Netflix (NFLX) Q1 2021 Earnings Call Transcript

Netflix (NFLX -3.92%)
Q1 2021 Earnings Call
Apr 20, 2021, 6:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Spencer Wang

Good afternoon, and welcome to the Netflix Q1 2021 earnings interview. I'm Spencer Wang, VP of IR and corporate development. Joining me today are Co-CEO Reed Hastings, Co-CEO and Chief Content Officer Ted Sarandos, COO and Chief Product Officer Greg Peters, and CFO Spence Neumann. Our interviewer this quarter is Nidhi Gupta from Fidelity.

As a reminder, we'll be making forward-looking statements, and actual results may vary. With that, let me turn it over to Nidhi for her first question.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Thanks, Spencer. Thank you all for having me. Great to be with you. And thank you all for all the great work over the years.

It's been great for us to be on this journey with our shareholders. So with that, let's just jump right in. Obviously, you know, you were comping a really big Q1 last year with 15 million net adds. The net adds this quarter came in below your expectations and below the Street's expectations.

Any additional color you can provide on what caused this?

Spence Neumann -- Chief Financial Officer

Hey, Nidhi. It's Spence. I guess I'll -- I'll take this one first. Hopefully -- hopefully you can see us, it looks like it's a little frozen maybe it's just frozen on our end.

But look, so it turns -- in terms of Q1 performance, it really boils down to -- to COVID, frankly. As you know, the -- the extraordinary events I've covered have had a big impact on the world, continue to have a big impact on the world. And -- and for us, at a minimum, it creates just some -- some short-term kind of choppiness in some of the business trends that -- that we see in our business. So you know, in particular, we had a huge pull-forward in 2020 in terms of our subscriber additions, nearly 40 million paid net adds in -- in 2020.

And we also have a near-global shutdown in production which we've been ramping safely and at scale through much of last year and into this year, but it did push some key title launches into the back -- kind of the back end of -- of this year. So the combination of those two things does create some noise it's -- it's -- it's super hard to -- to obviously kind of forecast quarterly subscribers in -- in a typical quarter for us and -- and particularly hard in this -- in this environment. In fact, on page two of our earnings letter, we show our actuals relative to forecasts which in our guide is our internal forecast for subscribers. And as you know, because it's -- it's our forecast that we're going to miss every quarter, it's just a matter of whether they're bigger or smaller misses.

And we can see over the past five years, our biggest kind of misses to forecasts, either up or down, the big, you know, most of those big misses the biggest ever in the past five quarters, relative to the past five years and that was -- there are these five quarters of COVID. So it's just a difficult time to forecast the business. But the key is the business remains healthy, our engagement or viewing per household is -- was up year over year in Q1. Our churn was down year over year and the business is still growing.

So even at 4 million paid net adds, if you kind of take COVID out and look over the past two years, we've grown from two years ago to about 150 million members to almost 210 million now. So that's nearly 40% growth and -- and about just under 20% over an average over each of those two years, which is in line with the past couple of years. So the business remains healthy and that's because the long-term drivers this big transition from linear to streaming entertainment, and that remains as -- as healthy as ever. But you do see little -- a little kind of noise in the near term but a lot of long-term clarity.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Thank you. That's helpful.

Reed Hastings -- Co-Chief Executive Officer

Nidhi, we had those 10 years where we were growing smooth as silk and then, you know, it's just a little wobbly right now. And of course, you know, we're wondering -- well, wait a sec, are we sure it's not competition? Because obviously, there's a lot of new competition. And we really look through all the data, you know, looking at different regions where new competitors are launched or are not launched and we just can't see any difference, you know, in our relative growth in those regions, which is what gives us confidence that it's intensely competitive but it always has been. I mean, we've been competing with Amazon Prime for 13 years, with Hulu for 14 years, it's always been very competitive with linear TV too.

So there's no real change that we can detect in the competitive environment. It's always been high and remains high.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Well, it's encouraging to hear that your churn was actually down year over year and you did announce some price increases in Q4, in Q1, and a few markets. So maybe just talk about how well it's with fiber-based or sort of some of these price increases in the current environment.

Spence Neumann -- Chief Financial Officer

Sure. Greg, do you want to go first?

Greg Peters -- Chief Operating Officer and Chief Product Officer

Yeah. I'll take that one. So you know, we're seeing results that are very similar to what we've seen over the last two years, which is that, you know, if we wisely invest in great stories and we increase that the variety and the diversity and the quality of our program, which you know Ted's team is assiduously trying to do, you know, in every country around the world. We also invest in better product experiences, you know, that makes it more delightful and easy to connect with those stories.

We're just delivering more value to our members. And if we do that well, then we can occasionally go back and ask them to pay a little bit more to keep that positive cycle going. And so having said that, I just want to reiterate, we think, we're still an amazing entertainment value. We want to remain at an incredible value compared to our competitors and the competitive offerings out there broadly.

So even as we can do to improve the service we got that in mind and we want to make sure that we're accessible to more and more people on the planet through that process.

Spence Neumann -- Chief Financial Officer

And -- and, Nidhi, the only thing I just add to a great extent is that I agree with all that. It is just very specifically in terms of what we see in the -- the numbers on the churn side. Our churn is actually below pre-price change levels already in the U.S. and in most of the markets and where we've -- where we have adjusted prices and, you know, just some of the newer ones haven't come all the way back down but they're -- they're rapidly getting there.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

That's great. Can you talk a little bit about what you're expecting in terms of subscriber growth as the world reopens? Is there anything you're seeing in your more open versus last open markets that will sort of give you a window into this? But how are you thinking about that and what sort of basis to do that?

Reed Hastings -- Co-Chief Executive Officer

Well, tragically, Nidhi, many countries have opened and closed, you know, over the year. And we've got many countries right now that are in a real crisis. Fortunately, the U.S. is not one of them right now.

So we've got a lot of evidence on that point. And there was the initial surge of COVID, which was quite large in subscriber growth and viewing. But since then, every opening and closing including the U.S. over Christmas really didn't generate any noticeable material effect.

So I don't think there's any material effect we're going to notice about future openings and closings, again, because we've been through in many countries pretty intense surges, unfortunately.

Spence Neumann -- Chief Financial Officer

And -- and the only thing I'd add I guess to -- to Reed's point specific to your question on the Q2 guide, Nidhi, is you know, related to that, it's -- it's very similar to what we saw in Q1 is what's reflected in Q2 in terms of still working through that pull-forward, still working through some of the pushed, slate of some of those big titles into the latter half of the year. And also it's a bit of a seasonally soft period for us, so those are all playing into it. But you know, the good news as we said, the core underlying metrics are very healthy and there's this clear catalyst to a reacceleration of growth and -- and toward that back end of the year as those big titles start to launch in the strength of slates and when we come out of that pull-forward, so feeling good about the long-term trends.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Do -- do you feel like Q1 and Q2 sort of encapsulating the pull-forward that you're expecting? I know it's really hard to forecast when you add, you know, 26 million subscribers over the course of two quarters last year. But just you know, how are you thinking about how the second half might keep up with the additional content as well as, you know, maybe some of the pull-forward behind us?

Spence Neumann -- Chief Financial Officer

Do you guys want me to take it?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Yeah, yeah. I just --

Spence Neumann -- Chief Financial Officer

Go for it. Go for it, Ted.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

I just want to say one of the things to keep in mind is that, you know, we normally -- we have to do a kind of day in and day out, week in and week out, year in and year out, is deliver programming that our members love and value. And the -- the shape of that gets determined, you know, sometimes two or three years in advance. So you go into these production cycles, you go into planning cycles, and you've got a pretty smooth release of high profile projects and smaller kind of passion projects, and all those things. And what happened, I guess, in the first part of this year is a lot of the projects we'd hoped to come out earlier did get pushed because of the post-production delays and the COVID delays in production.

And we think we'll get back to a much steadier state in the back half of the year and certainly in Q4 where we've got the returning seasons of some of our most popular shows like The Witcher, You, and Cobra Kai as well as a big temple movie that came to market a little slower than we'd hope like Red Notice with The Rock and Ryan Reynolds and Gal Gadot and Escape from Spiderhead with Chris Hemsworth, a big event content. Now, all that being said, in every quarter of the year, we release more content than we did in the previous quarter and in the previous year quarter by quarter and every -- in every region. It's just that I think the shape of the mix of the content is, you know, become a little more uncertain, and then the long-term impacts of the corporate shutdown are also becoming a little more uncertain in that -- in that timeframe in the first half of this year.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. Well, I'd love to shift to the big picture now that I've beaten you up about the quarter enough. So you know, you're at over 200 million subscribers around the world, you're five years into your original content strategy. You know, you're -- you seem to be coexisting really well with possibly the largest direct competitor you might ever be, and -- and your self-funding.

Thank you for that. We did notice. Maybe just talk about, with that backdrop, key priorities to view in 2021 and really just the next two to three years as you see them. Maybe we can start with you, Reed.

Reed Hastings -- Co-Chief Executive Officer

You know, probably your reference was to Disney. But our largest competitor for TV viewing time is linear TV, our second largest is YouTube, which is considerably larger than Netflix in viewing time and Disney is considerably smaller. But we're sort of in the middle of the pack. But in terms of what we focus on is the same things that we've always focused on, which is our members' satisfaction which drives retention and word of mouth and drives our growth.

So it's where can we find the story that you talk about even more that you connect with. Where can we improve our choosing where the best things are recommended for you and then ultimately the content of, you know, can we have stories that are just incredibly compelling. And we're just, you know, quarter by quarter, learning more lessons on each one of those, which is what improves the member satisfaction, which is what really drives the growth.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

And I'd say one of the things to keep in mind is over the years media companies have been really great at exporting Hollywood content around the world. And I think I'm proud of how we've done that as well with shows like Bridgerton with over 100 million starters and movies reaching these enormous audiences all over the world. But the one thing that we really have, you know, really have sharpened our -- our skills on are the last couple of years has been creating content from anywhere in the world and playing it all over the world. And the great thing about that is -- is those -- those stories that are coming from all over the world, like we saw with Lupin this year, this quarter, it was our biggest new series on Netflix in the world -- was Lupin from France.

And the show was not like a watered-down French show, it was a very French show. And what's really been great about it is as you tell stories from around the world, those -- the more authentically local they are, the more likely they are to play around the world as people recognize the authenticity of the storytelling. And that's something that we've been really focused on as well as continuing to offer up, you know, a very big variety of content from Hollywood to the world as well. But we've got new series -- new seasons of really popular shows from around the world like Elite in Spain, La Casa de Papel coming up, and The Naked Director from Japan, which has been an enormous hit for us, The Gift from Turkey.

So our ability to do this around the world at scale and be able to bring those stories to a big global audience is something that we're really incredibly proud of and we'll keep working on it over the next couple of years.

Greg Peters -- Chief Operating Officer and Chief Product Officer

And I'll -- I'll pick it up from there. I'm also super excited about that aspect of our business -- to find stories from around the world and connect them with audiences around the world. And a companion piece of that is making sure that we increasingly are understanding, you know, what our -- our members' needs and so the members we haven't signed up, consumers needs, generally, in more and more countries and they all have sort of unique constraints that they're working through. They have unique expectations from the service and our job is to learn more and more and more about what those are and make sure that we are being able to offer the service in a way that feels natural, that feels delightful to them, whether that's having the right payment method so that they -- consumers don't have to think about what hoops they have to jump through to actually, you know, sign up and pay for the service, to how we present the content to them regardless of what country it comes from or what language it's in but present it in a way that allows them just to get into the story of it and realize that, you know, the plenty and the amazing diversity of storytelling that exists across the planet.

Spence Neumann -- Chief Financial Officer

Yeah. I think it's I think everyone's pretty much hit it. Maybe I'll try to add. I mean, I get super excited about just this giant transition to streaming entertainment.

Streaming is -- the entertainment is -- is the now and the future and, you know, we talked a little bit in the letter about, you know, our business and how it's transitioned over the last 10-plus years from, you know, from DVD by mail to streaming, from the U.S. only to global, and -- and from license content to original production. But what's held is just our velocity of decision making and our focus has served us well and there's, just you know, we're sitting here we're still less than 10% TV viewer share even in our biggest market. So there's just this big long runway of growth if we stay focused and keep getting better.

And so I just -- I love the opportunity to keep kind of continually getting better improving our creative excellence, our operational excellence, and just maintaining that speed and velocity even as we get larger as a company.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great.

Spencer Wang

And obviously, IR side, Nidhi, I'd say, my main job is to continue to make sure you're happy as long -- as well as our other shareholders. But I think what that means is, you know, just making sure that you -- you all understand what we're doing and why we're doing it from a strategic standpoint. In my broader finance role supporting spends on the finance side, just to make sure that we're allocating capital, you know, as wisely as possible and then continuing to support Ted and Greg and the other business units from, you know, a finance support standpoint.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. So, Ted, I'd love to dig a little bit deeper with you. Film has been a -- a recent success for Netflix with 36 Oscar nominations. Congratulations, that's an incredible feat.

So my question is, over the long term, do you think Netflix can be the primary or dominant way that people can see films and if so what does it take to achieve it?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

I don't know about dominant but I would say it's going to be continually material the way people view films. This is where the audience is kind of going and what we find is that we're not really kind of changing the way we make films for the way people watch films. So they're watching the kind of films they would've gone out to the theater to see but in many cases in the convenience of their -- of their timetable and in the comfort of their home where they can really enjoy a great new film, and it could be a film of enormous scope. It's certainly competitive to the kind of things you see in the theater.

You mentioned the Oscar success, and that's certainly one flavor of filmmaking that we're super proud of. Most of it has 17 different films with an Oscar nomination this year, which is super incredibly exciting. But also the fact that we can do these very large-scale action movies that audiences love around the world at the same level that is being produced for the theater. So I -- I do think that that's going to continue to be more and more meaningful to viewers as how -- as to what percentage of the films that they see in or out of the home.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

So over -- over the years, you've been really successful at getting a high share of the kind of most-watched TV shows. When I look at IMDB, top shows or most searched shows on Google. Do you have to do anything fundamentally different in film to achieve that same level of kind of high share with films?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Yeah. It's -- it's not this similar, the people just have very diverse taste. So you really kind of want to try to hone in on. We've always kind of set out to do your favorite film, your favorite show whoever you are, wherever you are, and whatever mood you're in.

So that's why we kind of go at it from so many different angles. It's a very unusual thing where you have mink sitting next to the -- next to the tiger king on the show for most media companies but we have very specialized teams that focus on being best in class at each of those things that they do. And that's I think why we've had those results you're talking about.

Reed Hastings -- Co-Chief Executive Officer

And Nidhi, I think we would say too that we would need to spend more. So we spend a lot more right now on series than film. But you know, that will grow as the total budget grows. And then, it's also the experience curve, we've been doing series longer and we're more dialed in about what goes really big and what hits and we're getting there on film and also in animation, also in kids.

Each of these has its own experience curve that we're progressing down.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Can you share any more details about the -- the Sony deal? You know, what -- I guess more specifically what is the rationale for the deal and what does it get you that your originals obviously don't achieve for you?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Yeah. Well, what's really exciting about that deal is that we're going to be producing global original films from Sony's IP library and their development slate for Netflix. That's really an incredible opportunity of access -- access to IP that we wouldn't otherwise have. And it's part of, you know, it's a big global programming strategy over the next five years.

The domestic pay-one deal is also part of that. I think complements and adds to it but only for our domestic subscribers over the four-five years. And we do think that that's a great thing and it complements our -- our growing output of original film as well. And we've had their output prior and through other deals over the last several years.

It's been great. They're great films. People have a diverse taste like I said and I think this adds to that, doesn't compete with that.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great, great. Switching gears to pricing. You know, your -- your price range around the world has really wide and over the years. But the reality is in terms of willingness to pay, there are probably households in the U.S.

that are willing to pay you $50 a month and then households in India that can't pay you more than $5 a month. So assuming over the long term that you can sort of match everyone's willingness to pay around the world, what do you think your revenue distribution will look like across the different price points?

Greg Peters -- Chief Operating Officer and Chief Product Officer

Well, as you point out, you know, our spread has been growing wider and I think that that's part of that story. You know, we're really trying to find, you know, a set of plan types with the right kind of features and, you know, we know folks are -- some folks have gigantic TV shows at home and some folks are watching on their mobile phone, some folks are approaching the service as an individual, some folks are approaching it as a family. There are just so many different needs out there and so we're really going to try and match those feature sets at the right price points, you know, to -- to that really wide group of folks and we know that inevitably means that we're going to really sort of seeing an expansion of that. And the important part of that is making sure that we are continually looking at how do we broaden accessibility.

So how do we bring in price points that are low enough for more and more of the world's population to be able to access our service, to enjoy that kind of amazing stories that we are creating. You've seen us do that with rolling out the mobile plan, for example, in several countries in Asia and that sort of we find a good balance of features and price points. We're going to do more and more of that. But I think the broad trajectory is the one that you've seen which is a widening of the breadth of our offerings and price points associated with them.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Related to that, you know, your -- your investment -- content investment in Asia has ramped up pretty significantly. I think you announced this quarter of $500 million in Korea, 40 new films and series in Korea, and obviously, Japanese anime continues to ramp. I'm -- I'm curious what sort of giving you the confidence to invest this aggressively in Asia particularly in a market like India which is still below the share of global GDP, and you know, willingness to pay for premium content seems pretty low?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Well, remember, I think it's the -- the product-market fit is what we're always looking for. And we programming the service in a way that consumers value it and love it. And it's a bit of trial and error at the beginning of each of the territories that we've rolled out. When we started launching in international territories with no original programming in local language with local producers and now we're producing in most corners of the world.

And I do think, you know, our confidence in investment in Korea and India and Japan has been the success of the investments to date and that it gets us closer and closer to that product-market fit that we have in our more mature markets. So I do think like -- and what we've seen in our -- in our Korean originals and our Japanese anime is that they play really well around the region as well as in-country and occasionally they can be very, very global in their interest and desire. And the fact that we can bring a global audience to those creators and each the territories, has been really attractive.

Reed Hastings -- Co-Chief Executive Officer

And Nidhi, we have enough success in -- in Japan and South Korea for you guys to think about it like Germany or France like it's a big developed rich market. We've got that wired. You know in India, we're still figuring things out and so that investment, you know, takes some guts and belief, you know, forward-looking. But the other investments you should think of just like rich European countries content expand and exports really well.

And you know, we're just getting a little better every month on it.

Spence Neumann -- Chief Financial Officer

Yeah. Can I just add to that and you can kind of see that in the numbers too, Nidhi, even in what we release on the regional numbers. The APAC region was about a third of our member growth this quarter and also still kind of healthy -- healthy revenue growth including average revenue per member. And that's in part because it's, you know, the -- as -- we're also can -- can as we improve the services engagement is up and -- and churn is down we can occasionally take price increases as -- as Greg mentioned and that happened recently in Australia, New Zealand, and Japan.

And -- and I think, our members are clearly appreciating the value of what we're delivering them so the -- the business -- the business of scaling and scaling well.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Yeah. That's helpful. So, Reed, is that fact or belief when it comes to kind of these lower ARPU or it's just a newer market? Is that -- that eventually you'll be able to play that kind of low ARPU high-volume strategy or is it, you know, over the long term, incomes will rise in these markets, ARPUs will rise and the math will sort of work?

Reed Hastings -- Co-Chief Executive Officer

You know, I think on that, we're still learning. You know, we've done some pricing experiments in -- in India that Greg could talk about and I would say we're still mostly focused on getting a content fit and getting, you know, broader content. So that's why I say that one is a more speculative investment than say Korea or Japan, which again five years ago was very speculative when we did those, OK? But we've gone on for over the hump and now we've got, you know, we've got a great match. And we're still working on India and we're super excited and, you know, again, right now, this month, things are terrible in the COVID spike.

But outside of that, we've been really producing a lot of great new content that's currently shut down. Greg, do you want to talk about like Jio or any of that?

Greg Peters -- Chief Operating Officer and Chief Product Officer

Yeah, and maybe a couple of things there. You know, Nidhi, we -- we -- we recognize that we -- we don't know a lot yet, you know, compared to how much we're going to learn over the next year many, many years and so our job is to really try and be innovative and -- and push and experiment. And so whether that is, you know, pushing on the actual model in terms of like multi-month or sachet, and sort of, you know, explore the ranges of that kind of offering. But then also, you know, something that we've seen that is quite successful for us in, you know, pretty much all the markets we serve around the world is leveraging go-to-market partners who have existing relationships with consumers as a way to expose them to the Netflix service and then, you know, have them make it easy to -- to pay.

And of course, the -- the ultimate and easy to pay is it's just included -- the sort of bundle offerings that we've been doing more and more. I mean, Jio is a great example of a partner. We'd be working with them to really bring the service to a new demographic at a very, very low price associated with low-cost mobile plans that they're offering as well as, you know, home-based IPTV plans and those have been tested for us as well. So you know, it's constantly trying to push on all those different edges and really figure out, you know, what is that right price point, the right offering, and the right way that works for the local members and consumers.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

I would, you know, I'd just add that India is a tremendous opportunity and I think Netflix offers a tremendous opportunity for the creative community to connect with that enormous audience. And it's just like all great opportunities. It's a long journey and it's a challenge. And we're -- we think -- we think it's worth it.

And that's why we're investing early and trying to stay ahead of it. And I think we'll be able to see those kinds of results that we've seen in other places in the world as we continue to learn more and more and more.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. Well, I am a big consumer of your Indian content so keep it coming.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

All right.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Greg, you know, you've started to run some tests on a certain market. I think maybe just the U.S. not limiting account sharing. Can you -- can you talk about the size of the opportunity here and why now is kind of the right time to start tightening the screws on that?

Greg Peters -- Chief Operating Officer and Chief Product Officer

Yeah. We -- first of all, we recognize that our members are in different positions again and they have different needs from us as an entertainment service and we're really seeking that sort of flexible approach to make sure that we are providing, you know, the plans with the right features, you know, and the right price points to meet those -- those broad set needs. So we are going to keep doing that, we're going to keep working on that, working on accessibility, you know, across all of the countries that we serve. But we also want to ensure that while we're doing that, that we're good at making sure that the people who are using a Netflix account are accessing it are the ones that are authorized to do so and that's what this sort of line of testing is about.

It's not necessarily a new thing, we've been doing this for -- for a while as you may see it pop up here and there in different ways. But it's sort of a, you know, the -- the same framework that we use and I think you're familiar with it and so much about how we think about continuously improving the service, which is, you know, we iteratively work. We use the test to the test results to inform and guide how we proceed. And just sort of, you know, continually try and make that better and better.

Reed Hastings -- Co-Chief Executive Officer

And Nidhi, we will test many things but we would never roll something out that feels like turning the screws as you said. You know, it's got to feel like it makes sense to consumers that they understand and Greg's been doing a lot of great research on kind of how to try variants that harmonize with the way consumers think about it.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Are there any particular markets where the subscriber or the user-to-subscriber ratio is particularly high?

Greg Peters -- Chief Operating Officer and Chief Product Officer

I think, you know, different -- every market, every country is different and so we see different ranges of behavior. And, you know, I think just, you know, how people orient themselves to the service is different from country to country. So I want to, you know, it's -- it's more than just sort of how they think about, you know, how maybe they're -- they're -- they're working the system or service. How did they think about, you know, sharing the service with the extended family or people that they love is a natural part of how they connect with the stories that we're telling.

So it's all different around the planet and it's different within countries too as you might well expect.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

If -- if this were, you know, a gap that you could close over the very long term, do you think that there is a bigger revenue opportunity in getting some people to pay more through limiting account sharing or getting everyone to pay more your kind of rate? It's like which is the bigger revenue opportunity over the last ten years or however long it takes to sort of start closing the gap?

Greg Peters -- Chief Operating Officer and Chief Product Officer

Well, what I would say is I think the optimal revenue opportunity, the optimal business opportunity is trying to figure out a way to best serve our members. And you know, trying to figure out the models, you know, the plan types the right price points, the right features that really work for them in a natural way. And that really is what's informing sort of our investigation exploration. And you know, I would say, you know, we don't really know as most that, you know, it's often the case when we're sort of going down a path of innovation what, you know, the -- the right place to land is up to you.

That's why we do these experiments and we do the iterative approach. So it's mostly letting that process unfold and letting our members speak to us about what's really the ideal model for them.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. That makes sense. Spence, switching gears to you. Now that your balance sheet doesn't that keep me up at night anymore, I can ask a much more fun question, which is what would you do with all the excess cash? You've been asked the $5 billion buybacks which is great.

Could you maybe just talk up the numbers and the sort of cadence of that, you know, this particular buyback and just how you think about buybacks philosophy over, you know, the next couple years.

Spence Neumann -- Chief Financial Officer

Yeah, sure, Nidhi. So -- so you know, as we've said in the letter in the last couple letters now, we've -- we think we've turned that corner, we know we've turned the corner on that and that cash flow story so we expect to be about cash flow break even this year and then sustainably free cash flow positive and growing thereafter. And so -- and we don't intend to build up a bunch of excess cash on the balance sheet so we will maintain a debt level of gross debt level at $10 billion to $15 billion range. We paid down $500 million in principal in Q1.

So we are -- our gross debt did come down from -- from the prior quarter and we think that share buybacks are a way to return value to shareholders in a way that is a responsible steward of capital but also maintains a level of balance sheet flexibility for us to continue to be strategic. First and foremost, our number one priority is to invest strategically into the growth of the business but then, of course, return excess cash to -- to our -- our shareholders. So we're still maintaining a, you know, a goal of about two months of revenue is our kind of cash on the balance sheet. And you'll see us ease into that share buyback program so it'll start this quarter.

As I say, I think, you'll see us ease into it and, you know, we're authorized for up to $5 billion of share repurchase and we'll kind of get the program going this year.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. Reed, you know, you've remained incredibly focused over the years. I remember you telling me recently just the importance of keeping the main thing the main thing, which has obviously led to a lot of success for Netflix. But when I look forward to the next 10 years, which I realize is a very long time, but if you continue to be successful in adding, you know, probably 30 million subscribers a year.

You'll be at well over 100 million subscribers in 10 years, which feels like a high level of penetration. So I guess with that backdrop, how important is that you sort of have a second app versus continuing to let the business mature and focusing on -- on capital return?

Reed Hastings -- Co-Chief Executive Officer

Well, you know, YouTube and Facebook and those properties are multi-billion and the internet is only growing. So where we are so fortunate to get to those numbers that you referred to, we're going to be super hungry to double from there going forward too. So outside of China, I think, pay television peaked about 800 million households. So you know, lots of room, and that was several years ago that at peak, lots of room to grow.

So think about it as, you know, we do want to expand, so like we used to do that thing shipping DVDs and luckily we didn't get stuck with that. We didn't define that as the main thing. We define entertainment as the main thing. And so then we expanded into -- as Ted -- or should I say, Ted expanded that into original content.

And you know first, it was the original series and then films and -- and then animation and kids and unscripted. And so you know, bit by bit we are adding categories. So we got a lot of work to do in terms of different types of entertainment that we'll continue to do that. A lot of work in terms of global production.

So I don't think, you know, there will be a second app in the sense that you mean like AWS and -- and Amazon Shopping. You know, I bet we end up with, you know, one hopefully gigantic, hopefully very defensible profit pool, and then you know to continue to improve the service for our members by doing that, by expanding in category. So I wouldn't look for, you know, any big, you know, a large secondary pool of profits. But there would be a bunch of supporting pools like consumer products that can be both profitable and can support the title brands.

So you know, that's an obvious one.

Spencer Wang

Hey, Nidhi. We have time for two last questions.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Great. So I mean, just to follow up on that, you know, people's -- people often view gaming as kind of a natural extension or adjacency for you that's obviously still within the entertainment category as you mentioned. In what ways is that true or untrue and is -- is -- is there a way to do in-gaming sort of a Netflix title responsible for the way gamers came from that world?

Reed Hastings -- Co-Chief Executive Officer

Exactly. In ways, we're kind of in gaming now because we have Bandersnatch and, you know, we have some very basic interactive things but Spence and then Greg maybe can talk a little there.

Spence Neumann -- Chief Financial Officer

Well, I'll -- I'll probably let Greg mostly go. I would -- I would just say kind of ties to what you -- what Reed said. I mean, we've kind of dabbled in it already through some of our interactive programming as well as on the licensing and merchandising side in -- in consumer products and we're a business that continues to learn and so far learning has been -- it has been good learning. So -- we -- we're -- we're happy with how it's played out and -- and, you know, hopefully, we continue to kind of learn from here.

But I don't know, Greg, if you want to add to that.

Greg Peters -- Chief Operating Officer and Chief Product Officer

I'll -- I'll just take one more sort of point at it which is that, you know, Nidhi, we're -- we're in the business of creating these amazing deep universes and compelling characters and, you know, people come to love those universes and they want to immerse themselves more deeply and get to know the characters better and their backstories, all that stuff. And so you know, we're really -- we're trying to figure out what are all these different ways that we can increase those points of connection, we can deepen that -- that fandom and certainly, you know, games are a really interesting component of that. So whether it's, you know, game of flying some of the linear storytelling redoing like interactive Bandersnatch and the kids' interactive programs, that's been super interesting. We're going to continue working in that space for sure.

We've actually launched games themselves, you know, it's part of our -- our licensing and merchandising effort and we're happy what we've seen so far and there's, you know, no doubt the games are going to be an important form of entertainment and an important sort of modality to deepen that fan experience. So we're gonna keep going and we'll continue to learn and figure it out as we go.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Very well. If we have time for one more, my last question is just over the last five earnings calls, how many times would you say Ted has used the word, "like guys"?

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Do I use "like guys" a lot?

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

I only noticed it because I was listening to the previous earnings calls that I think I kind of --

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

It's a good word. Nidhi, you've got to know -- you have to admit it's a good word.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

I actually -- I actually have a real last question, which is --

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Yes.

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Of -- of your Oscar-nominated films this year, which did you most enjoy watching? And I -- I can go first. Mine was White Tiger. I will have to make --

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

I am going to -- I am going to diplomatically pass the question to Reed.

Reed Hastings -- Co-Chief Executive Officer

Chicago -- Chicago 7 for me.

Greg Peters -- Chief Operating Officer and Chief Product Officer

White Tiger for me.

Spencer Wang

Chicago 7 for me.

Spence Neumann -- Chief Financial Officer

White Tiger for me too.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

And just so I don't completely went bad --

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Oh, we have [Inaudible]

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

So I don't completely went bad, you should take the time and watch a really beautiful animated short that's Oscar-nominated called, If Anything Happens I Love You. That is a really -- I think a remarkable bit of storytelling in a way that people can really expand the universe of what they think storytelling can be.

Reed Hastings -- Co-Chief Executive Officer

And, Ted, maybe you could wrap this up.

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

Awesome. Well, thank you so much, Nidhi, for -- for joining us on for the call and walking us through this. I know that our -- well, we're busy doing and I know that some folks are on edge today watching the news and in particular pockets of the world like our friends and colleagues in Brazil and India are having a particularly tough time. I know that our -- our hearts and thoughts are with you as well.

But thank you, we'll see you next quarter.

Duration: 40 minutes

Call participants:

Spencer Wang

Nidhi Gupta -- Fidelity Investments -- Portfolio Manager

Spence Neumann -- Chief Financial Officer

Reed Hastings -- Co-Chief Executive Officer

Greg Peters -- Chief Operating Officer and Chief Product Officer

Ted Sarandos -- Co-Chief Executive Officer and Chief Content Officer

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