

Ted Sarandos explains that Netflix offers content to its members at an incredible value and that the syndication and home video markets are not as attractive compared to the opportunities Netflix has to offer its members. He also mentions that when new seasons of shows come out, they often appear in the top 10. Finally, Sarandos states that their position on live sports remains unchanged and that they are excited about the success of their sports-adjacent programming.

Ted discussed TordeFrance, a program that introduces a new audience to a sport that has been around for a long time, and how it can provide year-round sports programming for sports fans. He also mentioned an upcoming live golf match in November that will serve as a promotional vehicle for their sports brands. Spencer Wang thanked the audience for tuning in and they look forward to speaking to them in the next quarter.

This summary was generated with AI and may contain some inaccuracies.