Netflix, Inc. (NFLX) Q2 2018 Earnings Conference Call Transcript

Netflix, Inc. (NFLX -9.09%)
Q2 2018 Earnings Conference Call
July 16, 2018, 6:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Spencer Wang -- VP of IR and Corporate Development

Good afternoon. Welcome to the Netflix Q2 2018 earnings interview. I'm Spencer Wang, VP of IR and Corporate Development. Joining me today are CEO, Reed Hastings; CFO, David Wells; Chief Content Officer, Ted Sarandos; and Chief Product Officer, Greg Peters. Our interviewer this quarter is Todd Juenger from Bernstein. As a reminder, we will be making forward-looking statements, and actual results may vary. With that, over to you, Todd, for your first question.

Questions and Answers:

Todd Juenger -- Bernstein -- Analyst

All right. Thanks, Spencer. Let's start with the obvious. For the first time in, I think, five quarters, net additions came in between your own forecast, both in the U.S. and internationally. So whoever wants to, maybe you could help us walk through where was the source of that shortfall and what do you attribute it to?

Spencer Wang -- VP of IR and Corporate Development

David, you want to hit that?

David Wells -- Chief Financial Officer

Yeah, sure. Todd, in general, I would say acquisition, which is up year-on-year, but wasn't up as much as we thought it was going to be. It was pretty broad across multiple markets. It was in the one area of the world. As you pointed out, after four consecutive questions of under-forecasting the business, we over-forecasted the business. We strive for accuracy. We clearly didn't pad the number.

But we think based on the rolling 12 months of growth that we've had compared to the prior rolling 12 months of growth, U.S. up slightly, internationally up significantly, that the background and underlying characteristics of the business haven't changed. Our total addressable market is intact and hasn't really changed based on those 90 days of actuals. In general, we think that the conversion and growth to internet-enabled entertainment is intact. People are loving it. People are adopting Netflix around the world increasingly more, in our newer markets as well. I think we're still on track for a strong growth year this year. Maybe it's going to come in a little bit differently than we expected and others expected.

Reed Hastings -- Founder and Chief Executive Officer

Todd, you noticed probably that paid net ads are up compared to year ago and forecast to be up on a year-over-year basis in Q3. The fundamentals have never been stronger. Our viewing is setting year-over-year records. The shows that we have coming. So, we're feeling very strong about the business.

Todd Juenger -- Bernstein -- Analyst

Terrific. I'll stay on this for just a couple more follow-ups and then we'll move on to broader things. I just wonder, over the course of the winter, there were some well-publicized, essentially global pricing increases. I wonder if you think that had any impact on either retention or gross adds relative to your forecast?

David Wells -- Chief Financial Officer

We don't think so, Todd. If anything, all of 2017 we sort of had rolling increases in various different parts of the world. We were able to grow continually through that and we continue to. I don't think that is contributing to this trend.

Reed Hastings -- Founder and Chief Executive Officer

Todd, we've seen this movie of Q2 shortfall before about two years ago in 2016. We never did find the explanation to that, other than there's some lumpiness in the business and continue to perform after that.

Todd Juenger -- Bernstein -- Analyst

Great. Let me hit on Q3 really fast, or else I wouldn't be doing my job. You are kind enough always to give us a forecast for that. It just stood out to me that I think it's slightly below net adds from a year ago. I only had a quick chance. I think, I don't know if that's unpaid or total or both.

David Wells -- Chief Financial Officer

It's all total, Todd. So, as Reed pointed out, paid net adds are actually up year-over-year, but again, we try not to focus too narrowly on like a couple hundred thousand, right? Or on any one particular quarter. If you look at Q2 and Q3, it's essentially kind of flat with last year. Last year, we had about $5 million global net adds in Q1, $5 million Q2, $5 million Q3, and then $8 million in Q4. Years prior, we've always had very strong growth in sort of Q1 and Q4 relative to Q2 and Q3. We think that pattern is going to happen again this year.

Again, we tend to focus on 12-month rolling over 12-month rolling, not on any particular quarter. Because as Reed points out, we've seen this movie before. We've been through these cycles of growth and we think the background fact of people adopting internet entertainment, including increasingly more international adoption is going to drive really strong year-on-year growth in international with U.S. hanging out in that $4 to $5 million net additions band that it has been for the last four or five years.

Todd Juenger -- Bernstein -- Analyst

All right. One final sort of segue on to bigger things. Has the results or any earnings from this quarter caused you guys to change at all your internal forecast longer term for either sub-group or revenue growth or free cash flow?

David Wells -- Chief Financial Officer

No. As Reed indicated-David, I'll take it again and others can chime in. But the business fundamentals, the on-track for 10% operating margin, we indicated we do have some foreign exchange headwinds that kind of push us toward the bottom end of that range, but everything else is sort of tracking according to our target and plan. Again, we feel pretty good about. I mean, obviously, when you have sort of a million net adds, we are going to manage within the band of marketing spend and other things to protect that operating margin growth in the short-term, but long-term, nothing's really changed.

Todd Juenger -- Bernstein -- Analyst

Don't worry, Greg and Ted, I've got plenty for you. But moving to the other elephant that was already in the room, just checking a bit on the competitive landscape. Obviously, a lot going on between Disney and Comcast and Fox and Sky. So, need to check in and hear what you're thinking in terms of what impact on Netflix, however that result turns out. Is any particular result better or worse for your own competitive fortunes?

Reed Hastings -- Founder and Chief Executive Officer

There's a lot of new and strengthening competition with Disney entering the market. HBO getting additional funding. The different French broadcasters coming together. That's all normal and expected. It is what it is. We're not going to be able to change it. Our focus is on doing the best content we've ever done. Having the best user interface, the best recommendations, the best marketing, all the things that we've been doing for many years in the past and will keep doing for many years in the future.

Spencer Wang -- VP of IR and Corporate Development

The other thing I would add to that, Todd, is the market for entertainment is so big that there can be multiple firms that are successful. So, you've heard us talk in the past about how we've been able to grow dramatically in the U.S. and HBO and other networks have also similarly been able to grow at the same time. It's a very large market.

Ted Sarandos -- Chief Content Officer

And our programming, we've always been focused on keeping people entertained and satisfied on an absolute basis not relative to any competitor. So, really by keeping an eye on our members and our consumers, we better serve them than hyper-focusing on competition.

Todd Juenger -- Bernstein -- Analyst

So one of the most frequent investor questions related to this topic is access to content, licensed content, particularly from Disney and Fox. Let me start with this very specific one. There is a wide, wide variance in degree of operation on how much content on Netflix comes from off-network licensing of Disney and Fox content. Care to narrow that down for investors? Can you give us some sense of both from an availability perspective and maybe from a viewership perspective, how much is there?

Ted Sarandos -- Chief Content Officer

No, I don't want to narrow it down anymore than it is, but I would tell you that it's been a number that's been on the decline for several years. You should think about it the way we've looked at this long term is that our competitors will want that content on their own services. That was the bet we made a long time ago when we got into original programming. Every year since that, we've been doing less and less off-net business with Disney and Fox and our bet is that long-term, they'll want all their content on their service. In the short to medium-term, we're still licensing content off-net from them. They're also producing original content for us, like Nurse Ratched from Fox or the Marvel series from Disney.

Todd Juenger -- Bernstein -- Analyst

Right. I know you've answered this question, Ted, I think the last two or three quarters consecutively, but I've got to ask it again. Any reason to expect those types sort of original shows that you get from Disney and Fox to change given the new information from what they're doing?

Ted Sarandos -- Chief Content Officer

No, those shows are for us to cancel. We're super-happy with the performance of them so far, so. The Nurse Ratched and some other Fox original titles are still upcoming.

Todd Juenger -- Bernstein -- Analyst

So, speaking of your own originals, I want to touch on a couple of relatively newer areas of focus for you and just check in and see how it's going. One is unscripted. It seems, and you talked about this last quarter. It's been a sort of recent elevated, higher priority for you guys. How's that going? What's your experience been? Is it being enjoyed by your members as much as you thought?

Ted Sarandos -- Chief Content Officer

Yeah, we're super-excited about the variety of the shows and how they're landing with consumers. Similarly, we thought a long time ago that the unscripted networks are also going to want to keep their own content for their own services. We started investing our own unscripted programming and have had some really great, out-of-the-box hits with Nailed It and Fastest Cars and Queer Eye, that are doing great with our watchers relative to building an audience. Also, you saw Queer Eye did quite well at the Emmy nominations announced last week. We're really excited with the progress and the speed to market we've been able to do our unscripted shows at really high quality.

Todd Juenger -- Bernstein -- Analyst

On the original movie side, another not-quite-so-new area of focus but still more recent. What's your assessment of your progress versus where you'd hoped to be on that front?

Ted Sarandos -- Chief Content Officer

We're moving as quick as we can and still delivering movies that people want to watch. We saw in the letter, we talked a little bit about the results of our romantic comedy, Kissing Booth. There was much made in the press this summer about our romantic comedies have all been pretty successful. Set It Up just after Kissing Booth. These are movies that are not really being made in the market much and we're moving into those. But we're also doing a lot of the big event films with A-list directors and these are long-lead production times and we're really excited with the way they've been delivering in terms of viewership. We think that we'll see similar trends that we saw in television, but it'll take another year or so as we get into it.

Todd Juenger -- Bernstein -- Analyst

One final one I wanted to check in on, which will allow us to move forward here, was what I'll call non-English language, for lack of a better word. It seems like you're making more stuff in other places of the world. It seems like that's having success all around the globe. I just wonder if you can confirm that and talk about your own assessment of the returns you're getting on those sorts of program investments.

Ted Sarandos -- Chief Content Officer

Yeah, similarly, fast ramp-up and early success. So, we've been producing shows that are incredibly relevant in their home territories. The nice windfall is that they get viewed all over the world. We saw that recently with Rain and Dark. Certainly, in India, we saw great success recently with Sacred Games. That really people, really excite the market. These are places where our global results play well too. So, it's really I think accelerating the brand perception of Netflix as not just an out-of-towner, but someone who is producing content that you care about in every part of the world.

Upcoming this year we have no seasons of Las Chicas del Cable from Spain, Ingobernable from Mexico. We have a new show from Spain called Elite coming out in Q3. Ghoul in India coming out in August. These are shows that are produced at a level that are really high, the consumers get really excited about and it helps them get really excited about Netflix if they're not quite sure who we are yet.

Todd Juenger -- Bernstein -- Analyst

So now that we've moved on, outside of U.S. and English, western world, can I check in just a little bit, specifically in Asia? Carve out India for a second, because I'm going to come to India specifically later, but Asia is a huge region. Generally, I think we've talked in the past how the content tastes are a little different. The business model you were hoping to find the exact right formula. How is your growth going in Asia generally? What is driving it? Is it at a similar pace, at the same stage as other markets in the world? Any deeper info you can give us on that part of the world, anybody?

Reed Hastings -- Founder and Chief Executive Officer

I'd say, Todd, we're starting to turn the corner in many of the nations where our viewing is climbing up as we're continuing to approve the programming. When we get high viewing in every other market, that has brought in an era of fast growth. We've seen that. It's very country-by-country. I'll include India in the description and say we're really pleased with our progress of tracking we're making since we launched two and a half years ago. We just have a lot of work and a lot of opportunity ahead.

David Wells -- Chief Financial Officer

Todd, the only annotation I would say is look, it's still early. We launched with a very sort of a stem-model approach and we've augmented that. We're adding payment methods. We're adding more content. We are working on all the playbook that has been successful for us in other markets in the world. You see that through increased investment and so that sort of last wave of expansion for Netflix is still relatively early. That's affecting our growth numbers. It's affecting our levels of investment as well. Where other markets are sort of growing in profit, that actually, those markets collectively are growing in loss. We have more growth in the profitable markets than we do in the loss markets. That's what's growing the overall margin.

Ted Sarandos -- Chief Content Officer

We've been really thrilled with our original production of anime that's being viewed quite pan-regionally throughout Asia and, of course, in Japan. Our scripted series and our unscripted series, like Busted from Korea or Terrace House from Japan are viewed throughout the region and are building brands bigger and bigger.

Todd Juenger -- Bernstein -- Analyst

Thank you for sort of carving out India separately. Only because, for a number of reasons, right? It's such a place with huge potential. I think numerous executives have been quoted in various places recently talking about the potential there. You've got some new original shows there. Specifically in India, if you could dive a little deeper into where you are on the growth curve there? How you see the path to success and how big that could be for you in the next many years?

Reed Hastings -- Founder and Chief Executive Officer

Well, Todd, we're way behind YouTube, Hotstar. Those are really the leaders on the internet. There's so much TV viewing, that linear TV that could be internet viewing and the advantages are tremendous in India for internet viewing because you don't get the add load that you see that's so high in all of the other platforms. So, Netflix is having great success getting established, getting our reputation going. With this triplet of Raw Stories, Sacred Games, and Ghoul, we're really getting some nice momentum in our India growth. Now, we're still, as David said, a niche product. We've got a long way to go to expand languages and many other aspects to be able to cover, to be a broad Indian product. But in terms of our beachhead, I'm very pleased with what we've been doing.

Todd Juenger -- Bernstein -- Analyst

Greg, it seems like there's some maybe seemingly obvious particulars about the Indian market from a product perspective that might be peculiar. How much of that is just from the infrastructure that exists and the affordability in the marketplace? Is that true? If so, what have you got up your sleeve to try and make Netflix easy for everybody in India to enjoy?

Greg Peters -- Chief Product Officer

There are definitely a few specific things that we're doing there that get to payments and how sign-up has to happen. We just rolled out some improvements on the sign-up flow on TVs. So to make that easier for non-members to become members in that dimension. But actually a lot of the work that we do that helps our members in India is actually applicable in some sense globally as well. Whether that's more efficient end-codes to make the viewing process higher quality, start faster. That obviously is great for our members in India, but it's great for members around the world.

Downloads is another great example where we rolled out downloads for when you don't have great connectivity or you don't want to use the data in your data cap. Now, we've just actually rolled out the next iteration of that -- smart downloads, so we can make that process even more fun and easy by having the episodes that you watched automatically delete and get replaced by new episodes whenever you come back on a Wi-Fi network. So, it's a mix of both India-specific and just globally relevant.

Todd Juenger -- Bernstein -- Analyst

I know you talked about payments and just that whole stream. It's a question that comes up a lot with me with investors is just the thought about the affordability of the product relative to relative incomes. That comes up a lot in India. I'm going to broaden the question to just various places in the emerging world. How much room do you guys feel you have there in India and other places? Do you sense you're reaching a limit of any sense in terms of the utility of the product compared to alternatives and customers' ability to pay that would affect retail RPUs anytime over the near horizon?

Greg Peters -- Chief Product Officer

I would say we're far from reaching a limit in terms of the addressable market given the pricing structures we have right now. We've got a lot of room to grow in a reasonably affluent part of the society in India and other markets around the world. So, much more runway. But, having said that, we're constantly testing our pricing models, what pricing strategies work best for our members around the world and trying to find what features, what tiers we can add to make that both a revenue positive, but also a consumer-friendly and consumer-fair kind of approach.

David Wells -- Chief Financial Officer

Todd, just to build off that a little bit, we're talking about India a little bit as homogenous, but breaking this apart, Reed has mentioned it, Greg has mentioned it. We may have an issue where there's three or four different sort of growth patterns within India in terms of different demographics, different segmented groups. As we address one segment and then we start addressing another and so forth and so forth. Each one has a specific set of challenges with it. We're in the early days of sort of that first segment. So, you know, expect more from us in terms of getting into segments 2, 3, and 4.

Ted Sarandos -- Chief Content Officer

I do think that the price point is mostly relevant to the value proposition. Are Indian consumers finding a lot to watch on Netflix and having a great time doing it? If they are, that price point becomes more of a value proposition than a premium proposition.

Todd Juenger -- Bernstein -- Analyst

Picking up on that, one statistic that you guys sometimes mention and sometimes don't -- I don't think I saw it in the press release -- was the notion of engagement as one good, perhaps, indicator of value received by your members. Any comments on where engagement, I guess defined as hours streamed, hours streamed per member, sort of stood this quarter? Is it still growing in line with content growth?

Reed Hastings -- Founder and Chief Executive Officer

It is, indeed, still growing, Todd, on a year-over-year basis. Our viewing hours -- we mostly measure it by median view hours -- is growing. So, we're super-excited about that. We're still a small fraction of every society's overall viewing. I think there's still room to go there.

Todd Juenger -- Bernstein -- Analyst

Got it. One more on pricing, just because I know you're always testing. We all know that. One of your tests got picked up in the press. We actually stumbled across it, this idea of an ultra plan seems to be a test for HDR viewing that you're experimenting with. Any thoughts you want to share on the theory behind that and the marketplace acceptance you think might exist for that type of a plan?

Greg Peters -- Chief Product Officer

I'd say more generally, rather than speaking specifically to any results because that's still very much in progress. We want to test both ends of the spectrum here in trying to figure out ways to add more value for those members who might see that being good value, while we're testing some accessibility, how we create a way to access Netflix for a broader group of people. But, a test that's still in progress and no results to discuss at this point.

Todd Juenger -- Bernstein -- Analyst

Fair enough. Another way that you've been going to market, increasingly it seems, it with these partner deals. Maybe there's a better internal word for them. They were mentioned again in the press, in the shareholder letter. I'd love to check in on a couple things on that. First of all, is anybody willing to tell us roughly how important these are to your net add growth, to your overall subscriber base? Any sense of proportionality there other than what you said in the letter, which is basically a supplemental channel, but the majority is still direct.

Greg Peters -- Chief Product Officer

I think I'd reiterate that. That the vast majority of our acquisition still comes by a consumer signing up directly with us. We're fairly new when it comes to these partner bundles. We're excited and optimistic about it, so I think that will grow as a percentage of our acquisition. What we're really excited about is it actually allows us to sort of more efficiently address different consumer segments. So, let's take the U.S. for example. A market we're relatively well penetrated in.

By doing a deal like with Comcast, it allows us to put the application on the set-top box where consumers that might be less early adopters, sort of more late adopters, are already watching traditional television. By being included in a bundle, we get to remove the separate purchase decision. We get to eliminate the sign-up flow. It makes it super simple and easy for consumers to sign up via that mechanism.

David Wells -- Chief Financial Officer

Todd, just to be consistent with what we've said in prior quarters, it is a growing element of our acquisition. As Greg said, as we penetrate into demographics in established markets that may not be on the early part of that S-curve of adoption, and also our newer, emerging markets where partnerships may allow us to do things like partner billing and tap into consumer trust, that's a little bit earlier in the cycle than if we establish that ourselves.

Todd Juenger -- Bernstein -- Analyst

Is there any feedback you're in a position to share from the partners themselves in terms of how these programs are working for them? T-Mobile comes to mind just because they've been at it in the States the longest. But anyplace in the world you characterize their feedback to you?

Greg Peters -- Chief Product Officer

Yeah, I think it's something that's very important to us. Because obviously we want a sustainable mall around us where it's valuable to the partners. It's perceived as valuable by them. It's supporting their business so that they want to continue to invest in it and expand it. Again, market-by-market it's different, but it's either a differentiation strategy where our partner is seeking to position themselves slightly differently.

But oftentimes, it's just actually a way of them communicating to the consumer the value that they're investing in their network or the quality of service and things like that. Having Netflix with the amazing content that we have and having a really high-quality experience with that is a great way of just telling that story to their customers and their customers-to-be.

Ted Sarandos -- Chief Content Officer

It creates a great narrative that they're a good video source because you're talking about Netflix, it becomes the symbol of a great data system, right?

Greg Peters -- Chief Product Officer

Especially when you think about we try to be super-innovative on the video quality and audio quality, all those things that you unlock by having a great network and a great service.

Spencer Wang -- VP of IR and Corporate Development

Just to add on, Todd, we've been doing partnerships with other partners for many, many years. We've had many multi-year relationships with many of our different partners. So, as Greg said, we want these to be sustainable and because we've had these for many years, I think you can extrapolate from that they're successful for both parties.

Reed Hastings -- Founder and Chief Executive Officer

Todd, it's not a radical thing. MVPDs bundling another network. That's pretty well-trod territory on their side.

Todd Juenger -- Bernstein -- Analyst

One of the things that these partnerships give to you is also some marketing investment which is done on your behalf by them. Coming into the year, one of the themes that I interpreted from you guys was a little bit relative increase in the emphasis of your own marketing investment behind your content and your service. Just checking in, and I guess we've seen that in the financials too. So, how is that going? Are you seeing the returns that you hoped for? Any specifics? Can you maybe help give us some examples of specific types of marketing programs and how you measure the investment of that where you're spending these incremental dollars?

Reed Hastings -- Founder and Chief Executive Officer

We're very pleased with growth and our ability to invest. A lot of it is behind title brands and seeing how do we help title brands really maximize their potential within the overall system. We're doing lots of tests, trying different methods in different countries. Learning what's the most efficient ways to build demand for a title. So, there's tremendous amount of learning going on there. Then we're also doing acquisition marketing and learning on that side. David, did you want to add to that?

David Wells -- Chief Financial Officer

No, I think that's great. Just to remind Todd, it's been a while. We've been out of the sort of "we spend this much on marketing, we grow this much directly in a quarter." Only a fraction of our spend is oriented around direct acquisition. What Reed is saying is the majority of the marketing spend, call it 80%, 85%, is oriented around building title brands. We've got good evidence that we can do that. We're just parsing through what the most efficient mechanism is to market those titles. And also where the right amount of spend is as well as we grow our content library.

Ted Sarandos -- Chief Content Officer

What we see a lot is that the channels themselves vary around the content itself, too. So, learning more about how to get more and more refined about which channels for which content get the best results are the things that we're learning right now.

Reed Hastings -- Founder and Chief Executive Officer

Ted, were you pleased with the Emmy nomination campaigns?

Ted Sarandos -- Chief Content Officer

I was thrilled. I was thrilled we took the record, obviously, for the most, but the thing I was most proud of was we had 40 different shows nominated. To kind of give you an idea of the kind of different variety of things that we're doing: scripted, unscripted, comedy, drama, talk shows, everything across the board. Everyone was represented. It was 40 shows worth of very happy people last week. And millions of fans around the world, too.

Todd Juenger -- Bernstein -- Analyst

Well, here comes the world's most inelegant segue, but being respectful to your shareholders, the single most popular question I got in prep for this, so I'm going to share it with you out of duty to that. I'm sorry, it was involving net neutrality. I guess we have a new administration, relatively. Not that new. But between that and some other [crosstalk].

Reed Hastings -- Founder and Chief Executive Officer

Around the world, net neutrality has won as a consumer expectation. Some countries have net neutrality laws. Other countries don't. But broadly around the world, consumers have the expectation and ISPs are delivering it. I would say the net neutrality advocates have won the day in terms of those expectations. We don't see any changes of that in the U.S. or other countries. So, it's quite a positive outcome for changing cultural expectations in a positive way.

Todd Juenger -- Bernstein -- Analyst

Okay. Flipping back inelegantly to my more core line of questioning. Speaking of big investments, Ted, I didn't give you a chance yet -- you've got some big, new partners in terms of producers on overall deals. It caught the attention of investors, obviously. The Ryan Murphys and your Shonda Rhimes and your Jenji Kohans, not to leave out anybody. Can you help us think through, are there more of those to come? That's one question. And more deals like that, more people like that. And sort of secondly related, what is the timeline? Has development started from any of these resources and how long before we see the output of their work start to show up on Netflix?

Ted Sarandos -- Chief Content Officer

Well, it's a great question. You should think about, it's a pretty rare creator who has an ownable sensibility, who produces a lot of content, prolific and successful. People like Shonda and Ryan and Jenji and Jason, they have a brand and they care about the brand and they want to create in that brand and they want to create a lot. So, we can give them an infrastructure to do that at Netflix because we have a great history of finding and connecting an audience for all those different shows. So, that's not true of all creators, but it has been with the shows that we're doing so far. We will probably do more. But it is a pretty rare breed of creator.

We just physically moved Shonda into her new home here at Netflix. We're thrilled. She has a couple shows percolating now that we can't announce yet. But we're really thrilled with the direction she's going. Ryan's finishing up his work at Fox and then he'll be full steam ahead. Remember his last two shows at Fox are going to be our first two shows, actually, with The Politician and Nurse Ratched. We're in the Ryan Murphy business in a big way. And then Jenji going from Weeds to Orange is the New Black to Glow was exactly what I'm talking about, about being prolific and successful. So, we're really thrilled.

Todd Juenger -- Bernstein -- Analyst

Moving, David, to your very specific world. A popular question, obviously, you answer this every quarter. Regarding your continued use of debt to finance your current free cash flow deficits, especially in the current environment of rising rates. Just need to check in and make sure we understand your logic and your continued ability or plan to finance the company in the future deficits for the next [inaudible].

David Wells -- Chief Financial Officer

We continue to see debt as the most optimal choice, the most cost-effective source of capital for the company. Obviously, we'd love to get to that point where we're organically and self-funding content. We do see a point where we can get there. But until we do, we see debt as the right choice in terms of cost of capital.

Todd Juenger -- Bernstein -- Analyst

Another popular question. I'm getting to as many as I can before Spencer tells me time is up. Here's another one and probably for either Ted or Reed. You guys get this a lot. Investors still want to know your desire or appetite for sports type of content rights, for news-oriented type of content rights or for other expansions of your platform to either get into audio or gaming or selling other people's products. Any sorts of those new genres or potential expansion theories. Where are you on those?

Reed Hastings -- Founder and Chief Executive Officer

No change in our long-term views that have been, as you referred to, expressed over and over. We have such an opportunity in movies and TV shows of many types around the world, that it's consuming every bit of energy and excitement that we have.

Todd Juenger -- Bernstein -- Analyst

Got it. Let me, if I can, move to what I think might be sort of the seminal question, two questions, for long-term Netflix shareholders, which is really, OK, you've got about 130 million global members now. How long is it going to take you to get the next 130 million? If you double your members, are you going to need to double your spend in content and marketing to attract and retain them?

Reed Hastings -- Founder and Chief Executive Officer

Well, it's kind of hypothetical to think about the P&L structure. We'll learn as we go. We've been very attentive to all the key factors, which is we want to invest enough on content to make our subscribers incredibly happy because that's how we grow. It's a really smart investment for us on the content side. We want to invest in product and marketing to make the whole service better, to make the shows be more aware. We also want to steadily increase operating margin over the next several years.

And so, as an example, we've got some adjustments to make because of foreign exchange rates. We'll make those adjustments and we'll grow into that. Think of us as, you know, continuing every year to figure out how we make certain adjustments to keep the operating margins growing, the subscriber base and revenue growing. That's been the basic way we've been operating over the last several years. So, it's more of the same. In terms of the dartboard, several years out on when we double. The answer is not soon enough. We're always pushing hard to figure out how can we get even more growth, but we're awfully pleased with what we've got, too.

Spencer Wang -- VP of IR and Corporate Development

Todd, I think we have time for one more question.

Todd Juenger -- Bernstein -- Analyst

All right. So, I guess I'll use that to sort of just expound on the big dartboard I just asked and maybe start with Greg and then anyone else who wants to comment. When you think about the product itself, which is the underpinning of [inaudible] you have in the growth, what's on your short-term and long-term list of things that you think your members most desire, would move the needle most from a product perspective, from a content perspective, from an overall pricing and value perspective? And therefore drives your agenda, I guess each of you, over the rest of this year and into the coming decade?

Greg Peters -- Chief Product Officer

It's a long, long list. We want to make, really, almost everything better about the product. But I'll just sort of highlight one that's front end happening right now. We talked about improvements in the mobile UI, in smart downloads, but I don't want to leave out TV. With all of this amazing content that we are bringing out, we've been working really hard over the last several months and quarters even, testing and researching, how do we make that TV experience faster, more fun, easier to find the stories that our members will love?

We're actually going to roll some improvements out to that experience to make that better, starting tomorrow. Starting this week, you'll see those, what we expect to be a long line of incremental improvements that make that experience even greater for finding the stories that you love.

Ted Sarandos -- Chief Content Officer

I'd say in the short term, I've got the great pleasure of trying to make people very happy. In the short term, we've got new seasons coming up. The second half of this year of Orange is the New Black, Ozark, Iron Fist, Daredevil, Narcos, the finale of House of Cards, the follow-up series of Making a Murderer. We have some brand-new IP coming up with new shows like Insatiable, Maniac with Emma Stone and Jonah Hill, Disenchantment from Matt Groenig, the creator of The Simpsons doing an animated comedy for us, a new show from Greg Brillantes' company, The Chilling Adventures of Sabrina, a spinoff of Riverdale that's been hugely popular for us.

That all ramps up to bigger and better feature films too for our fans around the world. Starting with The Christmas Chronicles from Chris Columbus later this year and Bird Box from Sandra Bullock with the great Susan Bier directing. That will lead us into next year, where we'll have movies from Martin Scorsese and Alfonso Corona and all these fantastic directors and the opportunities are just limitless.

David Wells -- Chief Financial Officer

Then for me, and I'll let Reed have the honor of wrapping us up. I would say we've got 130 million members and the prospect of adding whatever that is, 100 more million, the next 130 million, all of those folks enjoy connectedness. As we grow to enjoy more stories that are sourced from wherever in the world, I think the ability for all those folks or a great portion of those folks to enjoy and see a story and discuss that story in the same moment is great. Netflix being an enabler of that will continue to do that. I look forward to the $8 billion of content growing from here. We think we can grow operating margin, but we're also going to grow content spend, which will enable more of that content.

Reed Hastings -- Founder and Chief Executive Officer

Todd, for me, it's about connecting the world and sharing the stories all around the world. I think we've got so much more we can do with that as we learn the various arts of dubbing and style. I think that will make a really profound contribution to the world, in addition to just entertaining everyone, which is very joyful to work on.

With that, let me thank everyone for participating in the call and look forward to spending time with you guys, investors, over the quarter. Thank you very much.

Duration: 38 minutes

Call participants:

Reed Hastings -- Founder and Chief Executive Officer

David Wells -- Chief Financial Officer

Ted Sarandos -- Chief Content Officer

Greg Peters -- Chief Product Officer

Spencer Wang -- VP of IR and Corporate Development

Todd Juenger -- Bernstein -- Analyst

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