Netflix Inc

NASDAQ:NFLX

Hello, and welcome to the Netflix Q4 2020 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 Kannan Venkateshwar from Barclays. As a reminder, we'll be making forward-looking statements and actual results may vary.

With that, let me turn it to Kannan for the first question.

Thank you, Spencer, and good afternoon, everyone. So maybe, Spence, we could start off with you. Just given the guidance and the beat during the quarter relative to guidance, sequentially the first quarter tends to be higher in net additions than Q4. But your guidance is lower, despite the fact that you beat Q4 by a relatively large amount, and it feels like the pull forward effect is more or less behind us. So if you could just help us walk through the thought behind the guidance and the framework that you use for that, that would be a good place to start.

Yes, sure, Kannan. Well, great to see you. Happy New Year, obviously, delayed. So in terms of the guide, first of all, we guided to 6 million paid net adds for Q1 if you saw. And obviously, that's still a big number, especially when you think about it in context of 2020, which was by far a record year with 37 million paid net adds. So I know you mentioned the pull forward, I don't think we're declaring that we're necessarily through that yet. So, there's puts in calls every quarter, but one that's still a meaningful factor for us in the guide is thinking through how we kind of grow through that growth from 2020. So there's probably still a little bit of that pull forward during a hammock [ph] in early parts of 2021. And then more broadly, Kannan, it's just so difficult in this time. This is one of the more uniquely challenging times, not just for life, but that's most important, but also obviously in terms of trying to just forecast the growth trajectory of the business. There's just so much uncertainty right now. So it's more uncertain than we've ever seen. And we're trying to forecast through that. But at the same time, one thing that's maybe counterbalancing that is that what COVID has done for us is it's accelerated that big shift from linear to streaming entertainment. So the long-term growth trajectory is at least as strong as ever. There's just more short-term noise and uncertainty right now, but still very strong underlying growth metrics and that's what you're seeing in the Q1 guide.

Okay. And I guess if you just look at the full year in terms of cadence, '21 obviously has tough comps versus 2020. But I think one of the things you guys also indicated was potentially a 4 million to 5 million pull forward into 2020 from a growth perspective. And I think there's been a lot of debate about what you actually meant by that 4 million to 5 million. So if you could just contextualize the guidance for Q1 more in the context of 2021, you typically do 28 million to 30 million subs in a given year. Is that framework more or less intact or should we read that 4 million to 5 million comment as a pull forward into '20?

Well, look, I'll take this one. Other can jump in as well. Unfortunately, Kannan, we're not going to provide a full year guide. Just as we talked about, there's so much uncertainty in the business. We can provide a number, but I'm not sure it would be worth, it would be bankable, right. It's hard enough to project the next 90 days, let alone the next 12 months. But we feel very good about, as I said, is that longer term growth trajectory, you've seen us as you pointed out historical growth trends. Hopefully, it'd be plus or minus that. But it's a bit impossible to predict. What we do see is that viewing is up in every region of the world. It's kind of returned from those peak COVID levels, but it's up year-over-year in all regions. Retention is better than it was a year ago. Acquisition is strong. So the underlying metrics are strong in the business, but I don't want to provide false precision on a 12-month target.

Got it. And if you could touch on a couple of regions. The one thing that stood out during the quarter, of course, is UCAN where most of us thought the market was saturated, but you guys keep accelerating growth, despite price increases, which is even more impressive. And then the other region, which until Q3 seems to be, despite the benefit of COVID seemed to have slower growth than 2019 despite the market not being saturated. So if you could just talk about the underlying trends in some of these markets and what you're seeing, which is driving some of these trends, that might be useful.

You want me to go or someone else want to go? Okay. I'll go again, Kannan. I think the story is pretty similar throughout the world. Every country is a little bit different. But what we're seeing in terms of our viewing trends are similar around the world, the types of content that our members are viewing is kind of similar to pre-COVID and post COVID. Obviously, we have more and more variety of content and great experiences that we're offering to our members. But the story is pretty similar. As you know, there are certain countries around the world where we’re just further along in our content market fit and our maturation, but we're seeing growth everywhere. Like you pick Latin America as an example, one of our more mature markets, you look over the past few years and we've been steadily growing about 5 million to 6 million paid net adds a year. As you mentioned, in kind of UCAN market, we're roughly 60% penetrated and we're still growing. So we're still a very small share of even just pay TV penetration in most markets around the world and small share of viewing. So we think we've got a lot of headroom in all these markets, and we’re just trying to get a little better every day.

And if you take the U.S. being our most penetrated market, we're still under 10% of television viewing time is Netflix. So again, we've got a lot of subscribers here in the U.S. But we still have a lot more viewing time that we would like to earn with an incredible service and incredible content.

And Spence, maybe one last financial question and we'll get this out of the way and get into the more interesting part of the discussion, but --

I take offense to that last comment, Kannan.

But the one thing obviously which is new in the letter this quarter is the cash flow guidance and your cash flow guidance is better than what you guys initially indicated and the buyback guidance. So maybe you could talk about capital allocation and using the cash for buybacks versus potentially other opportunities. And also why use an absolute gross debt number instead of a leverage target to frame the buyback discussion? So it would be helpful to get that context.

Yes, sure. Thanks. We're super proud of where we are from a free cash flow perspective and we talked a bit internally before the calls, what was a bigger milestone for us? Passed 200 million member mark or kind of turning to this next chapter in terms of our free cash flow and the ability to self fund our growth going forward. And we think that's a pretty big milestone for us. To the point of our capital allocation approach, the philosophy remains unchanged, which is that we're going to be disciplined stewards of the capital and try to do things that we believe are value maximizing for our shareholders. But we have turned this corner where now we can, as we talked about, with $8 billion of cash on the balance sheet, projecting to be cash flow about breakeven in 2021 and then positive thereafter, we want to return excess cash to our shareholders. So we won't build up a bunch of excess cash. We'll maintain, as you say about -- we said in the letter, as you mentioned, about $10 billion to $15 billion of gross debt on the balance sheet. And that's really just to maintain familiarity and access to the debt markets should we need it, but there's really not a whole lot of science beyond that. And then beyond that, as we say, we put a premium on balance sheet flexibility, so we're going to continue to invest aggressively into the growth opportunities that we see. And that's always going to come first. But beyond that, if we have excess cash, we'll return it to shareholders through a share buyback program.

Okay. And Reed and Ted, if we could just pivot to a question on competition. This question may feel a little bit unfair to be honest, because in many ways you created the streaming template for others to replicate. But given Disney's recent success and the kind of numbers they are putting up, it almost feels like Netflix is underachieving versus its potential and has to work a lot harder to get to comparable scale. So are there any reasons why the Disney numbers are not a benchmark for Netflix and why the company can’t get there?

Underachieving, Kannan --

I’m sorry I had to frame it that way.

In the bottom of our earnings which is the return to annualized return over 18 years being 40%. So if that's under performance, we'll do more of that. Look, it's super impressive what Disney has done. It's the incredible execution for an incumbent to pivot and taking on an insurgent, so that's great. And it shows that members are interested in willing to pay more for more content because they're hungry for great stories, and Disney does have some great stories. And so it gets us fired up about increasing our membership, increasing our content budget and it’s going to be great for the world that Disney and Netflix are competing show by show, movie by movie and we're really fired up about catching them in family animation, maybe eventually passing them. We'll see. We have a long way to go just to catch them and maintaining our lead in general entertainment, it’s so stimulating, like Bridgerton which I don't think you're going to see on Disney anytime soon. Ted, you want to follow up on that?

No, I think when you talk about it in competitive terms, you think about Christmas Day 2020 where you have the enormously anticipated film like Wonder Woman '84 and Soul, both debuting on competitive services and us launching what turns out to be one of our biggest launches ever. And I do think what Reed said is it does point to people have tremendously big appetites for great entertainment and all different kinds of it. And the fact that they're willing to pay more for more programming I think is very encouraging. We've always said that people will -- our goal is to make everybody's favorite show, everybody's favorite film. Other people are going to try to do that too and people will supplement their Netflix subscription to get that content, which I think is a super healthy dynamic.

And Kannan if I could – sorry, go ahead.

But if I could just add as well, I think there's the membership lens and the number of subscribers, but it's also useful to look at it from a revenue lens, which of course is the fuel that we have to basically create more of that content to get that virtuous cycle flowing more.

And the only other thing I would add to that, Kannan, not to get too in the weeds on the numbers and not to take anything away at all from what Disney's done because it's been amazing and I'm a happy customer myself, but 30% of their I think 87 million paid subscribers were Hotstar, which I think we all sort of recognize as a bit of a different service. So the 87 million is closer to 60 million and our ARPU is roughly double or actually more than double. So we added close to 40 million last year alone. So I think when you factor in those dynamics on the fact that we're coming from a higher level of penetration globally, I think we feel very good about the performance.

So you took the bait. Can I just try to get us the chest pound some more?

It was meant to be provocative, it turned out to be -- but a follow up and Greg I guess you're going to have a lot to say on this topic. But when you think about Disney coming in or even Discovery or all these new launches that are happening, in some ways this expands the pie quite a bit for streaming in general, because there are also new distribution models that are being attempted. And telecom companies have started to see this as a new normal. And my guess is this will lead to all kinds of other permutations in the future. So when you think about more streaming services coming out over the course of '21, does that in some way provide an opportunity to try new distribution avenues or accelerate growth because of the growth in streaming in some ways?

I think you're right. We're seeing this big macro shift and certainly the global pandemic has accelerated that process. And really I think the first bit is just even that big impetus to move is to some degree a tailwind for us, because we have more and more consumers around the world who are aware of these services. We have more and more intention, more activity out there. We are seeking to be innovative and constantly pushing the edges around how we can accelerate our growth, how we can improve our distribution footprint, how do we access members more and more? And also, and what's really the key engine of our growth is just how do we satisfy those folks that have signed up for us, because that really is the ultimate stimulus when they have a great experience and they talk wildly about how great the service is, how amazing the titles that they're viewing there to their friends, their family, their colleagues, that's really what motivates that next round of subscribers to sign up. So we'll keep pushing the edges. We seek to be innovative in that way. And we'll come up with as many creative ideas we can to grow.

All right. And I guess extending on that topic, you ran a couple of interesting experiments during the quarter. I think Netflix was free in India for a weekend and in France you have tried the linear format. So could you talk a little bit about the learnings from these experiments? And are these successful enough to expand to other regions?

Yes. So StreamFest in India, the primary learning which was very evident is that there's a lot of interest amongst consumers in India to try Netflix. We had millions of people that had access for a 48-hour period to the service. And now we go through the more difficult part of actually analyzing how that interest through this specific tactic translates into sustained incremental growth. And we're still working through the details of that. And obviously based on what we see there will inform how we think about how we leverage that tactic again, or how do we improve on it, what other places we think it might be leverageable. And then on to your other point, I think Netflix members come to the service seeking to be entertained in a whole variety of ways. Sometimes they're looking for a movie or sometimes a TV show or animation or scripted or unscripted, and sometimes they show up and they're not really sure what they want to watch. And so we've had the opportunity to try and be innovative and try new mechanisms to sort of help our members in that particular state. So there's the linear feed isn't one example of that, it's still unclear how that's going to work out. So we're still looking at that one. But I think an even better example of that is a new feature that we've been testing and we're going to now roll out globally, because it's really working for us where our members can basically indicate to us that they just want to skip browsing entirely, click one button and we'll pick a title for them just to instantly play. And that's a great mechanism that's worked quite well for members in that situation.

Greg, are we going to call it I'm feeling lucky or are you going to come up with something better?

We're going to come up with something better than that, so standby for this. You'll see it when it rolls out.

And so, Greg, just following up on Asia a little bit more, you mentioned the $4 billion to $5 billion in revenues that Netflix has been able to add over the last few years. As email becomes a bigger region and as your reliance on growth in that region increases, is that $4 billion to $5 billion the right way to think about revenue growth? And also, because of the ARPU of course in that region being much lower, how should we think about that framework for revenue growth going forward?

Yes. We're proud of this sustained 4 billion to 5 billion annual revenue growth, which we think is unprecedented in the entertainment industry. And certainly our aspirations are to do as well as we can and growing to continue to grow that revenue. But to your point, specifically what we're seeing is we have to find ways to improve the accessibility of the Netflix service. And oftentimes, that means doing some tradeoffs between subscriber growth at different ASPs, but really our framework for all of that and the way we assess the moves that we make and how we expand those moves and what we test, how we evaluate those tests is really around that sort of revenue optimization piece. And so that's always the lens that we get to and we're going to use that to continue to try and basically fuel as much revenue growth as we can.

And I’ll just add to that, Kannan, just in this past quarter, the APAC region was the second largest contributor to growth and you see the kind of revenue acceleration frankly that's happening in our business from about $4 billion increase over the total year, two years ago to about 5 billion this year just in our guidance for Q1, it's 24% year-over-year, so on an absolute basis, that revenue is growing.

When you think about the APAC region, obviously that region is very different in terms of price sensitivity and the kind of diversity the region has languages and so on and so forth. So when you approach that particular region, is the present model more or less the steady state of trying a mobile-only kind of a plan and then trying to upgrade people from there or are there other things you can do either in terms of pricing or product to potentially accelerate that?

There are 100 things that we can and we need to go do and we know that it's really not about just one trick or one thing that will basically make us successful in the region, but it's just constantly looking at all of the ways in which the current product experience doesn't satisfy completely our members or members to be. And you mentioned language, it's a great one where even simple things like we're improving the ability for our members to tell us what languages they want in terms of the content when they're browsing, and there's sort of these different scenarios. There's a scenario maybe when you're by yourself and if you're multilingual, that can result in sort of different choices. If you're in a multi-generational household, then all of a sudden that might shift how you think about, like what titles you want to present and what languages and so that's just one small example of places where we know we can improve the product experience and be more effective in satisfying members. But it goes on and on from that to like the methods of payments that what we know we need to expand and we're constantly working to add more of those and make those more effective, the partnerships we have that make the service more accessible and more immediate and easier for members to find out and sign up. So there's tons of things that we're looking at.

Okay. And speaking of an area of overachievement instead of underachievement, Ted, 70 movies in a year. So now you guys are the industry in many ways. I think the top five studios potentially do about 90 movies a year. You guys are doing 70 a year. So at what point is this too much? How do you judge that balance? And how are you juggling, or how are you evaluating returns on this investment?

It's likely more than 70. That's just what we were able to talk about in that last release and that exciting trailer. And when you think about it, is you think about how diverse people's tastes are. You think about what the appetite to watch a movie is. It isn't just one a week. I think there's plenty of room to grow that, and we're doing that, but much larger scale today. So thinking about movie stars like Gal Gadot and Leonardo DiCaprio and Meryl Streep and filmmakers like Jane Campion and Adam McKay, Zack Snyder, Antoine Fuqua making films at enormous scale for Netflix, so that when people have an appetite to watch a movie, they could do it at home and they could do it on the big screen, or they could do it on their phone. And I just think that that evolution will continue to grow and expand well beyond a movie a week, because that's -- we're talking about serving a global audience with incredibly diverse taste. So that one a week is -- many weeks, it's already two or three. And some of them are hugely impactful in the region that they're created for. And some of them become very, very global, like we saw with #Alive last year from Korea, which became a very big hit for us around the world.

And when you make these titles, you innovated with respect to the kind of financial model on content creation with a cost plus kind of a structure relative to the deficit finance models in the past for content. When you do the kind of output that you're doing and the volumes that you're doing, is there a risk that this leads to lower returns over time, because there is really no downside in some ways for studios to create this content on a cost plus basis? And does it make sense at this scale versus when you were essentially doing originals as a startup?

I think it does. We're seeing it scale up more than double every year and it continuing to scale both in the scope of the projects, the ambition of the projects and the execution of the projects. And I do think the financial return, if you think about it relative on a handful of titles that wind up doing enormous return for the studio versus the hundreds of titles that barely break even, this is a great model for producers to produce in. And the fact that we can support it day-in and day-out at this kind of volume and make projects that are otherwise pretty difficult to make in some cases has been really encouraging for filmmakers just to embrace this model.

And given the kind of volumes that you're doing on movies now and also because of COVID, there's been a significant shift in the release patterns for movies, not just at Netflix, but across the industry, does this in some ways create essentially a new distribution channel for you? If [indiscernible] releases or shorter windows become more acceptable, does it become possible for you to essentially tap the box office with wider releases on a very short window? And does that become a new revenue stream at some point?

Kannan, potentially. We've looked at this before. We've never had any issue with movies being in theaters. Our biggest issue has been that you had to commit to this very long window of exclusivity to get access to any theaters. That's been the biggest challenge. So if those windows are going to collapse and we'd have easier access to films, to show our films in theaters, I'd love to have consumers be able to make the choice between seeing it out or seeing it at home, which is becoming the norm during COVID certainly, and we'll see how much that sticks. But I think that consumer behavior, human behavior, things changed a lot over time. But there's a very different experience associated with going out and going to the theater with strangers and seeing a movie and it's fantastic. It's just not core to our business.

Hopefully, with Warner Brothers sort of COVID move, what we'll see is post COVID, like the second half of the year, is that people both go to the theaters in significant numbers and watch their films. And they're premiered simultaneously on HBO Max and then that will really set a path for simultaneous, was good for the film, helps both online and on streaming, and then also in the theaters. But we have to wait to post COVID to get a clean read of that.

Yes. So what you're seeing today though is exactly what we've been trying to do for a couple of years since making these films at this size.

I guess the other side of this coin is given your distribution scale now, if a studio wanted to release a movie on Netflix, this is one of the most efficient channels they can get to. Why is that not an attractive model for Netflix, either in the form of a premium VOD channel or some other distribution model? But why is that not an attractive model for you?

We're not saying that it isn't. What we're saying is this one has been the most attractive model in terms of -- both for consumers and for our own business.

Kannan, I think you alluded maybe to a different model, sort of a transactional kind of approach. And I would say that we really believe that from a consumer orientation, the simplicity of our add free, no additional payments, one subscription is really, really powerful and really, really satisfying to consumers around the world. And so we want to keep emphasizing that.

That's interestingly a challenge to people to figure out one of the great things about the subscription models, I think it opens up for consumers to be much more adventurous about what they watch. So I think you can throw out a lot of preconceived notions about what works and what doesn't, because those are mostly established by business trends, not by consumer trends. And so I think what happens is people say, hey, I don't watch foreign language television but I've heard of this show called Lupin [ph] and I'm super excited to see it and it's included in my subscription when I push play. And 10 minutes later, all of a sudden they like foreign language television. So it's really incredible evolution. Bong Joon-ho said it so beautifully at the Oscars that audiences have to get over the one inch wall to enjoy a whole another world of entertainment. And we're seeing that incredible scale already by watching -- by having great stories from anywhere in the world to everywhere in the world on Netflix, and that one inch wall is the subtitles or you can watch it with dubs or you can watch it in the original language track.

And I guess when you have this kind of content volume and also the kind of movie slate that you're putting up, it also gives you a lot more pricing power because instead of watching a movie for $10 or as a family for $30, you essentially pay for Netflix. So your pricing power implicitly goes up in this environment because of the kind of product.

So we're increasing value or increasing the value proposition for the consumer. Every time we get another 10 minutes of watching on Netflix, you're increasing the value of that subscription. So I think it's -- by increasing the options, we are also increasing the likeliness that you're going to push play. And when you do push play, you're going to love what you see.

And Kannan, realistically out of home entertainment, it’s just most consumers think of that differently just like you could cook cheaply, but people still go out to dinner. And they still go out and they see that as an experience that's just different. So don't think of that as the direct or our members don't think of that as the direct pump. But what they love is for a low price they get to watch an unlimited amount and be very experimental back to what Ted was saying in their taste, and to try Alice in Borderland and to try Lupin. So it's -- all these things are kind of interconnected to be able to create a really unique and incredible viewing experience.

So I guess when you think about these factors, there are two ways to think about pricing in this environment. One is when you have so much competition and consumer wallets essentially have to be spread more widely. One way to read the environment is to say that pricing power is limited, but then on the other side of it, your share of total engagement could continue to go up and the pie itself could increase, and you have more product which consumers -- basically that wallet is coming out of somewhere else instead of television. Which of these two dynamics should we expect to see? In other words, should pricing power accelerate or ARPU growth accelerate in the coming years, at least in the Western markets?

Yes. I would say our competition set we think of is extremely broad, whether you think about it as share of wallet or share of time and attention, share of entertainment, share of delight, and we feel like we have so much more room to grow. And really it's exciting to now see the sort of new dimensions of value creation for our users, like bringing foreign language show; Lupin, Casa de Papel, shows that are now becoming global hits from countries and in languages that that's never happened before. So that's super exciting to see that kind of value creation. And that's really just where we stay focused. So we're not trying to predict the future in that way, but just stay tightly, tightly disciplined on trying to think about what's that next incremental step where we can create more value for our members, engage them, delight them, more great content, more great product experiences. And if we think we do that well, then we think our business will grow and turn.

Kannan, we've been pretty cautious and will continue to be pretty cautious. So maybe Spencer Wang, can you remember the -- what's the last three years what's happened with average revenue per member? What’s it moved up from?

Yes. So it's moved up from less than $10, so around sort of $9.90 per month per membership to in the last quarter slightly north of $11. And just bear in mind, Kannan, I think you know this, but we had significant FX headwinds over that course of time too. So we've seen that, of course, that leap so that's I think a helpful framework for you.

Yes, it's about 10% over three years, so pretty cautious and it's working well for us to provide incredible value.

Yes, maybe just another way of stating that cautious is just thinking about it. We do think we're an incredible entertainment value. We want to remain incredible in entertainment value.

Yes, I’d draw you back to that Christmas Day releases where we were [indiscernible]. But a couple of days before that, we had Midnight Sky. And a couple of days after that, we had Cobra Kai. And a couple of days after that we had Lupin and a couple of days after that, we had Pieces of a Woman. It's phenomenal. And you’ve seen the numbers are in front of you the way that people have enjoyed these series and films has been unprecedented. And I think the rhythm and the pace of that has been really keeping up. But I think that is the definition of consumer value.

And just the recent data points, Kannan, we referenced in the letter, but we had price increases in the U.S. in the fourth quarter. We announced in the UK in December and we've grown nicely through that, because I think to this point we're continuing to increase the variety and value of what we're delivering for our members.

And I guess on the pricing front, at a certain level, there's some academic research on this. But essentially, elasticity seems to be a function of the price itself, which means as you go higher and higher when you start taking price up, potentially maybe the elasticity of demand changes. But is that something that you guys have seen yet or are we still very far away from that point at which these factors kick in for you? So if you could just talk about what you've seen so far as you've taken price up across different regions in terms of potentially churn or cohort behavior, that might be a useful framework for us?

Yes. And I think rather than sort of that academic perspective, we look at it perhaps more practically and more operationally and really it's almost reversing it, which is that we are looking for signals and signs from our members that are telling us essentially that we have added more value. So you think about engagement with the service and retention and churn characteristics, acquisition, those are the things that we're really looking for that are key to basically saying, okay, we've added more value in the service. Now it's the right time to go back to those members and ask them to pay a little bit more so that we can reinvest it and keep adding it. So it's really that sort of iterative feel our way forward kind of orientation that we have.

Got it. Pivoting to a slightly different topic, you guys added Strive Masiyiwa, I hope I'm pronouncing that right, to the Board. And Africa is not a region we've discussed in the past, but Disney started creating a lot of content in the region. And obviously, this Board appointment is pretty interesting. Is this the next focus? How should we think about this as an opportunity?

Well, Strive is a global board member. He's not coming on board to be a marketing consultant for Africa, although he does know it extremely well. But he's a voice about how to build large subscription businesses, which he's done. He's enormously sophisticated of dealing with governments, which as we grow is an increasingly important skill for us to have. So think of him as a great global advocate for us. He also knows Europe very well and the rest of the world reasonably well. So I think it's -- we've been broadening our global board membership and it's a continuation of that. And again, Africa has a ton of potential. We're doing more content there. We're growing our membership. It’s not Strive role specifically.

And just looking at the rest of the world, there's been a lot of small transaction, and Spencer this one might be for you and I'm sure the others will chime in as well. But there have been a couple of streaming services in Southeast Asia, which essentially were acquired by some of the Chinese Internet majors. Sony, of course, did the acquisition of Crunchyroll. So there's been interesting assets, which could have helped you scale potentially faster, but obviously you guys passed on it or did not really show any interest in these assets. So could you help us think through what kind of assets you guys would care about as it's more like world assets or why are these assets not interesting?

Sure. To answer the first question, Kannan, with respect to other streaming services, our view is many people subscribe to multiple different services. So acquiring another one just for their members doesn't really help us and we want to stay focused on capturing and earning that subscription from each person organically rather than just doing some sort of M&A deal. So that's sort of point one. Point two in terms of your other question around what are we interested in, it is largely around things that can help us bolster our core business, which is entertainment and specifically content assets inclusive of things like intellectual property that we can hopefully turn into great TV shows and great movies.

I’d just add that historically, we've been builders, not buyers. And years ago, I used to try to get the team to wrap their head around the potential scale of the business by saying things like, someday we'll be so big, we'll have a VP of anime. And then that someday is now. We're one of the largest producers of anime in the world. So you think about those kind of things now and it's like what were you when you look at those assets, they're primarily distribution assets, not really IP assets. So that's – and where we've been taking the approach like with our unscripted programming, with our anime, with our animated features, with big budget original film, we're building over a couple years versus acquiring.

Kannan, we have time for one more question please.

Spencer, maybe -- sorry, I’ll ask you this final question more with respect to the longer term outlook for the business and Ted, obviously feel free to chime in as well on this one. But is there any regrets you guys have had in terms of things that you guys could have done but did not do? And one instance that comes to mind is something like Roku if it was part of the company, instead of being spun out? And also when you look at the competitive landscape, what do you perceive as the real competition? Is it streaming services or does it come from outside from things like Fortnite, which you've mentioned in the past as an engagement driver for consumers?

I’m going to see how he does on this one.

I could take a stab at it, then I'll pass it over to Reed, Greg or Ted. But look, as Greg mentioned earlier, we think the competitive set is incredibly large and wide. And so I think we have a lot of work to do to continue to grow that small share of screen time that we have today. It’s hopefully become more and more valuable to our members. I think the other part of your question was, is there anything that we sort of regret? I've only been here five and a half years compared to Greg, Reed and Ted, who have been here much, much longer. So I think my window of regret is probably smaller. So I don't think that there's anything that jumps out to mind right now.

Spencer's regret is not joining three years earlier when he could have.

That is correct.

Materially, I think it is fantastic that we've executed if we had kept Roku inside, it's very unlikely they would have been the success that they have. What Anthony and his team have done has taken enormous energy and focus on their side. And it was an enormous task for us just to become a leader in both streaming and then original programming and then global. So we’re happy for their success, but no regrets on that front.

Got it.

I would think with the hours and hours of joy we're bringing to hundreds of millions of people around the world and with their return to our shareholders, it's hard to look back with much regret.

Here’s one for you, Kannan. We regret not buying a global license to House of Cards in the first year, because we had to go back and piecemeal that extraordinary expense.

That's a good note to end on I guess.

Thank you, Kannan, and thank you to all of our shareholders and look forward to talking to you in another quarter.

Thanks, guys.

Happy New Year.