Netflix Aktie

Good afternoon, and welcome to the Netflix Q1 2026 Earnings Interview. I'm Spencer Wang, VP of Finance and Capital Markets. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. As a reminder, we'll be making forward-looking statements, and actual results may vary.

We'll now take questions submitted by the analyst community, and we'll begin on the topic of our results and outlook. The first question comes from Robert Fishman of MoffettNathanson. His question is, can you speak to your full year margin guidance and how it compares to prior guidance with the Warner Bros. deal cost. And beyond content spending, where else are you accelerating investment in 2026?

Perhaps I can kick this one off and just sort of step back and do a little bit of high-level framing. Of course, it's early in the year. There's still plenty of time to go, plenty of work left to go do. But we've seen really good progress so far in this first quarter that builds on the solid momentum and results from 2025. So given that, we are maintaining our guidance, our strong outlook for organic growth that we established for 2026. That's revenue growth of 12% to 14%, operating margin at 31.5%.

That includes roughly doubling the advertising business to about USD 3 billion. Now we ended last year with more than 325 million paid members. And as that number continues to grow, we are entertaining an audience that is approaching 1 billion people, which is an exciting milestone to strive for, and it will be an exciting milestone to achieve. But even given that number, we still have plenty of room to grow into our addressable market.

So if you look at it from an addressable household perspective that have good data, that have a smart TV, all those things that we think are enabling, we're still under 45% penetrated in terms of that number. We think that number is roughly 800 million, and it grows every year, obviously. We've captured about 7% of addressable revenue. This is countries and categories that we currently directly participate in. We now estimate that [ USD 670 billion ] as in 2026, and that number grows, of course, year-over-year as well. And we estimate that we account for only 5% of TV view share globally. So you can pretty much use any measure and say we've got tons of room for growth still ahead of us.

Yes. And I'd just add, Greg, looking ahead, we're focused on 3 big priorities. Number one, to deliver even more entertainment value for our members. And we do that by continuing to strengthen our core offering, series and films, originals and license. But we also are pushing into new categories that are really exciting [indiscernible] further expansion to podcast. We announced a few exciting new ones just today. We're adding more regional live sports events, like the incredible event we just did in Japan with World Baseball Classic, and we're growing our games offering, including a brand-new kids gaming app.

Number two, we're leveraging technology to improve the service from how it's delivered to how to find great things to watch, and now even how content is created and produced. And we're -- number three, we're improving monetization. We're doing this through a combination of broad distribution, mostly organic, but also supplement with some great partners. We have increasingly sophisticated pricing and pricing plans, and we have a great and growing ad business, as Craig just said.

These features help position us to deliver multiyear growth. We think beyond the 12% to 14% that we expect to deliver this year. At Netflix, we kind of -- we embrace change. We thrive on competition. We stay focused on constant and consistent improvements, all the things that make us faster and better than the competition in whatever form the competition takes. So we really feel great about the business, about the organic growth opportunity ahead, and we are just as energized as ever to achieve our mission to entertain the world. Spence, maybe you could talk a second about the WB deal costs and the guide.

Yes, sure. Thanks, Ted. So with respect to the Warner Bros. deal and those costs and how it impacts the guide, so you may recall back in January, our initial forecast or guidance for the year was carrying $275 million of kind of cost for M&A-related activity, but that wasn't just Warner Bros. actually. So one thing that we were carrying in there was the InterPositive acquisition. It wasn't announced yet, but it was in our guidance, and that carries through also through our OpEx.

So that's kind of hitting our operating margin. And for Warner Bros. specifically, even though we obviously walked away from the deal and some of our initially planned costs for the deal, they won't fully materialize, but also some that we were planning to carry into '27 were pulled forward into 2026. So when you kind of put all that together, we're still in the ballpark, frankly, of the total that we were projecting for M&A-related expenses in the year. There's no material impact on our operating margin outlook. And as a result, there's not a reflection of some increase or acceleration in other expenses in the year.

Thanks, Spence. Thanks, Ted. Thanks, Greg. Well, following up on that question, we have from Sean Diffley of Morgan Stanley. His question is, what have been your biggest learnings from the Warner Bros. experience? And does it, in any way, change your appetite for M&A or capital structure going forward?

So at the risk of being a broken record, I just want to remind you that we said this from the beginning that the WB deal was a nice to have, not a need to have. We are very confident in the core business. So we've really looked at this going into it. Our biggest risk was losing focus on our core business while we're working on the transaction. So as you can see from our Q1 results, we did not lose focus. We're very encouraged by the team's ability to stay focused on our core business while exploring this opportunity as well. .

Historically, we've been builders and not buyers. So there were certainly questions internally and externally about our ability to do a deal of the size. What we did learn though is that our teams were more than up to the task. We've learned so much about deal execution, about early integration. We're really proud of the team that did all that work. We were proud to win the bid. We are confident in our ability to get to the finish line with regulators for the approvals that we needed.

And -- but mostly, we really built our M&A muscle. And the most important benefit of this entire exercise though was that we tested our investment discipline. And when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. And doing it at this level, I think, sets up our teams to understand that, that's the expectation of them day to day. I would like to add, though, that we met a bunch of great people in WBD during this process. So if there's any emotion in all of this, it was the disappointment of not getting to work with those folks, and we're really looking forward to that.

We do -- but we do come through this with no change in our capital allocation philosophy. We invest in the business both organically and opportunistically with M&A, like you just saw with InterPositive and we do that while maintaining strong liquidity and returning excess cash to shareholders through share repurchase. So M&A for us remains a tool to help us achieve our goals. And as you can see with the WB deal, we'll remain very disciplined in how we approach it.

Thank you, Ted. I'll move this along now to the next topic, which is on engagement. And the question here comes from Vikram Kesavabhotla of Baird. The question is, last quarter, you shared that your primary quality metric for engagement achieved an all-time high in 2025. How is this metric performing so far in 2026? What are some examples of the data points that inform your measurement of quality?

Sure, I'll take this one. First, just to note that volume of engagement is still relevant, and we still track it, we still seek to grow it. I mean, actually, in Q1, view hours were up at a similar rate of growth to what we saw in the second half of 2025. And that's actually despite having the Winter Olympics 17 days of robust streaming [ competition land ] in Q1 as well. .

But as we said and as you alluded to here, while view hours are important, it's actually just one of several metrics that we look at, and we're increasingly trying to make that a more sophisticated view. Member quality is an important part of that. Increasing sophistication and measuring our performance, and it's got several associated signals. And in Q1, that primary member quality metric that you referenced, it hit another all-time high. So we're making good progress there. We're excited about that.

I am not going to detail how we compose our metrics because they often take quite a time and quite an effort to actually build them and to prove them out. I'm sure our competitors would like to get that cheat sheet, but we're not going to give it to them. But I will say this that we build confidence in our metrics and specifically this member quality metric, as well as assess how we evolve and improve those metrics over time by evaluating their predictive and explanatory power to really important primary metrics like retention.

So that's why we are clear that improving that number improves the business. And expanding on this, I would say, as we invest into new forms of content, we also have to learn how the new programming provides different kinds of value. I think live is a really great example of this. It often drives really significant viewing value for our members, albeit with fewer view hours than perhaps a scripted series. It's also got different acquisition characteristics. So these are all things that we have to continually understand better. We have to build models for how that programming matters to our members. We've got to figure out how that supports the business and then, of course, we can bid appropriately based on that.

Our next question on engagement comes from Rich Greenfield of LightShed Partners. Nielsen adjusted their methodology. The end result was lower streaming viewership and higher broadcast and cable viewership, albeit the trend lines were similar. Nielsen has delayed implementing these changes into its monthly gauge report until 2026. The base of Netflix viewership will be lower, but also have more room to take share. Curious how you think about the coming impact, especially on your advertising revenue?

So Nielsen's methodology change in the gauge reporting is a change in how they calculate the national TV universe. So it's not a change in how people actually watch TV. It changes Nielsen's numbers, and those are really a methodology change. They're not reflecting any actual viewing behaviors. It's just simply a change how they think about relative viewing methodologies. So specifically, the new approach is, again, in the details, reduces the weight of streaming on the households. It increases the weight of linear households, which makes streaming look smaller and broadcast cable look larger on a relative basis as they measure and report.

Now of course, we have the actual data on how much member stream. We include that in our engagement report. I think that methodology is very straightforward. Other streamers have started to measure views in that same way. So just note that. Turning to the question, how does this impact our advertising. The Nielsen gauge is not the currency for the video marketplace. And given that there is no change in consumer behavior or amount of viewing related to this shift, none of this changes our effectiveness or our aspirations in the ad space.

We continue to expect to deliver that $3 billion in advertising revenue this year. We haven't adjusted that target. On your point about growth potential, really independent of the shift. We still see tremendous upside in the business and being able to win more moments of truth, especially the most valuable moments. And with our current position of being less than 5% global TV time, or any other credible measurement out there really, which doesn't change that number that much. We've got just a ton of room to grow in this space.

Greg. We have several questions that have come in about our content and content strategy. The first, I'll begin with John Hodulik of UBS. Any details you can share about the World Baseball Classic viewership. Any -- are there other similar sports and live event opportunities out there that can appeal to a global audience in driving engagement?

Thanks for asking, John, about the World Baseball Classic because it was a hit. It was amazing. In fact, it was the most watched program we've ever had in Japan. It is the biggest global baseball streaming event of all time. It was 31.4 million viewers. It was really exciting to see how this played out and events like these are super important because they -- as Greg was just saying, they really drive outsized business impact, and they're kind of a proof point that all engagement is not created equal.

For those few days that it was really an incredible time for our members in Japan. But the WBC drove the largest single sign-up day ever in Japan and Japan led our Q1 member growth around the world. And Japan had its highest quarter of paid net adds in our history. It's also the kind of it was the first big regional live event for us outside of the U.S., which was great. And we got to flex our new muscle here really, which was streaming multiple games concurrently. So a big expansion of our capabilities. It's very, very exciting. So we were excited, the fans were thrilled and the leagues were super excited. So yes, much more to come.

I think also a great example of how we were firing on all cylinders cross-functionally. So whether our marketing teams, our partnership team is working to make sure that we're bringing this to Japanese consumers in a friendly way. It was really impressive to see everyone organize around that.

And a great shot in the arm for our ad sales group in Japan.

One other thing on it, not to dismiss WBC, but also to just think about it because it may, [indiscernible] great as it was, and it was great. You may notice that APAC was our strongest FX-neutral revenue growth market for the quarter and it wasn't just because of this. Actually, we had really strong performance in a number of areas in APAC. We had a great quarter in India, really strong quarter in Korea, Southeast Asia has showed strength. So I just want to kind of make the point across the board in APAC, we executed it wasn't just 1 title, 1 country.

And I'd say, too, it was exciting to see people pick up on recent original series. So that viewing went up, you saw some of those shows, pop back into the top 10. The success of one piece on the heels of the WBC 2. So it was a really great time for the content and it all just came together with that gigantic halo of the WBC.

All right. I'll take the next question from Robert Fishman of MoffettNathanson. His question is, with the NFL in the market for new packages, do you judge ROI on live event content spending the same way as scripted content? Or does adding NFL games give you the ability to drive higher CPMs and ad growth that one-off scripted shows wouldn't be able to deliver.

That's a great question, Robert. I mean I'll take a step up, which is, first of all, our sports strategy is pretty much unchanged. We're most interested in those big breakthrough events, less so in the regular season packages. Everything we pursue has to make economic sense in the ways that you just talked through. And when we consider this, we have to consider all the benefits that you derive both from the viewing and from the ads business. .

So as a reminder, sports is an important piece of our live strategy, but that strategy also includes other big live events. We had Skyscraper Live, the Star search reboot with live voting, which was really exciting. The BTS comeback concert. But sports is an important component of that live business. And we've had a number of successes there including our opening night MLB baseball game with the Yankees and the Giants, our Christmas Day NFL games, some big fights, WBC we just talked about in Japan. And the NFL is a great property, and it delivers value as part of our total offering.

And we are in discussions right now because we think there's an opportunity to expand the relationship. But overall, within the same strategy, focused on creating big events for them. We've learned a lot about what works and how to value the NFL and live generally over the last couple of years. And this is going to inform how we have those discussions and help us be much even more disciplined about it.

I'd point out the event strategy is working. We've announced Tuesday, we have a multiyear deal with [ kick off ] for rights in Mexico. And that's in addition to like Women's World Cup in U.S. and Canada, our first big global MMA event with Ronda Rousey and Carano. So this is -- we're ramping up our sports events globally and local for local, both in terms of volume and profile. But we really do this because I think we bring a lot of value. We receive a lot of value, but most importantly, our members receive a lot of value.

Our next question comes from Peter Supino of Wolfe Research. Help us better understand your business model in podcasting. I think he means probably business strategy in podcasting.

Yes. Look, I think we talked a bit about it in the letter, but I think what's most exciting about it, even though it's very early days, what we're seeing is some data that would indicate that we're gaining incremental engagement to the platform. And how do we know it's incremental? Well, 2 things really jump out. One is the daytime viewing. So podcast consumption indexes to daytime hours on Netflix, which allows us to capture a time where we historically have less engagement during the day.

The other one is that it indexes much more mobile. So podcasting being more mobile than professional TV and professional TV and film historically makes up a pretty small percentage of mobile viewing. So it's great that we get to meet our members where they are, even when they're enjoying other forms of entertainment. So that's really -- it's really an early sign. And we've been building out a great lineup of podcasts, both licensed and owned shows like the Bill Simmons podcast, the Breakfast Club, Therapuss from Jake Shane, which I've been waiting to say all day, Pardon My take. All of these are doing great. And we have our own podcasts as well like the White House with Michael Herman and the Pete Davidson show. Our companion podcasts have been great for super fans like the Bridgerton, official podcast and a few others. And then just today, we announced new podcast from Brian Williams from Evan Ross Katz from Stephen Su, Ellison Barbara, David Kwang. So the list keeps growing, and it's very promising.

Great. We'll now shift over to the topic of advertising. And this question comes from Dan Salmon of New Street Research. Can you share more on the growth of your total advertiser base? What proportion of advertisers are being serviced directly by the Netflix sales team and what proportion are buying on Netflix through third-party DSP partners. Are you still largely focused on the top 500 brands? Or is a mid-market strategy beginning to emerge? So about 5 questions in 1 there.

We'll do our best to handle them all. So maybe just start with, as we've mentioned before, the biggest benefit we got from moving to our own ad tech stack is just making it easier for advertisers just to buy on our service. And then additionally, we've added more and more DSPs, which, of course, are more ways to buy. And we're seeing through that pretty significant growth in programmatic, which is on its way to becoming more than 50% of our non-live ads business. .

So due to those moves as well as things like improving go-to-market capabilities, more sales force, continue to build out our ads products more attractiveness in those products. Our advertiser base grew over 70% year-to-year in 2025 to be more than 4,000 advertisers. We've seen a pretty good expansion of that advertiser base, which, of course, is a key indicator of the health of that business. Today, we're still currently concentrating in those top advertising accounts, the largest buyers, which are serviced primarily by the Netflix sales team that could be directly through our stack or basically a sales team driving buying behavior through DSPs, either of those are not separate, let's say.

And over time, we expect continued growth in that number of advertisers, we're clearly pushing in that direction. We think we're going to see percentage of advertisers who buy programmatically increase and therefore, the programmatic share of ad revenue will go up as well. And as we scale programmatic and our advertiser base broadens further, of course, we're going to be able to follow this pretty fairly standard modern time-tested model of expanding iteratively into larger and larger pools of advertisers.

Thanks, Greg. Let's see. I'll move on to a question around plans and pricing. And this one comes from Vikram Kesavabhotla of Baird. What informed your decision to raise subscription prices in the U.S. recently? What are your early observations regarding the impact on customer acquisition and churn in the region?

This change was part of our plan for some time. We are continually monitoring signals from our members. Things like quality weighted engagement, plan selection plan moves, retention, which is industry-leading. So we see improvements in value delivered to our members well in advance of making a price adjustment. .

And those same signals inform this and, frankly, all of our price changes. So as a reminder, our initial full year guidance factors in the pricing adjustments that we expect to make throughout the year. And those are almost always all of the pricing changes. It's very rare that we have an unexpected or call it, surprise pricing change. So that guidance factors in everything that we're planning on doing. As for the most recent changes, the early signals we're seeing are in line with our expectations or similar to the performance that we've observed historically with price changes in the United States.

So this is based on early data, the rollout is still ongoing. So a caveat that, but I would say all the indications that we see are consistent with what we've seen before. And worth noting that also consistent is our pricing philosophy. We haven't changed that in quite some time. We look to provide more and more value to our members, invest the revenue that we've got successfully and well.

Occasionally, when we've added more value, we ask our members to contribute more so that we can invest that into delivering them even more entertainment value. And we think we are delivering one of the best entertainment values that has ever existed. And as a comparison point to support that statement, in the U.S. right now, Netflix subscribers are paying the least per hour of viewing compared to other SVOD offerings. So in some case, you'd have to pay 2x per hour to get a competitive service. And our ads plan at [ $8.99 ] in the United States, we think, is a great entry point, highly accessible and an incredible value. So we're excited about keeping all of those intact.

Maybe just, Greg, just to add to kind of the value we're delivering and kind of how we see it in the metrics. I just think the retention that we're seeing in the business that kind of the churn factor, the opposite of strong retention, we saw it across the board this quarter. Every region was better year-over-year. So that's really encouraging in terms of the value you provide, which also speaks to a little bit earlier when you talked about our kind of primary engagement value metric where we had kind of a record in Q4 of last year, a record again in Q1 of this year, which is playing out in the numbers.

Thanks, Spence. A couple of questions on gaming. The first of which comes from Eric Sheridan of Goldman Sachs. You are in your fifth year of the gaming strategy. What have been the key learnings over that period. How do you platform gains change user consumption habits? What do you see as the most interesting areas to invest behind gaming in the coming years?

Yes. I think platform games just means games on our platform. But let me just start by zooming out and saying, why are we doing this? At the highest level, we really see this as a significant market opportunity. It's about $150 billion in consumer spend ex China, ex Russia. That doesn't even include ad revenues just in the current model in the ways that we're operating. That number is getting bigger as well. So large expansion potential and where we see a significant part of that market is facing issues like new player acquisition or low friction game discovery and play that we believe we are well positioned to improve. .

So we've been building foundations. This is the ability just to develop games, to bring games onto our service, connect those games with players, give players high-quality experience. And just as we've seen with film and series and just as we hypothesized, and I think you might say is sort of obvious, but we have learned that gameplay can have a positive impact on member retention as well as driving acquisition, although the observed effect of that acquisition has really been small to date, which I think is consistent with sort of our maturity or expectation amongst consumers as a gaming platform still.

Now a key user dynamic that we have observed repeatedly is that delivering a fan of a film or series, an interactive experience in that same universe. It not only extends the audience's engagement, but it also creates the synergy that reinforces both medium. So the interactive and the noninteractive side, both do better. It further drives engagement, and it delivers more value. You asked about interesting areas that we're investing in, a few of those games that reflect our other beloved IP or events and giving fans interactive experience that extend those universes. That's a key focus. Games on TV. This is a new canvas for players and for game developers. It's exciting to be able to expand the market opportunity in that way as well as kids in providing a dedicated experience for them.

So given all that, though, I think it's worth noting that while we've been a couple of years in building this, we're still really just scratching the surface today in terms of what we can ultimately do in this space. We've been building a bunch of infrastructure, a bunch of core capabilities. But now we're increasingly able to deliver more and more the kinds of experiences that we were originally thinking about that move us toward our vision and our aspirations. So there's tons more work to do for sure, but it's fun to get to this stage, and we're excited about the potential we see.

And I believe you'll see some interesting -- increasingly interesting releases from us in the year to come. But having said all that, we're going to continue to ramp our investment, which is still currently small relative to our overall spend on content based on demonstrated performance and growing returns to the business. .

Great. And Greg, a follow-up question on games from Brian Pitz of BMO Capital. The recent announcement of Netflix Playground is seemingly one of your biggest moves into the video game space to date. Would you help us understand how you will measure success with playground and the incremental value you expect it will drive for your broader subscriber base? Maybe start with just explaining for folks what Netflix Playground is?

Yes, Great, I was going to go there as well. Thanks. But Playground is essentially a separate app for games for kids. And kids really represents one of our 4 key focus areas for games. We've got kids, we have [ narrowed it ] as well. And then we've got party/puzzle games and then mainstream games. And our goal here is to become a destination where kids' favorite worlds come to life through games and through interactive experience. Now this represents the sort of extension of a long history we've had. We've always viewed kids as a special audience.

They deserve special care. We provide kids with a dedicated experience. We provide parents with tools and ensure they have control and can determine what's appropriate for their kids. These include tools like ratings, like parental controls, pin controls, et cetera. So Playground, the separate app extends that core philosophy into games. It includes things like a growing collection of kids games in one app, so they can navigate between those. It's fully curated, age-appropriate titles based on beloved shows and movies, I think Peppapig, Dr. Su, Bad Dinosaurs, no ads, no in-app purchases. It fits also with kids natural viewing habit. So a significant portion of kids viewing already happens on mobile and tablets. So this happens in the same place.

And this is all as added value included in your membership already. Now we're seeing some encouraging signals with kids games. As we've added more kids games, we've seen strong growth and engagement through both new titles as well as improved discovery on titles that we had before. So that's exciting to see. And then ultimately, we see an important long-term opportunity to deliver more entertainment to kids in ways that parents feel good about, not just across games, but across TV and film as well.

The next question from Eric Sheridan of Goldman Sachs. Entering 2026, how would you characterize the current competitive landscape for content. Are you seeing any differences in competitive intensity by geography, language and/or format?

Well, first of all, competition is not new for Netflix. Consumers have always had incredible amount of choices when it comes to entertainment. And we've continued to grow as kind of what Greg said earlier, by offering enormous value to our members, and we grow against other services who are launching against us all over the world. Now great projects are immensely competitive, and they remain so.

And those are the projects we want, so we've been pleased that Bella and the content team have been able to land some of the most competitive projects recently, like Strangers with Gwyneth Paltrow attached to STAR, which is this great, incredible New York Times' best-selling book that everyone was after for the adaptation. Rabbit, Rabbit with Adam Driver, which is going to be directed by Philip Barantini, who directed Adolescents For us. Incredibly competitive project that we're able to land.

And so -- and I'd say I'm really proud of the team, but also it's not just about paying the most because relationships really matter, particularly when there's a lot of competitive choices, so providing a great experience for creators, delivering a big audience for them. This is hard work. So they want people to see it delivering a ton of buzz, which is what we do constantly in the work that we do. And we're seeing a lot of repeat business, which is an ultimate sign that we're doing our job well here.

So this week, we're today actually, Beef Season 2 starts. And if you look at that project, the show's creator, Sunny Lee. He did the first season. It was the most honored limited series of the year when it came out 2 years ago, individual awards and was a massive hit for us all over the world. But we just did an overall deal with Sunny who's going to be creating for Netflix for years. And that cast Oscar Isaac, he just started in Frankenstein, who has Golden Globe nominated for that performance. He's got another film coming out this year and another project that we just greenlit with Oscar. So we're thrilled about that.

Carey Mulligan, who's done multiple projects for Netflix, including our Oscar-nominated performance in Maestro. She is in Narnia coming up later this year. She was in Mudbound. She's in Dig. We love working with Carey. She's a genius, Charles Melton, who is the Golden Globe nominee for May December, incredible in the new season of Beef. And Cailee Spaeny who was just in Wake Up Dead Man. So I like the whole cast is like Netflix family. So I think that's a really good sign that we're doing something right.

Running Point comes out next week, it's another new hit series with Mindy Kaling, who we've worked with steadily who we love the relationship, and we hope she does do. And it's not just happening in the U.S., by the way. Alex Pino, [indiscernible] has done a bunch of multiple projects since that show, and including one he's working on right now. So if repeat business is a sign of success, I'm really excited about what we're doing.

But I also think about competition in terms of the folks not just who we're competing for projects with or competing with our members with, but we're also a customer of most of these folks. So Running Point is produced by Warner Bros. for us. We licensed shows like Watson and Mayor of Kingstown for Paramount. We have a Pay-One deal with Sony, we have with NBCUniversal that includes DreamWorks Animation and illumination. Our investment in those films and in coproductions and licensing actually feeds the entire movie ecosystem around the world. So while it's a little unusual to be the customer and the competitor, it's not that unusual in the entertainment business, and we manage those relationships pretty well.

Thanks, Ted. Eric Sheridan from Goldman also has another question, this time on AI. How does the company's approach to the -- how does the company's approach to the role AI can play in the creative process continue to evolve. With the announced acquisition of InterPositive, can you discuss the decision around that deal measured against your broader strategy?

Well, in general, we expect GenAI to help make content better and better. better tools, better processes. And I think Netflix is going to remain at the forefront in the exploration and the innovation of AI in the creative process. Given our technology DNA, we have a significant and unique data assets here. We have tremendous scale. So we see that as all great opportunities to leverage new technical capabilities across every aspect of the business.

So I think AI is going to deliver benefits for our members, for creators and for our employees. So on the content side, specifically to your question, it takes a great artist to make great art and AI won't change that. But AI will give those artists better tools to bring those visions to life in ways that we're just scratching the service on. So today, our talent leverages these tools for things like set references, pre visualization, visual effects, sequence prep, shot planning. All of these things, by the way, also improve onset safety, which is something that's not talked about enough.

And this is all just the beginning. With our acquisition vendor-positive we think it accelerates our GenAI capabilities because it's a proprietary technology that was created specifically for filmmakers and specifically for film making and that's different than other AI video applications. So while our ownership of interPositive is very new. We have generated a bunch of interest with our creators who spent time with the tools, and we're seeing real momentum build around adoption.

Maybe just to pick it up from there, I would say, Ted mentioned these. What are the factors that inform where we think we should be developing technology where we have a differential or a unique capability to invest in Generative AI, deliver returns to the business. And data, the uniqueness and scale of data is a critical one. The other one is where are the products or business processes that are also at scale that we can essentially attach this technology to and get good leverage off it.

So content production, which Ted just through is a big one. Member experience is another big one. Now we've been in personalization and recommendation for 2 decades, but we still see tremendous room and opportunity to make it even better by leveraging some of these newer technologies. We see that recommendation systems based on these new model architectures, not only improve the current personalization, but it also allows us to iterate and improve more quickly to improve that velocity. Things like adding support for different content types going forward, that's much more quick, much more efficient.

And as we noted in the letter, we already saw in this last quarter, these new capabilities driving increased engagement with the service. That's super exciting to see. And the better we execute here, the more our product experience acts as a force multiplier to the large content investments we make. So there's sort of a multiplier effect. And the last area I'll mention is advertising, which again, we're growing scale in and we really see an opportunity to leverage AI within our Netflix ad suite. Make it easier to design new creative formats, custom ads, improved -- that improve contextual relevance. And the technology stack just allows us to roll them out more quickly, more effectively and allow partners to leverage those things in an easier manner.

Great. We have time for 1 last question, which comes from Rich Greenfield of LightShed Partners. He's asking about Reed's decision to not stand for reelection at our upcoming annual meeting. The question is, you've talked publicly that Reed Hastings prefer to build versus buy was Netflix's decision to pursue Warner Bros a key factor in its timing of leaving the Netflix Board this year.

Sorry if anyone who is looking for some [indiscernible] here, not so. Reed was a big champion for that deal. He championed it with the Board. The Board unanimously supported the deal. So we had perfect alignment with management and the Board on the Warner Bros deal. So that was absolutely [indiscernible]

And Ted do you want to close this out then with some words on the decision?

Absolutely. Look, Reed Hastings, our Founder and our Board Chair, let us know that he's decided not to run for reelection for our Board at the next shareholders meeting. It's very unusual for a founder to step away from the Board of the company after a succession, but Reed is no ordinary founder. The first time I met Reed in 1999 and he said that he was building a company that would be around long after him, and that requires succession. Now imagine talking about succession while you're just starting to build. When Reed took the first steps in all of this, more than a decade ago, he said he would hang around for about another 10 years. And it's only been 6, but this is Reed style, make decisions and move fast. .

We have a long history of going from brainstorm to scale at break neck speed in almost everything we do. Reed will remain the Chairman and the member of our Board through his current term. The Board and the Committee are going to take the next steps in reshaping the Board in the months to come. But I want to say on a personal note, I've been very fortunate in my life to have great bosses people who've inspired me, have coached me, who gave me opportunities. We did these things at levels unimaginable.

Reed is an economist and an engineer in his head, but he's a teacher in his heart. And Reed not only shared the spotlight a real rarity in Hollywood, by the way, he pushed me into the spotlight and celebrated the wins and coach through the misses and in short, made me the executive that I am today. I am forever grateful. He built a company of risk takers and a culture where character matters and nobody rests in the pursuit of excellence. I have loved working with and for Reed through amazing twist and turns in our business, and he has modeled what it is to be a leader and a friend.

And reflecting on Reed's leadership here in Netflix, I was reminded of a quote from Max Dupri. He said the first responsibility of a leader is to define reality. And the last is to say thank you. And in between the two, the leader must become a servant and a debtor. That sums up the progress of an artful leader. Reed Hastings is the ultimate artful leader, and he leaves me and Greg enormous shoes to fill. In the spirit of an artful leader work in progress, I say to Reed, thank you.

I'll join you. I would just say that from the very beginning, Reed essentially established the standard for what leadership, for what culture looks like a Netflix, his vision, his willingness to take risks to embrace change to motivate change really to be transparent even when it's hard to be his total commitment to our values, to always putting our members and the company first have shaped every part of what Netflix is today. .

And the innovations that Reed Championed didn't just build Netflix. They helped move a whole industry forward. They expanded what is possible for storytellers around the world for audiences. We now bring stories from around the world to audience in ways that weren't possible weren't even imaginable before. And we got to this point because Reed has a way of pushing you to think bigger to be more honest, not only with others, but with yourself to own your decisions, but always in a way that made you feel supported, trusted he would debate his perspective with tremendous passion to try and get us to the best, most informed answer, but then would support you and your decision with equal passion, even when he personally disagreed. And then even better, he would celebrate you with even greater passion if you ended up being right. I think actually, those are some of his most favorite moments.

And that style of interaction has quite literally shaped who I and many others across Netflix are today. And a lesson among many that I learned from Reed and perhaps the most meaningful, and certainly, I think the most [indiscernible] to this moment is the realization that while many of us can spend most of our lives, tremendous effort into building something we believe in, something we're proud of, how we hand that work off to someone else is of equal importance to all that time building. And we should put an equal effort thoughtfulness planning into that transition as we did in all that came before it. So when my time to transition comes, I aspire to be a selfless discipline and graceful as Reed has been. So we thank you for the trust you placed in us. The example you set we're going to carry those principles with us every day.

Thank you, Reed. I echo that as well.

Same same. I couldn't say it better. We're just even it's thinking about. Oddly spark some memories, but 1 thing right now, which is just real time is that a big singular red end of the Netflix logo because seems so appropriate Reed, you're literally of 1 forever DNA at this place. So thanks for everything.

Great. And with that, we'll conclude the call on that note. So I just want to thank everybody for joining us again, and we will see you next quarter.

Thank you, everyone, for joining us. My name is Sean Diffley. I'm joined by Thomas Yeh from the Morgan Stanley Media and Entertainment research team, and we're extremely excited to have Spencer Neumann from Netflix here.

I'm going to give a quick disclosure. For important disclosures, please see the Morgan Stanley research disclosure website. And if you have any questions, reach out to your Morgan Stanley sales rep. So a bit of a different conversation than we might have been having a week ago, but we're going to get into all of that.

But to kick us off, Spence, maybe you could level set for us today, the health of the business as you see it over the next few years and your key priorities at Netflix for 2026.

All right. Well, thanks for having me. Good to see everybody. Well, look, yes, I guess it's a bit of a different conversation, but also more of the same for us. I mean we feel great about our business. So -- and the position we're in, we feel great about our kind of our growth opportunity ahead, our organic growth opportunity, short, medium and long term. You see that a bit in our 2026 guide in our Q4 call, where really healthy outlook for the business. We guided to you a kind of 12% to 14% revenue growth, operating margins increasing to 31.5%. And doubling of our ads business to about $3 billion in 2026, about $11 billion of free cash flow.

So a really healthy outlook for us. Our focus remains very similar. So our core focus is to kind of drive the strength in our kind of continue to strengthen and improve our core business in terms of improving our content or core content offering around film and series, improving our product experience, continuing to grow that ads business, continue to expand our entertainment offering and drive strong, healthy revenue and profit growth.

We also want to expand into new entertainment categories, building out live, building out things like podcasts, so continuing to kind of build that out as well so that we're extending and growing. And so overall, that kind of focus remains the same. And it's one of those things where I know it sounds boring, but even though we're pretty big, we're pretty small. And every way we look at our addressable market, we're still less than 10% of view share. And every country in which we operate, we're about 7% of addressable revenue market. So -- and we're -- so we're -- sorry, someone is buzzing me and it's distracting me on my phone.

So we're small in kind of every way that we kind of measure the business in terms of even households we're less than 50% penetrated. So we've got a strong runway for growth in the core as we continue to focus on that. And that really is our focus. And again, I want to kind of reinforce it's a runway of organic growth that we feel great about.

Great. So you referenced the double-digit revenue growth for this year. I would say one thing the market was a little surprised by was the level of cash content investment about $20 billion. That's 10% year-on-year growth. By implication, your margin outlook was maybe a bit lower than what we've seen in the past. Maybe take a minute to talk about why you feel this is the right level of investment for the business today.

Yes, sure. So as you say, we're -- we guided to about $20 billion of cash content spend, up about 10% over last year, but it's really no change in our approach. So what we've always talked about is that we're -- we want to kind of drive healthy double-digit revenue growth for as long as possible. We wanted to accelerate that revenue growth. And as we did. And as we have shown, we are doing then we want to kind of spend it in a healthy way into that growth, but spend at a lower rate of growth than our revenue growth. And that's -- we've been doing that for a long while now.

So as you saw from our healthy revenue growth outlook, it enabled us to kind of grow our content spend growth. So we grew about 7% year-over-year in 2025. We're guiding to about 10% this year. The ratio of cash spend to content amort is essentially unchanged. It's a roughly 1.1 ratio of cash spend to content amort. And we set margin targets. So our approach is to gradually grow our margins by growing our spend a bit below the pace of our revenue growth. And we've been doing that pretty -- we have a pretty demonstrated history of doing that, setting those targets and growing gradually.

The rate of margin expansion varies year-to-year depending on opportunity. We've averaged over the last 5 years about 2 percentage points, a little over 2 percentage points of margin growth per year, and this guide is up 2%. So it's quite consistent. And again, if you go back -- I started in January of 2019, at Netflix in 2018, we had 10% operating margin. So we've grown from that to a 31.5% guide this year. So I think we've shown we can be disciplined there. But what that content spend shows is that we see some really attractive opportunities to spend into our growth on the content side.

So it's everything from core film and TV series. On the TV side, in particular, TV series, non-English TV series, we see continued opportunity to grow our spend into markets around the world where we're improving our product market fit. We've got licensing opportunities in terms of content. We ramped up in licensing. Following the strikes, we ramped down a little bit. We talked about in our last earnings call, we were ramping back up again. We have some deals that we either expanded or new deals. We licensed Paramount content. Universal, we expanded from animated film to live action. Sony, we're innovating even in licensing.

We did the first ever global Pay-1 deal, which means on a global basis, we have the Pay-1 window for Sony films, first time at the same day on a single service around the world. So we're expanding there. We're expanding into -- the live business for us is one where we're seeing some nice early success. And so we're growing that. We're not only growing our U.S. slate with more big fights like the Ronda Rousey fight coming out later this year, but also expanding outside of the U.S. for like live events that originate outside the U.S. We've got the World Baseball Classic actually tomorrow, starting tomorrow in Japan.

We had Taipei 101, which was a fun event earlier in this year, a little scary to watch at times. We've got, I think, a fun kind of a reunion coming up in March in Korea, so -- with BTS. So interesting things coming outside of the U.S. And then we're expanding content formats like podcasting. So all in, we think we're finding really interesting ways to grow and expand and strengthen our content offering. The bulk of that investment is in areas that we know really well in terms of core film and series with a proven ROI and our investment.

And in some of these newer areas, we kind of step into it in a very intentional and disciplined way and kind of learn into the growth. But overall, you should expect that we'll continue to grow our content investment as we grow our revenue in a healthy way, but do it in a way that gradually grows margins. And we don't see any ceiling in the near future or even the medium future in terms of dealing to the margin potential for the business.

Before we get to some of the more recent M&A developments, I wanted to ask about the engagement trends. I think that's an area, obviously, a greater investor focus in terms of trying to gauge the health of your stand-alone business. On one end, clearly, you're in the envy of the industry with 190 billion hours viewed each year. And I think on the other end, there are increasingly some growing concerns about the pace of the growth and how that continues to evolve, especially with the potential rise of user-generated content and AI content. Can you just maybe talk a little bit about how you and the team assess engagement and the health of it and more broadly, whether you think it's right for investors to think about that as the main KPI that you expect to grow over time?

Sure. Well, it's nice to hear you say we are the envy of the industry. We appreciate it. We work hard for that. So we don't take that for granted. It is a fiercely competitive industry. We talk about it as like it's -- we're always competing for those entertainment moments of truth. And it's a real -- it's a tough battle every day. We're trying to win those moments. And we really want to be that kind of that first place, that kind of starting point and destination for professionally produced content and the best of creators around the world. So that is -- again, that's what we work hard to do. You mentioned the -- our engagement report.

And frankly, we probably should rename that report, the view hour report because that's what it is, is view hours. It's not engagement holistically. And view hours are important. They're just not the whole story. They're a part of the story. So we're -- we focus on the value we deliver to members in terms of overall engagement value. And it's not just quantity of hours. There's also -- we look at kind of -- we do look at quantity, we look at frequency. We look at kind of the quality of those hours as well. And it's a holistic view.

For example, just on the quality front, our primary quality metric, I think Greg may have mentioned this on our last earnings call, we delivered -- thanks to Bela and the creative team, we hit a record high for us in terms of quality per hour of entertainment that we delivered to our members last year in Q4. So that was awesome. So -- and we see that as we improve the quality per hour, that actually directly improves the retention on our service. And then you also heard on our last call that we had a great quarter in terms of improving. We already have kind of world-class kind of low churn, strong retention on our service, and we delivered that again in Q4. So we had strong acquisition retention, strong member growth.

So we're really kind of looking at all those things. But coming back to -- and we're getting increasingly sophisticated in terms of how we manage to kind of overall engagement. On the view hour piece, just to hit on it, we -- that total view hours, they were up. So we were up 2% in the back half of last year, up from 1% increase in the first half. That incremental 1% is 1.5 billion hours at our scale. So there's a little bit of large numbers. But I think part of what -- if we double-click on it, I think what folks are getting at a little bit is we're growing members. So the view hours per member household is coming down.

And there's a lot that kind of plays into that as well. So overall, again, I just want to reinforce, we have very healthy engagement characteristics. But if you think about what goes into a view hour per household, there's a lot of things that can impact that. The plan mix impacts that, geography impacts that, culture and viewing habits impact that. So for example, again, we talked about in the last earnings call, Japan, as an example, is a country where typical household watches about 1/2 to 2/3 the amount of viewing in a U.S. household. And if you think about our kind of where a good chunk of our member growth may come in the years to come, good chunk come from countries that look more like Japan than the U.S.

And so that doesn't mean that it's not healthy growing engagement. It's just kind of a different mix of engagement. So again, overall kind of takeaway for us is we are and we plan to continue to grow viewing hours. But we're also increasingly focused on the total engagement story and more sophisticated in terms of the quality and overall value we deliver to our members. That's really what drives our business and how we manage the business.

And increasingly, to some extent, because of your success, the comparison now relative to competition is YouTube as opposed to some of the legacy traditional media companies. Can you talk about why or why not you think that, that might be an appropriate comparison? And you talked about the quality of the engagement, in particular, how you could potentially be assessing that on a relative basis?

Yes. Well, I guess get back -- I guess maybe industry is more focused on YouTube today. I can assure you we've been focused on YouTube for a long time. I think it's about 10 years ago that YouTube first showed up in one of our earnings letters. So we think very broadly about competition. We're in the entertainment business broadly. Entertainment has always been an intensely competitive business. It still is and remains and will be intensely competitive. And YouTube is a key competitor. Increasingly, as we talked about on the TV surface, which is the primary surface in which we entertain members around the world.

So that said, what -- the constant for us is for us to compete, we have to get better, faster than the competition in our positioning in the entertainment market. And for us, we're positioned. We want to be the best destination for professionally produced content. So we want to have the best creators of professionally produced content on the planet and deliver to them the biggest audiences possible. So what we're doing in order to kind of continue to compete there is we want to continue to strengthen and expand our entertainment offering, which means working with an expanded set of those best creators.

Why we work with creator, we produce content in more than 50 countries around the world. It's not just coming out of the conventional Hollywood creative system. That's a really important part of it, but it's producing in more than 50 countries around the world. It's also embracing creators from social media platforms, creators from open content platforms. Ms. Rachel was the, I think, the ninth most watched TV show we had on the service in the second half of 2025. I think my son is very grateful for the fact that we now have Mark Rober on the service. So we have Alan Chikin Chow on the service coming soon. So like things that resonate with all these audiences, but it is still professionally produced creative content.

It's just an expanded universe of that. So we're doing that. You see we're expanding the content formats that we're getting into like video podcasts. We're expanding into areas like live, as I mentioned. So it's about really kind of doing it in a way that for us, goes after what we think are those most valuable moments of entertainment because that's really what drives that flywheel and also drives our positioning in a very competitive entertainment ecosystem.

Great. We wanted to turn to your decision to walk away from Warner Bros. So you declined to raise your bid for Warner...

We're not still at it.

You're out, you're officially out.

So hard to get a laugh in this room. Okay.

So within hours, you had -- I think you had 4 days within hours, you put an announcement out that you were walking away. So maybe walk us through what led you to this decision? Was it as simple as a specific price. I know what Ted said, the realization was someone was going to lose by $1, but maybe take us behind the scenes and what led you to walk away.

Well, the short answer is it was all about price. So then we can get into it. But we said all along, this was an opportunity that was nice to have at the right price, not a must have at any price. And we love the Warner Brothers business, the assets that were available that we were bidding, as you know, on the studio and streaming assets, not the entire company. And at the end, we had a strong belief, a stronger belief at the end of the beginning that we would have been great stewards of those assets in that business. We also had a stronger belief at the beginning and then at the end, that we had a clear path to regulatory. So much to a lot of the speculation that was out there, we had high confidence in all of those things. But at the end of the day, we were going to stay very disciplined because this was for us, an accelerator of our strategy.

I mean it kind of sounded maybe more exotic than it was because we're historically primarily builders and buyers. But at the end of the day, this is a business that what we were looking at was primarily an amazing set of content library and IP and studio production capabilities that would kind of allow us to bring more great content to our members. And with an HBO Max service, also the opportunity to bring kind of with it that complementary service because there was roughly 80% overlap between HBO subscribers and our subscribers, a way to kind of continue to expand and evolve our plans and pricing in a way that we thought we could deliver more value -- even more value at better pricing to members around the world.

So at the end of the day, it was sort of playing our playbook. But it was -- we also thought in terms of the seat we were in, we had kind of a unique point of view in terms of how to value those assets because it is the kind of stuff that we do every day. It was just doing kind of more of it and expanding on that. And so we went into it with a point of view on price. And once it was clear that this was going to be something where it didn't make -- financially make sense to us anymore, it was time to kind of move on. And that kind of gets back to kind of where we started, we feel great about our business. This was always from us a position of offense, not defense.

And it was, again, nice to have, would have loved it. But now we move forward and move forward with a really healthy business with a long runway of growth. We move forward with $2.8 billion in our pocket that we didn't have a few weeks ago. And then we kind of resume our -- the business that we were always mostly focused on and even just things like our capital allocation policy, unchanged, but it means now we kind of turn on our share repurchase program.

Great. And I guess now that we have to think about PSKY, Warner, is this effectively what could be the formation of a larger scale competitor in the landscape, how do you think about their willingness to license content and kind of your ability to source that?

Well, it's hard for me to speak for them. But at the end of the day, we've competed with Warner Brothers for a long time and also do business with Warner Brothers. We competed with Paramount, did business with them. In general, the entertainment industry is one where it's more typical than atypical to both compete and have commercial relationships. So we kind of hope and expect that, that will be the case here, too. But licensing ebbs and flows for us in the industry, so with particular suppliers. And we continue to have really strong access to content from suppliers around the world. We don't have any supplier -- like meaningful supplier concentration. There's no single supplier that's more than a small minority share of our viewing.

But again, it ebbs and flows. We kind of look forward to competing with the new Paramount, but also doing business with them. We -- I mentioned in our Q4 call, we talked about we're doing more licensing of Paramount content. I think today, maybe we renewed our Little House on the Prairie show with Paramount. So for us, it's business as usual, but it's really kind of more in their court and we'll see.

Great. And we wanted to ask if there's any updated change to your philosophy around M&A. You obviously mentioned historically, you're builders not buyers. But was there anything in this experience that changed kind of your framework and approach? Was it worth it? Anything on the regulatory front you would bring up? Or how we should think about your approach to other studios if they were to ever come available?

I know it sounds boring, but there's really no change. So again, it's like our approach to M&A is part of our approach to capital allocation, which is, again, it's the same. So first and foremost, we allocate our capital to invest strategically in our growth. That's primarily through organic investment and occasionally through M&A. Then we ensure that we've got a strong balance sheet with ample liquidity. And then lastly, we return excess cash to shareholders through share repurchase. M&A as part of that, again, it's a tactic to accelerate our strategy.

In the case of Warner Bros., it just happened to be an opportunity. It's rare to have an opportunity to have studio and IP assets at that scale that aren't attached to a lot of other legacy businesses that are not attractive to us. And we've been really clear, we don't have an interest in buying legacy linear assets and managing through that transition. So we'll continue to kind of stay focused on what are those opportunities, strategic accelerators, but again, no change to our focus. It just -- this may be felt a little bit more exotic because of the size, but the strategy and approach to capital allocation is unchanged.

Shifting back to the core business, you disclosed recently a milestone for subscribers reaching over $325 million. I think that's basically 50% of the $700 million connected TV households that you talked about before as an opportunity, how should we think about the member opportunity from here? And is that still the right framework that we should be thinking about in terms of what you're trying to tackle?

Well, from a member opportunity, yes, generally. So -- but that's a growing universe of connected households. So our estimate now is that, that connected household universe is more like 800 million, a little over 800 million versus the number you quoted. And so at our -- we're still less than 50% penetrated of connected households around the world. And we're growing into that. We're growing into it in our more penetrated markets than our less penetrated markets. So you saw that in our last earnings report. We've got healthy growth in every region around the world. We continue to have a long runway to growth. But also importantly, we're building out multiple levers of growth. So one of the things we talked about a few years ago when we slowed down is we wanted to make sure we built to a healthy multiple levers of growth, including kind of launching the ads business.

And so now you kind of see that. So we have growth through member growth. We have growth through kind of building member value and pricing into that subscription value. And then we have growth through our ads business, taking that to -- you can kind of do the math on that. This year going from $1.5 billion of ads revenue last year to $3 billion this year and you look at our overall revenue guidance, which is plus or minus $6 billion of incremental revenue growth year-over-year, that puts ads at about a 25% contributor to growth. So we're delivering more balanced growth across all of those, and that's what we've really been building to, and that's playing out in the business.

If you think about the content investments that's going into growing that member opportunity, 2 areas that you mentioned earlier about podcasting. And I think another one that more recently, an experiment is vertical video. Can you just maybe outline how we should think about those as interesting opportunities for you? And more broadly, whether or not expanding more deeply into mobile consumption is something that you're really focused on?

Yes, sure. So yes, starting, I guess, with podcast. I think -- we think of that as like we're always looking for those -- as I mentioned before, those kind of most valuable areas to expand and strengthen our entertainment offering. And video podcast is one of those examples to us where we think there's an opportunity, not dissimilar to how we expanded over time. There was a day when all we were scripted TV and film, English language, and then we went to unscripted. And then we went to non-English TV and so went to animation and anime and then live. And so this is another potential content format or category for us.

So we're learning into it in areas that we know resonate with our members, so things like pop culture and lifestyle and true crime. But it also -- an important thing about video podcast for us is, again, we're trying to win more of these moments of truth. And with video podcasts, there's -- because it's frankly a little easier to get in and out of them. It plays better on mobile devices. Sometimes you can kind of listen and not be watching all the time, so that has a little bit of a back and forth there. And we're seeing -- again, it's still early days. It's still very early signal, but it is over -- our video podcasts are over-indexing on time of the day, like morning and afternoon when -- relative to our core kind of subscription TV film on-demand offering.

And similarly, it's over-indexing on the mobile device. So that's pretty cool. So we'll kind of see where that plays out, and we'll learn into it. And then on vertical video, yes, you're right. We've been testing into it for several months now. You can see in our mobile feed, there's vertical video clips, mostly film and TV series and film clips today. We'll expand that to more content formats like video podcasting. I think more importantly, we're going to continue to evolve and improve our mobile experience broadly. So I think we touched on that in our last earnings letter.

In the back half of this year, we'll roll out our new mobile user interface, which looks similar to what we did with our TV user interface last year, where we rolled that out broadly. And that kind of created a new platform for us that mostly was visually more compelling, I think. And now we're rolling out more adaptive and personalized capabilities and all that plumbing underneath that -- and that's the same thing with mobile, where we'll kind of roll it out this year. And then that's now a platform that we can evolve and optimize for years and years to come.

And we'd be remiss if we didn't ask about AI at our TMT conference. It's been a big topic over the last few days. Can you just talk about the puts and takes for your business? You've talked historically about the benefits that it might have to production and the production process. But there's obviously a lot more existential angst as well about lowering barriers to entry and creating more of an opportunity for others as well to get into space. Can you just talk about the relative positioning and how you're thinking about it currently?

Yes, sure. I mean we look at it as more puts and takes, I guess, of your puts and takes. It's a really exciting time for us. I mean we look at AI and Gen AI, and it's going to create a lot of things better, better content, better product experience for the industry. But for us, it's exciting because we're one of -- we believe, one of the few companies on the planet that has -- is really good at entertainment and technology. And we've got 25 years of history of using AI and machine learning tools and now applying Gen AI. And so we're very -- our DNA is technology-rich. We have deep data sets, and we have products and business operations at global scale.

When you put those things together, we see like really exciting opportunities in terms of the application of Gen AI to improve every aspect of our business. The key for us is like we're also pro human. We fundamentally kind of believe that creativity and the best of creativity is going to be done by people, and there's a pretty small subset of amazing creators on the planet. And so for us, we're focused on like on the content side, how do we have Gen AI kind of infuse tools that help bring out the best of storytelling for those creators. Now it's an expanding set of creators, but still relatively few on the planet that we think make the best of creative expression. And so we want to get the tools in their hands.

Again, it's creators in more than 50 countries around the world. It's from social platforms, it's from open content platforms. We're focused on those infusing Gen AI tools into the creative process for people to make the best storytelling. We're also focused on Gen AI. And when we think about like our product road map and our product experience, like our CTO has talked about for our product road map, we're focused on more personalization, more interactivity, greater immersiveness. All those things play to an expanded entertainment offering across core film and TV, live, games, et cetera.

If you think about that product road map and infusing Gen AI into it, we think using those models, it's an accelerator and enabler of that road map. It's great for us because product done well and a product experience done well, matching the right content to the right individual at the right time, it's a force multiplier on our content, so those things are really powerful. And then on the advertising side, I mean, you all see it as well in terms of Gen AI, we're still early days in our advertising rollout. This is our first full year of our ad tech stack. But infusing Gen AI in that tech stack and those capabilities, we see it in terms of just the advertising, the creative process itself in terms of the creative formats that can be Gen AI created.

It's improving contextual targeting and placement. So it's -- again, it's just going to need to be an enabler and accelerator of the effectiveness of advertising for our clients and for ourselves. So across the board, we're excited about the opportunity, but an opportunity for us is one where it's all about enabling the best of those creators and delivering the best of the largest audiences in the professionally produced content ecosystem.

All right. We wanted to turn to pricing. So you were pretty clear on the earnings call that it was business as usual, even as the Warner deal was pending. How would you say recent price increases have fared relative to your expectations? Do you have any view on kind of the change your pricing power? Should we expect anything different now that Warner is kind of in the rearview?

I wouldn't expect anything different before or after. So we said we were going to kind of stay focused and continue to run the business as we always have. We continue to deliver more entertainment value to our members around the world. We talked about -- I talked at the start of this that when we -- we've got more sophisticated about how we measure entertainment value in terms of like engagement quality as an example, and we had record engagement quality scores at the end of last year that we continue to build on. So -- and we see that kind of the proof of that in terms of how pricing changes have rolled out.

So we've had really high customer satisfaction, really high brand health and then pricing has gone as well or better than expected. And so essentially, there's kind of no change there. And we'll continue to focus on what we do, which is deliver more and more value to members around the world and then occasionally price into that value.

Maybe just spend a second on the quality of engagement. How do you guys actually measure that? Like obviously, Taipei 101, to your point, very special, really engaged, like how should we think about that from the outside?

I'm probably not going to get into all that. It's a very competitive business, and we've got multiple metrics. One of the most basic ways that I think Bela and Ted has been working, one of the things we look at is do people press play and stay. So that's a very basic way to think about it. Do they like what they watch, but I'm not going to kind of get into it.

And we want to talk more about advertising. Obviously, you mentioned roughly double revenue this year to over $3 billion. I think fill rate has been one of the kind of question marks. Is it fair to say there's opportunity to continue to improve the fill rate and stay at very attractive levels in terms of ad load?

Yes. So we're continuing to grow our ad business in a healthy way. We expect rough doubling again this year. That has -- it's a result of the fact that advertisers are pleased with things we've delivered on. We're delivering on increasing scale where we've gone beyond kind of critical scale in all of our ad markets. We deliver a highly attentive and engaged audience. We kind of do that with a really strong slate of titles. And we also now have a tech stack that brings kind of capabilities to market faster. So with all of that, then with the tech stack, in particular, kind of layered into that, we're able to deliver more ad products, and we're also able to kind of push together more demand from things like external DSPs and then it allows us to do more programmatic integrations, more data integrations on the programmatic side.

So all of that stuff allows us to bring more demand into the system. We increased fill rate last year. We'll continue to increase fill rate this year as we bring all those online. But I should also say we don't manage to fill rate. We manage the overall ad revenue. We're trying to manage that while also maintaining a premium CPM marketplace, and that's what we're doing. So fill is part of the path to get there.

Great. We want to hit on Sports. Can you update us on your financial framework for assessing sports rights? You mentioned before, you've licensed some sports rights at NFL games, Women's World Cup, MLB, but you've also largely been disinterested in kind of big regular season rights. How should we assess how you're thinking about the approach to sports?

Yes.When you think about sports, we love sports, but it has to work for us as well for our members and for our business. So for us, sports is part of our overall live event strategy. So as part of live, sports is a subset of that. We don't love the business of being in the business of big seasons of big sports. We think that's a pretty tough business to be in. And we don't think we need it to deliver that improving member value.

So we like it as part of our event strategy and see that with like the NFL on Christmas Day on Netflix is kind of eventizing a couple of NFL games a year. You see it with things like the Canelo Crawford Fight. You see it with WBC in Japan starting tomorrow, where it's big in Japan, big in some other countries around the world as well. So we're excited for those opportunities and continuing to build on those opportunities and find a way where sports can be a nice complement to our business teams with the big sports events, but we're not in the -- we're going to stay disciplined in terms of how we invest into it.

Well it looks like we're running out of time, but maybe just the last one for me. Anything on the content slate that you'd be highlighting in the second half? And when does KPop Demon Hunters 2 coming up?

Oh man, there -- I don't know when that's coming out. I can't -- I loved it. I got to say, I mean, anyway, I won't -- but what's coming out, I'm a big fan of One Piece. I don't know if you guys watched One Piece. I think it's still good, and I think that's next week. It's coming out soon. It's actually -- so that will be fun. For some of you guys, Peaky Blinders, the movie coming out soon. So I think you'll enjoy that. For others, Bridgerton, now all episodes have dropped if you want to catch up on that. So there's a lot of -- I mean the thing with us is like -- and I don't do this as well as Ted. We could do 5 minutes of running through the steady drumbeat of titles across film and TV and different content formats around the world. But that's what makes -- I think Netflix great and exciting. It's something fun and amazing for everyone, and it's not like one and done, we keep at it every week, every month.

Thank you so much for your time.

All right. Thanks.

Thanks, Spence.

Good afternoon, and welcome to the Netflix Q4 2025 Earnings Interview. I'm Spencer Wang, VP of Finance and Capital Markets. Joining me today are Co-CEOs, Ted Sarandos; and Greg Peters; and CFO, Spence Neumann.

As a reminder, we'll be making forward-looking statements, and actual results may vary. We'll now take questions submitted by the analyst community, and we'll begin first with questions about our results and forecast.

The first question comes from Robert Fishman of MoffettNathanson who asks the Wall Street Journal report last year discussed an internal memo with long-term goals to double revenue and triple profits. Without commenting on those specific targets about 9 months later, is there anything you have seen in the core business to reevaluate the speed of growth over the next few years? And can you clarify those targets included any M&A?

Sure. We find it useful to talk internally about our long-term aspirations, which, as we said at the time that this was reported last year, aren't the same as a forecast. But having said that, those goals were based on organic progress. They did not contemplate or assume any M&A because we didn't have any M&A on sort of a horizon at the time.

And over the last 9 months, we've seen continued growth. We are now forecasting more healthy growth for the year to come, specifically organic growth. Of course, there's a lot of hard work ahead to fully realize those opportunities, both short term and long term. But based on the progress that we've made so far and expect to make and our continuing assessment of the opportunity, we still feel good about those targets. Putting maybe a little bit more meat on that bone in 2025, we met or exceeded all of our financial objectives. We made solid progress on our key priorities.

We delivered 16% revenue growth, roughly 30% operating profit growth, expanding margins, growing free cash flow, ad sales 2.5x in 2025, we expect that business to roughly double again in 2026 to about $3 billion. So we're making good progress, and the opportunity ahead of us is massive. We are still under 10% of TV time in all major markets, which we compete. We've got hundreds of millions of households around the world still to sign up. We're just about 7% of the addressable market in terms of consumer and ad spend. So tons of room ahead of us. Ted, anything you want to add there?

I would just say looking ahead to '26, we're focused on improving the core business. And we do that by increasing the variety and quality of our series and films. We do that by enhancing the product experience and by growing and strengthening our ad business. We're also building out some newer initiatives like our live outside of the U.S., things like the World Baseball Classic in Japan, that's launching in March. We're expanding into more content categories like video podcast, which just kicked us off this week.

And we're continuing to scale our cloud-first games strategy. We're working really hard to close the acquisition of Warner Bros. Studios and HBO, which we see as a strategic accelerant. And we're doing all of this while we're driving and sustaining healthy growth. We forecast 2026 revenue at $51 billion, which is up 14% year-on-year. It's an exciting time.

This is an exciting time in the business, lots of innovation, lots of competition, but that's also been true of us for 25 years. Netflix, we kind of embrace change and thrive on competition because it pushes us to keep improving the service even faster and faster for our members. Years ago when we moved from DVD by Mail into streaming, we were in a heated battle with Walmart for that DVD business. So we're no strangers to competition, and we're no strangers to change. Through that change in competition, we've grown into an entertainment company that is thrilling an audience that is now approaching nearly 1 billion people and producing series and films around the world with hits that resonate with audiences locally and globally.

And just to circle back to Greg's point real quick. We're very excited about the business. We're very excited about the organic opportunity ahead. You see that in our performance. And we're as energized as ever to achieve our mission to entertain the world.

Thanks, Ted. Our next question is about our outlook. It comes from Steve Cahall of Wells Fargo. The content amortization growth forecast of 10% in your earnings letter implies a bit of an acceleration from 2025. Can you provide some context as to where you're pushing for the most incremental investment, EG events, reality series, films, license content, et cetera.

Yes. Look, I think our -- the cadence of our releasing is really strong. We have a really strong push out in the first half of this year already with some great hits right out of the gate. So you want to talk to that a bit, Spence?

Yes. I mean, I would say just generally, we've got a strong lineup throughout the year. But yes, Steve, as you noted, in 2025, our slate was heavily back half weighted, and we expect more typical seasonality this year. So still a bit heavier in the back half of '26 than the front half of '26, in particular, Q4 -- fourth quarter is always generally the most packed for us in any given year. But overall, a smoother slate and smoother slate timing this year relative to '25.

So as a result, you should see higher year-over-year content expense growth in the first half of '26, growing off of that smaller base that we had in the first half of last year. But for the full year, we're estimating, as I think you see in our letter content amortization to increase roughly 10% year-over-year. Our content cash to expense ratio should hold pretty steady at about the 1.1x ratio that we've been managing to the last few years.

So it's no change in our approach. We aim to grow content spend slower than revenue so that it contributes to our margin expansion while strengthening, expanding and expanding that entertainment offering, as you heard from Greg and Ted across not just our core film and series, but kind of expanding into more content formats.

Let me tell you that weighting looks like to the members, too, what just talked about, Spence. But in the first half of this year, we said we'd come out of the gate with some great hits, People We Meet On Vacation, the RIP, His & Hers, our New Year Eve release of Stranger Things Finale is [indiscernible] Crushing. We've got Bridgerton Season 4 that's coming up later this month and next month. .

Going -- so you see that we're really excited about the '26 slate, both H1 and H2. We've already mentioned the Bridgeton return, but we also have a return of One Piece, season 2, third season of The Night Agent, second season of Beef, One Hundred Years of Solitude from Colombia back for the second season. We've got Avatar: The Last Airbender, we've got Emmy, Golden Globe and SAG actor nomination for Diplomat Season 4 back again for a new season; Tires, season 3 and the serious finale of Outer Banks. That's like the returning stuff.

For new things, we're really excited about Something Very Bad and The Boroughs, both new series from the Duffer brothers following up Stranger Things. Pride and Prejudice from the U.K. Man on Fire, Can This Love Be Translated? just launched from Korea. It looks like it's going to be another really nice hit for K drama lovers. I mentioned some of our early films, but we've got People We Meet On a Vacation and RIP with Ben Affleck and Matt Damon that's already up to a great start, still looking forward to Peaky Blinders Immortal Man from Cillian Murphy. We've got Greta Gerwig Narnia. We've got Apex with Charlize Theron. We've got Denzel washington and Robert Pattinson in a Great heist capper Here Comes The Flood, and we've got a bunch of surprises upcoming too for '26.

Thanks, Ted. Thanks, Spence. That's a good segue into your next question on the outlook from John Blackledge of Cowen for your 2026 guidance, can you walk through the key drivers of the top line revenue range, which was above consensus at the midpoint? And for the operating margin guidance of 31.5%, can you talk about the puts and takes to that guidance? And any other color would be great.

Yes, sure, John. I'll take this one. So we -- we've got strong growth outlook. As you heard from Greg and Ted, we feel great about our organic growth outlook. I hope you see that on our top and bottom line guide. So on the revenue side, for 2026, key drivers are similar to '25. So it's membership growth, it's pricing and it's a rough doubling of our ad revenue in 2026 to about $3 billion. So a bit more relative contribution from ads is we're scaling that business.

And so we feel great about that, and we feel great about our operating profit growth and margin growth, too. We're targeting 15% operating margins for 2026. That's up 2 points. So no change to our approach there. We set margin targets. So when you think about the puts and takes, we're always balancing the investment into our core business to drive sustained revenue growth with spend discipline. And we aim to grow our margins each year.

That rate of that year-over-year growth, it bounces around a bit based on investment opportunities and other considerations in a given year. If you look back over the last handful of years, we've expanded our operating margins about 2 percentage points annually on average. This guide at 2 percentage points. That actually includes about 0.5 percentage point drag from the expected M&A expenses that we referenced in the letter. So if you exclude that, we're guiding to about 2.5 points of margin expansion. So very much in line with what we've been delivering.

And this year, in particular, again, getting back to the puts and takes, we're seeing a number of attractive investment opportunities to strengthen and expand our entertainment offering and our product and commerce capabilities. So we are increasing our expense growth a bit this year, a bit higher pace of growth relative to last year to invest into those opportunities, all while continuing to expand our margins and deliver strong dollar profit growth. And I don't know, maybe, Greg, Ted, I don't know if you want to talk a little bit more about our focused areas of investment.

On the content, I'll tell you a couple of things that we're excited about and this -- we're investing into them because our members are showing a lot of excitement for them. So we've got some new license deals in place with Sony, that includes a first of its kind global [indiscernible] movie deal. We've expanded our Universal licensing deal for the kind of that already included some very successful animation films to include live action films. .

We have a new slate of licensed titles from Paramount, which is going to bring a lot of new series and television shows that Netflix has never had around the world, very exciting. In the live area, we've now executed more than 200 live events. And we're expanding to do more now outside of the U.S., including World Baseball Classic in Japan. I mentioned that in March. And this Friday, we have Skyscraper Live, which is going to be an TV experience for sure. So more to come there. And we just kicked off podcast this quarter, which has been exciting.

We had launched new ones from Spotify and the ringer, iHeartMedia, Bar School, we have a lot more to come and some new originals. So these are all areas that have shown great promise. Members love them, and we're excited to broaden the investment to include them. Greg, do you want to jump in here, too?

Yes, I'd say on top of content, we've got a number of other areas that we expect will drive meaningful growth and returns on the tech and dev side. We're continuing to build out that ad tech stack. We're evolving our mobile UI. We are adding 2 more live operations centers in '26. One is going to be in U.K. and one in Asia to support the growth of our live efforts outside the U.S. and adds beyond the tech side, we continue to invest in more sales, more go-to-market capabilities.

That's a direct driver of advertising growth. On games, we are going to continue to invest in the cloud first gaming strategy that we've added that this makes TV games more accessible by rolling out cloud games to more customers and more countries. If you take all of that sort of stepping back within the margin expansion model that Spence described, which keeps us disciplined on returning to shareholders as we invest in new growth. We also think about investing across our portfolio based on demonstrated capability to translate those investments into value for members and returns for the business.

We've got a solid track record of doing that in our core content category, so we're going to continue to grow there. We're also increasingly confident about our ability to do that in ads and live where the 200 live events that Ted mentioned indicates that we should ramp and grow in those areas. And then for our other initiatives, those represent a small fraction of our overall investment, and we always remain very disciplined and measured in increasing those investments based on demonstrating that we can deliver member value. We can translate that investment into member value and move the business forward.

Thanks, Greg. Thanks, Ted. Thanks, Spence Ben, that fulsome response. I'll move us along now to a few questions around engagement. The first comes from Rich Greenfield of LightShed Partners. At this stage of Netflix's maturity, how directly tied is engagement to churn and pricing power as you started talking more openly about how all hours of engagement are not the same.

So viewing hours that's a really important factor in assessing the value that we deliver to customers. And value delivered is what drives the outcomes that you mentioned, Rich, and really, it drives most outcomes that we care about. But it's just one of many metrics that we look at, and we continue to develop an increasing understanding of how to measure that value delivered. So maybe start by just noting that total viewed hours in the second half of '25 grew 2% year-on-year. That's 1.5 billion additional hours, slight acceleration from the 1% growth we saw in the first half.

But even with that number, there's some nuance underneath that. So viewing of our branded originals was actually up 9% year-over-year in the second half versus 7% in the first half. That represents roughly half of our overall viewing. But viewing on the second run titles was lower year-over-year because the volume of licensed titles that we're carrying came down across most regions. And that's due largely to the fact that we stepped up our licensing in '23 and '24 during the strike, which had shut down new productions. So that's balancing out that volume right now. But beyond view hours then, as you stated, all hours of engagement are not the same, and we really care about the quality of that engagement.

For example, we said in the letter, live programming is an example where any given hour of entertainment has the potential to deliver outsized value. That's certainly also the case when you have a huge fan of a particular series or a movie. And we, as viewers, we feel this intuitively, right? We feel that excitement that difference that value when we watch something that we've been anticipating and we just can't wait to watch.

And as a business, we've become increasingly sophisticated, evolving our measures of that quality of engagement that we are delivering. It's very hard to do this, but we're getting better and better at it. And our primary quality metric we achieved in '25 an all-time high for the service. We set a high goal for that metric and Bella and our content team stepped up and achieve that goal. That means that we deliver more entertainment value for our members.

And that shows up in core metrics like acquisition, like retention, retention is among the best in the industry, and we just completed a quarter where churn improved year-on-year. Customer satisfaction is an all-time high. We also saw strong member growth. So we really manage more and more towards that complete understanding of value delivered because it's really what translates best in directly to revenue growth, and it better captures the overall health of our business.

Yes. I would just add, Greg, if you don't mind, of course, we look at the view hours, Rich, but we also look at other signals to assess our members are engaging and how important do they value that engagement. So members have different value for different types of programming. In the letter, we talked about the fandom for K-Pop and for Stranger Things Season 5 and how fandom is such a powerful engine for our business because it creates advocates for Netflix, valuable even beyond the 10 hours spent watching Stranger Things or the hour 39 spent watching K-pop Demon Hunters.

So we're really super confident we're going to continue to grow engagement, but more importantly, the value of that engagement as well because that's what allows us to sustain healthy revenue growth in the long term.

Thanks, Ted. Our next question on engagement comes from Ben Swinburn of Morgan Stanley. The engagement report gives us a sense of aggregate engagement across all titles and all members arguably, it's an overly simplified lens with which to view the health of the business, but one that suggests to some that the WB acquisition reflects a need for Warner in HBO's IP to address stagnant engagement levels on Netflix today. Why is that the wrong conclusion? And how do you see the underlying engagement trends in the business? [indiscernible] from Ben swinburn over to Ted or Greg.

Yes. So I'll take this one. So you're right, Ben, and as we sort of got to a little bit in the previous answer. Total view hours by itself, it's an overly simplified view into engagement and engagement trends. And why is that? Because view hours is basically a very broad metric. It's influenced by a lot of things. You've got plan mix, tenure mix, geography culture, differences are a big factor just as one example.

Take consumers in Japan. They watch roughly 1/2 to 2/3 of the amount of TV is American consumers. So as you have more member growth in places like Japan, and there are a lot of places like that. And frankly, where we have more upside and more potential growth over the years to come. That skews the view hours per member. So we look at engagement at a portfolio level. View ours is one element of that, but we also look to those quality metrics that we were talking about.

And as we said, we see improving quality translates into core metrics like better retention. And just to reiterate, our retention is among the best in the industry, [ customer SAT ] at an all-time high. And those are more complete or maybe better said, those are outcome measures that we really, really focus on. So we have multiple tools to keep improving those measures and the value that we deliver. More and better production back to pushing on the quality scores and how do we improve that? More licensing, more partnerships with local creative communities with local broadcasters around the world. That improves local content market fit.

We're very optimistic about our organic growth prospects. And as you see from our forecast as well as maybe the aspirational goals that we referenced before, which don't include any M&A, we see huge opportunity to keep improving things there. But we also see Warner Bros, with 100 years of IP, an incredible library, great new shows and films, that's an accelerant to our strategy and it's another mechanism to improve our offering for our members. So our job is to identify the best opportunities to improve that offering, both organic and through selected M&A and always remain flexible and disciplined in pursuing those opportunities.

Greg. Since Ben brought up, Warner Bros.. I'll shift us to a few questions on the Warner Bros. acquisition. First from Mike Morris of Guggenheim. Does your planned acquisition of WB impact your approach to pricing in the near to intermediate term. Would you consider raising the price of the service during the regulatory review process?

There is no impact or change to our approach and how we're running the business in that regard.

Next 1 comes from Rich Greenfield, the Lightshed Partners. What surprised you most from the Warner Bros. due diligence, Greg, you, in particular, sounded less enthusiastic about major M&A back at the Bloomberg screen Town conference in October. As you went through the due diligence process, what got you more excited about the acquisition?

greg, for 1 second here. I just wanted to make it clear. That it was our default position going in that we were not buyers. We went into this with our eyes open, and our minds open. And when we got into, we both got very excited about this amazing opportunity. So Greg, you could share with what was exciting for us there.

That's right. And thanks, Rich, for bringing this up again one more time. But to Ted's point, when we got into the hood, there were several things we saw that was just really exciting, and we saw were exciting additions to our current business. Take first, the film studio. We already know that existing film output deals that the theatrical model is an effective complement to the streaming model. So we've seen that before. And to be super clear on this point, we have often in our Netflix history, debated building that theatrical business.

But we were busy investing in other areas and it never made our priority cut. But now with Warner Bros., they bring a mature, well-run theatrical business with amazing films, and we're super excited about that addition. And you've got the television studio. It's also a healthy business. It also complements our own expands our production capability. You've got great producers, great developers, and we intend to continue to produce shows for third parties and being a leading supplier to the industry.

And then you get to the streaming side of things, you've got HBO. It is an amazing brand. It says prestige TV better than almost anything. Customers know it, they love it. They know what it means. We have programming from HBO, you know what an HBO show means. It's also very complementary to our existing service and business. So owning HBO will allow us to further evolve our plan structure allows us to deliver more series, more film, more value to consumers, and we'll leverage our global footprint and our streaming expertise to make that an even better service for consumers. So big picture, we just saw a tremendous opportunity, very achievable opportunity as well in bringing these 2 businesses together.

If it's okay to pile on a little bit, [indiscernible]. So I just -- maybe I'm the numbers guy. So I put some numbers against it, Rich, also, I guess key from our perspective is that when you look at this combined company or when we look at the combined company on a pro forma basis, so pro forma post close, we estimate that roughly 85% of the revenues in that pro forma post-close business that roughly 85% is from the core business we're in today. That's why we view this deal as primarily an accelerator to our core strategy. With this added benefit, a benefit of a complementary scaled world-class TV and film studio that we're excited to run and continue to build.

Thanks, Spence. Rich Greenfield also has a follow-up question on the transaction. What gives you the confidence the deal will get approved during the regulatory process? Todd, do you want to take that one?

Yes. Thanks, Rich. We've already made progress towards securing the necessary regulatory approvals. We submitted our HSR filing. We're working closely with WBD and the regulatory authorities, including the U.S. Department of Justice and the European commissions. We're confident we're going to be able to secure all the approvals because this deal is pro consumer, it is pro-innovation, it's pro worker, it's co-creator and it is pro growth.

Warner Bros, I just said earlier, it's got 3 core businesses that we don't currently have. So we're going to need those teams. These folks have extensive experience and expertise. We want them to stay on and run those businesses. So we're expanding content creation, not collapsing it. In this transaction, this is going to allow us to significantly expand our production capacity in the U.S. and to keep investing in original content over the long term, which means more opportunities for creative talent and more jobs.

This is really a vertical deal for us. It allows us to gain access to 100 years of Warner Bros. deep content and IP for development and distribution in more effective ways that will benefit consumers and the industry as a whole. HBO, as Greg just mentioned, is a very complementary service to ours. And the TV market is extremely dynamic and very competitive. So the TV landscape, in fact, has never been more competitive than it is today. There's never been more competition for creators, for consumer attention, for advertising and subscription dollars.

The competitive lies around TV consumption are already blurring as a number of services put their content on both the linear channels and the streaming services at the same time. And the more platforms are making their way into the TV in your living room. So TV is not what we grew up on. TV is now just about everything. Oscars and the NFL are on YouTube. Networks are simulcasting the Super Bowl on linear TV and streaming. Amazon owns MGM, Apple's competing for Emmys and Oscars, and Instagram is coming next. So YouTube has just surpassed BBC in monthly average audience according to Barb that publishes these figures in the U.K.

So YouTube is not just UGC and CAD videos anymore. YouTube has full length films, new episodes of scripted and unscripted TV shows. They have NFL football games. They have the Oscars. The BBC is going to be producing original content for YouTube soon. They are TV. So we all compete with them in every dimension for talent, for ad dollars, for subscription dollars and for all forms of content.

So more broadly, we compete for people's attention across an even wider set of options that include streaming, broadcast, cable, gaming, social media, Big tech video platforms. Our deal strengthens the marketplace, and it ensures healthy competition that will benefit consumers and protect and create jobs. That's why we're confident in the approval, Rich.

Thank you, Ted. We'll now go to a series of questions on the topic of content and content strategy. The next question comes from Ben Swinburne of Morgan Stanley. In light of the global Sony Pay1 agreement and the pending WB transaction, can you talk about your film strategy looking ahead? Are you leaning away from Netflix original films and increasingly to licensing films after an exclusive theatrical run?

Thanks, Ben. No, there's no change to that approach. [indiscernible] and his team are going to continue to produce a slate of Netflix original films. And we'll also continue to license films in every available window as well. Our members love movies. And taste and diverse are very broad. Appetites are huge. So we want to have a broadest offering as possible.

Great. Next question is from Vikram Kesavabhotla of Baird. What were your observations from recent live events such as Jake Paul versus Anthony Joshua and the NFL on Christmas Day, how should we expect your investment in live events to evolve from here?

Well, Vikram, remember, this is still a relatively small portion of total view hours. So the big live events like the Amazing Fight you're just talking about and the 6-round knockout and our NFL Christmas A games and this [ new path ] time show, they're really important and differentiated parts of the service. But again, small and total view hours. These events typically have outsized positive impacts on the business around conversation and acquisition, and we're also starting to see some benefits to retention as well. .

But like I said, it's a small portion of the content spend and with 200 billion hours, a pretty small portion of the total view hours too. but we remain really excited about it, and that's why we're building out and strengthening that offer with things like Star Search premiering globally tonight with live voting and we're beginning to invest in more events outside of the U.S., like I mentioned, the World Baseball Classic in Japan for local markets.

Thanks, Ted. Another question from Vikram Kesavabhotla. What types of podcast do you think will be most effective on the platform? And what are your initial observations from the launches this past month?

Well, it's still very, very early, but we're super pleased by the early results that we're seeing. We think about media podcasts like a modern talk show. But instead of having a single brand defining show, you have hundreds of them. So it's a broad offering versus a single broad seller format. But it does generate a lot of very passionate engagement, lots of variety. We are looking forward to the types of things we're going to add here to things that our members already love. So sports, you see we can build on the success of our sports adjacent strategy, comedy and entertainment. And of course, True Crime. You may have heard, we've got some true crime stuff on Netflix.

Great. Last question on content strategy comes from Rick Greenfield of Lightshed. This is our quarterly theatrical question. Why has your view on theatrical windowing changed?

Well, Rich, I will point out here. I have in the past made observations about the theatrical business. We were not in the theatrical business when I made those observations. When this deal closes, we will be in the theatrical business. And remember, this I've said it many times, this is a business and not a religion. So conditions change and insights change. And we have a culture that we reevaluate things when they do.

So short list of examples there, the pivots we've made around advertising around live around sports. In theatrical, we debated many times over the years, whether we should build a theatrical distribution edge or not. And in a world of priority setting and constrained resources, it just didn't make the priority cut. So now when this deal closes, we will have the benefit of having a scaled world-class theatrical distribution business with more than $4 billion of global box office.

And we're excited to maintain it and further strengthen that business. So Warner Bros. films are going to be released in theaters with a 45-day window, just like they are today. This is a new business for us and one that we're really excited about. And I'm actually quite proud of our long track record of evolving the business. And I believe our results speak to that as well.

Great. We'll now move on to a few questions we have from analysts about advertising. Steve Cahall from Wells Fargo asks, as you look at the ads potential in 2026, do you think you could reach parity on ARM average revenue per membership or ad supported -- for ad-supported versus your ad free plans?

Yes. So there is still a gap between the ad tier arm and arm for standard without ads, but that gap is narrowing. And while because there's a gap, it means we're under realizing revenue growth in the near time, but also, therefore, represents an opportunity for us. So as -- we improve our ads capabilities. We can close that gap over time. We can drive more revenue. We've seen exactly that ability to do that over the last year. .

So we've expanded demand sources. We continue to improve our speed of execution on our own ad tech stack. That's more ad features, ads products, more measurement, et cetera. that means increased fill rates and that's driven ads arm higher. So now that we've grown to relevant scale, meaning consumer reach in all our ads countries, our main focus is on increasing the monetization of that growing inventory. It's likely to remain our focus for at least the next several years. So we believe we can close that gap and that means upside in terms of ad revenue growth.

As a follow-up from Ben Swinburne, as you head into your second year with your own ad tech build out across the 12 ad markets, what's the opportunity to drive revenues? Can you maintain your premium CPMs and so meaningfully increased build rate in the year ahead deliver another rough doubling of advertising revenue?

Yes. So as we mentioned a couple of times before, really the most immediate benefit seen from our rollout of our own stack has just been making it easier for advertisers to buy in our service, more places to buy. We hear that directly in terms of feedback from advertisers. We see it in the sales performance, of course. In 2026, we are making more Netflix first-party data accessible, of course, in a privacy safe data secure way for assessing media investments, that ability to tap into this deep library of insights that we have ultimately enhances the performance of media buys. .

We're also offering advertisers a wider array of ad formats, so more ads products, enhanced interactivity, which should improve outcomes. At the end of last year, we started testing modular capabilities with interactive video ads. These ads cater to members viewing behaviors and allows advertisers to benefit from essentially a dynamic template that uses mix and match creative elements to drive better business outcomes.

We've seen good early results in the testing, and we'll roll those out globally by Q2 of 2026. And additionally, now that we've been on our own ad stack for over 6 months, we've got a better set of data, historical campaign data. We can use that to enhance our RFP process, drive better media planning, better outcomes for advertisers. So to get to the point of the question, we see all of that adding up to the same kind of performance we saw the last year, which means we can grow revenue targeting doubling that revenue growth by improving fill rate and growing inventory with similar CPMs.

Thanks, Greg. We also have a question on gaming, which I'm excited for since I'm a big player new party game Boggle, my family is watching, I'm still the #1 winner. This question comes from Vikram Kesavabhotla, Baird. Netflix had some key developments in its video game offering throughout 2025. how would you characterize your success and progress at this stage? What are your key priorities for this business in 2026?

We've seen some really positive results with games like Red Dead Redemption, same kind of performance that we saw in GTA for folks that are familiar with that. We're also excited about more kids, more narrative future releases in 2026. So that's -- those are good areas of growth for us. But a big advancement as you sort of alluded to, Ben, certain a big priority for us is our cloud-based TV games.

It's an exciting launch for us. We're still in the early stages of this rollout of roughly 1/3 of our members have access to TV-based games. This is sort of a process of upgrading the TV technology, the TV clients to be able to handle that. And recently, with our party games on TV Boggle, as you mentioned, Pixionery, LEGO party games like that, we've seen really strong uptake. So it's off a small base because I think about 10% reach into those eligible members.

But our TV-based games have enjoyed quite a significant engagement uptick after that party pack launch. And then in 2026, this year, we're going to be expanding that cloud-first strategy. We've got a growing set of cloud games to the TV, like our recently announced newly reimagined more accessible FIFA Football simulation game. We're super excited to be able to launch that. And stepping back for a second, if you look at that in totality, why is this important?

As we've said in the past, it's a big market, roughly $140 billion worth of consumer spend ex China. We are just scratching the surface today in terms of what we can do in the space. But we already are seeing multiple instances of how this approach not only extends the audience's engagement with the service and with the story, but it also creates synergy that reinforces both medium.

So the interactive and the noninteractive side, that drives more engagement, more retention. So bottom line, we're very bullish on the opportunity side. We're seeing progress. We've still got a lot of work to go do. And I should say, like all of our developing initiatives, we're going to ramp our investment based on demonstrated value to members and returns to the business.

We will have Spencer give us a Boggle demo next quarter.

I watched the video Greg play With Elizabeth and there's no way I'm going to challenge because I think you've taken me down in 2 seconds. But with that, we'll take our last question from Rich Greenfield, the Lightshed on innovation. His question is, why isn't vertical video a higher priority for Netflix?

Well, Rich, we've actually been testing vertical video features for some time, about 6 months or so. And we've had a vertical video feed in the mobile experience that's been available for several months. So that feed is filled with clips of Netflix shows and movies, you can imagine us bringing more clips based on new content types like video podcasts, which Ted mentioned that we're adding to the general service, will bring the sort of appropriate components of that into that vertical video feed.

And really, this is part of a broader upgrade of our mobile experience. So just as you've seen us do with the new TV UI, we're working on a new mobile UI that will better serve the expansion of our business over the decade to come. We're going to roll this out later in 2026. And just like our TV UI, it then becomes a starting point. It becomes a platform for us to continue to iterate, test, evolve and improve our offering. So don't worry, Rich, we've got more vertical video coming for you.

Thank you, Greg. Ted, and Spence. That is all the time we have now for our call. We thank all of the listeners for tuning in to our earnings call. We look forward to speaking with you all next quarter. Thank you.

Okay, everybody. Good afternoon, and thanks for joining us. I'm John Hodulik, the telecom and media analyst here at UBS. And I'm pleased to announce our next speakers are Greg Peters and Ted Sarandos, the co-CEOs of Netflix. Thanks for being here, guys.

Pleasure. Yes.

Thanks for taking time out of what definitely a busy schedule for you.

Busy. Yes.

So we've got 35 minutes for Q&A, and I figure we'll just dig right in. Paramount Skydance is now offering an alternative bid to Warner Bros. shareholders. What are your thoughts?

I would say that...

Good opener. Go right for it.

Today's move was entirely expected. We have a deal done, and we are incredibly happy with the deal. We think it's great for our shareholders. We think it's great for consumers. We think it's a great way to create and protect jobs in the entertainment industry. We're super confident we're going to get it across the line and finish. So we're excited.

Obviously, Warner Bros. is a significant deal for you guys and for the media industry.

Yes.

Help us understand the rationale for the transaction and the benefits to both members and shareholders of the combination.

Yes. One, we recognize that this is unexpected. We haven't done this before. So maybe just walk you through a little bit of how we think this creates value and sort of also how we get to there and think about what's the executability of all the theories that we've built into the case. And so we've broken it down essentially into 3 phases. And it's worth noting that Phase 1 is essentially between now and close.

And Phase 1, our job is to continue to grow our business. We've got a tremendous opportunity for organic growth that we still are very, very excited about, and our job is essentially to execute against that, and we think that that's relatively low risk. We know how to go do that. By the way, Warner Bros, will be doing the same in parallel as well. And then you get into the close period. And we see -- essentially, this is where we saw 2 really big centers of value that we believe are highly executable, and we can implement in this space.

The first part is there's a bunch of titles that the Warner teams have that we think that there's more value to unlock in. And we think we have exactly the platform to go do that. We've got incredible reach. We've got a project experience that maximizes the value and content. This is the business that we are in. Essentially, we are constantly in the business of evaluating various different licensing opportunities for titles and then trying to figure out how do we maximize the value of that asset on our platform.

So again, that's something we do day in and day out, and we think is relatively low risk to execute. The other component is around HBO, the brand and the service. And HBO is an incredible brand with an incredible history. It speaks prestige TV. We want to double down on that concept. And then we think that, that gives us an additional lever, additional tool essentially to think about how do we propose plans and offerings for different consumers that give them the right kind of entertainment they want at the right price point.

And we think that we are in the business of doing that kind of optimization. And it sounds like that might be hard to go do. But recognize, we've just done that. We've done that with our ads plan as an example. We've had to think about how do you compose a set of offerings that maximize value for the business while keeping consumers happy with different offerings. So we see that, again, as completely executable, and we know how to iterate and solve that problem as well.

And just to be clear, that's -- when we sort of built our valuation model and sort of set the price, those are the centers of value that we really put into that. And so we felt like, hey, we can go achieve on these things. There's a third phase, which is when you get into -- we've got an amazing IP and all sorts of things that we can go deliver on this.

We believe we're very confident that there's things we're going to unlock that value there. We actually don't know exactly what those are. So we didn't give ourselves credit for them in the valuation models. So we've been appropriately conservative about building a value where we think we can actually go deliver it. We think we can deliver more. There's upside in the deal at the end of the day. But we're super excited on being able to deliver on those pieces.

Yes. And I would just add to that. We're -- obviously, there's the direct-to-consumer streaming business, which we're deeply committed to for both companies. It's -- the consumers love it. I think it's something that we're quite good at. In this transaction, we pick up 3 businesses basically that we're not currently in. So meaning we have no redundancies currently.

But like -- and one of them is the motion picture studio with a theatrical distribution machine. And so there's been a lot of speculation on what we would do with this. And I think it's really important to note that we haven't talked at all about we're going to do with this, but what we are going to do with this is we're deeply committed to releasing those movies exactly the way they've released those movies today.

All 3 of these new businesses, we want to keep operating largely as they are. The theatrical business, we have not been -- talked a lot about it in the past about wanting to do it because we've never been in that business. And when this deal closes, we are in that business, and we're going to do it. So think about it, if we did this deal 24 months ago, all of those movies we saw this year do so well at the box office for Warner Bros. would have been released in the same way in theaters.

Talking about Minecraft. I'm talking about Superman. I'm talking about Weapons, all those movies -- Sinners, these movies will be released on Netflix through theaters the way that Warner Bros. did it before, but with the Warner Bros. operating entity. We think it's really important the way that they create and the way that they drive value. We didn't buy this company to destroy that value.

The second one is the television studio who produce and license content to third parties. Also, we were never in that business. We are now. And I think it's an important thing that they -- when we get under the hood, that's a really healthy business. It's not as big as ours, and that's why we haven't really focused that much on doing it. The growth opportunity in our core business has been greater. But now in this transaction, we own that business.

And Channing and that group are doing a phenomenal job, and we want them to continue to do that phenomenal job. And then HBO is another example of that, which is, as Greg said, this is a prestige television brand that people really love. And I would say that they have been doing gymnastics to make themselves into a general entertainment brand. And I think under this transaction, they don't have to do that anymore. We're already a very well established general entertainment brand, and we want HBO to double down on the things that people have loved for 50 years about HBO, the fact that prestige television and movies in the various pay TV windows. These are the things that we're going to keep going in this business. And I think when we looked at the whole deal, you'd see that their assets work better in our business model, and our business model works better with these assets.

Got it. That's clear. Regulatory approval is obviously a big question we're getting. How the market is defined is a big part of that process. How do you define the market? And what gives you the confidence the deal gets approved?

I think we'd want to start by saying it's not our position to tell the regulators how to think about this. The regulators have to do their work and define the market in a way that they think is right. Clearly, they'll do their analysis, and we'll support them with whatever they need in that regard.

But if we go back to the fundamentals of this deal, we are very confident that regulators should and will approve it. At the end of the day, it's proconsumer, delivers more value to those folks. It's procreator. We're going to increase our content spend and deliver more. That's great for them. That means it drives jobs, it's proworkers in that regard. It's progrowth, it's proinnovation. So we think we've got a good story for all the constituents that we have. And then if you step back and we brought this slide around just to sort of talk about how...

Assuming this might come up.

Yes, exactly. We thought that this might be a topic, and we just want to really bring the facts to this conversation because if you look at Nielsen, this is Nielsen number of view hours on TV. In the U.S., you can look at your left right there, we're 6 in the current ranking right now. We're behind YouTube, we're behind Disney. We're behind NBCUniversal, we're behind Fox, we're behind Paramount. And then if you say, okay, well, you're going to go buy HBO and HBO Max, put that viewing on the list, this is what that would look like.

We go from 8% of view hours today in the United States to 9%. So we're still behind YouTube at 13%. And potentially worth noting that we would be behind what would be if Paramount combined with WBD, them at 14%. So we think that there's a really strong fundamentals-based case here for why regulators should approve this deal.

I want to pick it up from there -- I was going to say, how should we think about the President's recent comment?

Yes. I think you should think the President cares deeply about American industry, and he loves the entertainment industry. I've talked to him many times since the election about the different challenges facing the entertainment industry. He definitely understands the dynamics of what we were just talking about. Television is a very broad landscape of -- and view hours is probably the best way to capture it.

What people are watching on TV, it might be cable, which we do not own any cable channels or it might be a network, which we do not own a broadcast network, and it might be streaming and these things trade off pretty broadly. I would say it's very important that what the President has been interested in, in this deal has been to what extent does it protect and create jobs in America. And he understands what we do, which is that we drive a ton of great work in America.

Our original productions have employed 140,000 people, 2020 to 2024. Our economic contribution to the U.S. economy in that production has been about $125 billion. We are producing in all 50 states. We've used 500 independent production companies to make content for us, about roughly 1,000 original projects. And beyond just the jobs, we're also producing -- we're also investing in the entertainment ecosystem. We're spending $1 billion building a studio in New Jersey right now, built on the old Fort Monmouth military base that's been empty for about 13 years, and it's revitalizing the economy all over that area.

We have 11 films in production right now in New Jersey. We have a fully running studio we built in New Mexico. It's been a great job center and a great jobs training center. We've got many of our shows that we're shooting there. So we continue to invest in this. And again, I think the President's interest in this are the same as ours, which is to create and protect jobs. In this merger that -- in the offer that Paramount was talking about today, the Ellisons were talking about $6 billion of synergies. Where do you think synergies come from? Cutting jobs. So we're not cutting jobs. We're making jobs.

Makes sense. So up until this deal, the company and its strategy has been very simple and straightforward. Do all these benefits outweigh the increasing complexity you're going to experience by putting these 2 companies together?

Look, I think we built this company on a very simple proposition. We actually had one SKU for the longest time...

Right, one model.

One model. And that helped us build a really strong foundation. And the idea of that was you build a really strong foundation and then you can introduce new complexities to the business for future growth. And we have now been doing that pretty successfully, I think, by doing things that people would argue are pretty complicated.

And we've never done before either.

We haven't done any of them before. So the simplicity of -- remember, we started making original series, our first original series, we didn't -- we weren't doing movies then. We weren't doing unscripted then. We weren't doing international originals then. And now we do all of those things very successfully and producing in 50 countries today is pretty complicated. Greg, you've talked about this ingest model that we've been doing with TF1. I think it's...

Something new that's been fresh as well. I mean it's involved like standing up whole new businesses that we've never done before. We've never done live before, we've never done ads before. So all great examples of us extending that core foundation and building on top of it.

Being nimble. Like I said, I do think that simplicity was an early superpower, I think, of ours. And today, I think it's enabled us to do things that are really much more complicated, but also chase bigger prizes.

And I think we still want to be choosy. We've always been from the perspective of you do a small number of things, but you really do them to win. And that's sort of a same angle that we're taking towards this opportunity as well.

And it seems like a lot of the initiatives that you've had are sort of reaching there, not that conclusion. But you're far enough along on the ad side, you're far enough along on other businesses. There's room -- there's more room in terms of management.

And I think this would -- all these things would benefit from all those things.

It might be -- there's maybe 2 things to say in that is like one of our core theories has been that everything extension that you do has got to have leverage from the core and lever back in success, right? And you say we're far from done. I actually think about it quite the other way. I look at it as like we've reached sort of like escape velocity on some of them, but there's that middle part of the growth yet that's still to come.

Makes sense. Now I realize it's early in the process, but has there been any talk about management continuity within the Warner Bros. assets, just given all the talent there?

Yes. I mean -- and it goes a little bit back to our core theory and why we like this deal so much because we really do see it as a complementary situation. So if you think about the core business units that exist inside Warner's that we would be acquiring, those -- we don't have those units right now. So we don't have the redundancy issue. We're not trying to consolidate, drop down 1 studio to -- 2 studios to 1. That's not the business we're in. And so actually, we love these businesses. We like the leadership. We've got very strong people that are in charge of that.

We, as Ted said, we anticipate executing and running those businesses as they are. Again, there are businesses that we looked at before, and we weren't opposed to it. It just -- we had other things to go do. We had a long list of things that we felt like were higher priorities for us. But now that we have mature, well-functioning units coming as part of this, we're excited to have those be run by their leaders, operate well. And we think there's a ton we're going to learn from them about operating.

I think back to what you kind of said earlier, but I think this idea that we're not collapsing a studio, we are actually strengthening one of the most iconic studios in Hollywood by giving them a healthier business model to operate in and continue to release movies into the world largely like they do right now.

I mean just pivoting on that, the combined company will have about $30 billion in combined content spend per year, making it by far the biggest spender in terms of entertainment content. How should we think about the content strategy for the company post deal, both in terms of how the money is spent and then how the content is distributed?

Well, look, I think the beauty of this model has been that it scales. And I think when you look at it and say, what has been the strategy is to continue to generate more joy for our members, and that pays back in retention and word of mouth and all the positive benefits to a subscription business. But to do that, you have to have great content, a lot of things to watch. And that's what we keep investing into. So that $30 billion, it's a big number for sure, but it's like we've been growing organically to that number prior to this transaction, we're going to get there faster.

And after the transaction, we're going to continue to grow on that trajectory. Just giving them the -- as we improve distribution of those other titles and there's other assets in the Warner Bros. library, we're able to then continue to reinvest because we're pleasing members more and more and more, and they see more and more value in the business.

And getting more leverage off of those assets.

Correct. And then we do pick up some other distribution systems that we didn't do before, but they run -- those are very healthy businesses. They're just not as big as the direct-to-consumer streaming business, but they're very healthy and we want to keep them going.

And they're additive.

Yes, 100%.

All right. So maybe pivoting away from the deal, and we'll come back to it a bit, how would you describe that?

I would only add to that everyone else that's been kicked around in this transaction have all been reducing their content spend. They've all been laying people off and cutting things. We're investing into it. Like I said, we're growing organically closer to that $30 billion as it is, and we want to continue to grow.

So the plan is not to synergize...

Absolutely not. There's plenty of room, as Greg just showed how small we are relative to the rest of the universe.

Makes sense. So maybe looking a little bit more near term, how would you describe the slate for 4Q and as you look out to '26?

Well, hopefully, some folks in this room are watching Stranger Things right now. So we've had a really strong Q4. Obviously, Guillermo del Toro's Frankenstein nominated for the Globe this morning, which we're super proud of; A House of Dynamite, which is fantastic; and we have a new season -- before the year is out, we still have 2 more drops of Stranger Things coming; a new season of Emily in Paris; Wake Up Dead Man, which is the new Knives Out movie. That's all between now and just the end of the year.

So we're really excited about Q4 and both -- I think some of our core brands, a lot of new titles as well that people are getting really excited about. And Wake Up Dead Man, as you know, we've had this incredible kind of run with this franchise. And this one will be -- we tinkered around a bit with different theatrical models with this one, too. And I think it will be a different way for people to get more and more excited about it. But it's a healthy mix of our core brands and returning brands and all new titles coming up, too.

And you want to go to '26 because we're just happy about '26 too because we're going into -- we have Narnia from Greta Gerwig that we're really excited about. We've got new movies from Charlize Theron, Apex. We've got The Rip with Ben Affleck and Matt Damon. And Matt also did another, it will come out later in the year, called Animals. It's incredible. And we've got returning seasons of Bridgerton and One Piece and Beef and a bunch of the brands that people really, really love. So we're excited about '26 outside of this transaction.

Got it. Okay. So we track the top 10 list pretty closely, and it looks like you've had some nice momentum in non-English titles this year, even outside of Squid Games. Where do you see the most untapped potential for locally produced content that can resonate globally? And does the deal sort of allow you to lean into that?

Well, for sure. I think a lot of these brands, developing local language versioning for sure and spin-offs and exploring IP that hasn't yet been explored from the library in different countries around the world is exciting. I think what's really exciting about the local language success to your point about you were talking about, I'm sure, the Squid Game success earlier this year, which spawned like a big growth of excitement around K dramas.

I'd be remiss not to talk about KPop Demon Hunters, but it's not that. It complemented each other for sure. But what's been really exciting is the cultural impact because I think we talk a lot about the Netflix effect in the U.S., and we all see it here a lot. But there's things like Culinary Class Wars in Korea. Prior to that show, the notion of a celebrity chef did not exist in Korea. So that's caused a whole new craze about the restaurant industry because of the success of this show.

And Physical: 100, again, because of that show's success, that show was bigger in multiple countries than any of the big unscripted shows from any other network because the people just really fell in love with the storytelling. And it's that kind of things that we learned about sports adjacency storytelling that has really leaned -- helped us grow into all kinds of unscripted programming. And Physical: 100 was a very -- a brand-new area for us and the fact that it worked in that format and it's actually spinning off and doing multiple local formats of Physical: 100.

All around the world.

Imagine the Physical: 100 started in Korea, but there's going to be an Italian one where they do get out in the Colosseum. Pretty exciting...

The Roman Colosseum event.

Yes. But again, it's that cultural impact that you're able to have that we don't always see it in the U.S. outside of the U.S., but it's happening all over the world.

And also maybe live events. Is that another area that's -- obviously, you've had a lot of success in live events...

Even before the end of this year, we've got a couple of big ones with the J. Paul fight coming up on the 19th of December. And then we've got the All Day NFL football on Christmas Day. And then we're also ramping up our -- this will be the first time next year that we do local live programming for outside of the U.S. Again, we took a couple of years, learned it, learned the technology, learned the taste. Remember, it's limited -- it's a good investment. But because of the time zone, it's limited in its footprint.

And I think by doing more local live programming, you get the benefits locally. We saw it a lot in the Canelo Crawford fight, it was huge in Mexico, for us -- outside of the U.S. as well. But once you get pretty far out of the time zone, people are sleeping. So that's why we'll grow that...

We'll do World Baseball Classic in Japan, which I think should be super exciting, and it's...

[indiscernible]

Women's World Cup. And so you see the synergistic effects with other parts of our business around like advertising as well. So we feel that has that flywheel effect.

Exactly. That's a good pivot to advertising. It seems like the company upticked on advertising this quarter, saying it will be -- it will more than double this year. What's driving that? And what does the Warner Bros. deal do for that revenue?

Yes. We're seeing great trajectory, which we're super excited about. You mentioned the more than doubling. At the end of the day, we're giving advertisers what they need, which is increasing reach. We're giving them more capable platform in terms of targeting, personalization and measurement. We are giving them amazing brands that they could advertise alongside. And so that's really what's fueling it right now.

When it gets to the Warner deal, I would say really, it's around those titles driving more engagement, our ability to find more viewing for those titles. Obviously, it's connected to the advertising revenue that we can drive. And then just like our existing titles, a lot of those titles are -- they're incredible properties that advertisers want to be connected to and be alongside. And so I think that drives our core thesis around advertising as well.

And has the ad server lived up expectations? And is it driving demand?

Yes, our own ad stack. Yes, it's incredible to be on our own ad stack because essentially, we can now go incredibly quickly and run with high velocity. And we're delivering along essentially the dimensions we've talked about before, which is more demand sources. So we've added Amazon as a DSP. We've added AJA in Japan. It's better targeting personalization, better measurement. We've got a lot of good work we've been doing there.

It's also new ad format. So we're actually deploying interactive ad formats, and we'll continue that line of investment. But it just allows us to go even more quickly. We've got a long list of the same kind of ads in '26, more demand sources, measurement targeting, more formats. And then '27, we start to move into a really fun space of sort of nondeterministic targeting model-based approaches that you see some of the bigger advertisers out there leveraged a great effect. And so we're super excited about that at the end of the day, too. And we just think this is, again, we see the velocity that we're getting, and we see we're going to be able to deliver more and more for our advertisers while making a great experience for our members.

The tech stack in general is a big strength for you for Netflix. How are you incorporating GenAI into the recommendation and making the product better?

Yes. Maybe to start with this, that we've been in the AI and ML business for 2 decades. So we're well versed in how this works. We think that we're in a differentially well-suited position to take advantage of these newer generative approaches. Most of that's because we've got scaled consumer-facing products, so a place to attach those technologies to scaled business products.

And we've got large sets of well-ordered data, which is sort of the fuel that allows those models and engines to work very well. So we're going to mostly deliver in, I'd say, 3 spaces. One, the first primary space is the member space. better personalization, the ability to deliver high-quality personalization against new content types. So as we expand the universe of content that we're serving, we'll be able to deliver high-quality personalization very quickly in those spaces. And then new types of consumer experiences.

So think about things like a conversational search experience where you can have a conversation with the UI and get discovery and get recommendations as a result. So super excited about that. Ads is a very rich space that we think we can deliver some of these technologies into as well, whether it's targeting. It's also things like modifying brand creative to fit in the title creative universe and make that a conversation and a process that happened in a very limited way before. It's very cumbersome, but now we can accelerate and expedite that process. And maybe the third area, the content...

The creative side, I mean the technology is obviously moving very fast, and we're trying to think about all the different ways that creative -- AI tools can help creators tell better stories. And I think it's very important when you think about AI's contribution to the creative process and the idea of what those outputs are. And I think it's very important for -- and we can see that in the way people connect with content.

It will be great if it improves some of the efficiencies of the production cycle. But the idea that it's just got to be faster and cheaper is not good enough. It has to be better first. And then if it's faster and cheaper, that's great. But if it is just faster and cheaper without being better, it's going to be bad for everybody. So I think right now, what we're seeing is that those tools are iterating, we're iterating with them alongside of filmmakers who are excited to work with the technology and figure it out.

And it's basically -- we think about it much more akin to the advances in VFX and all those kind of things that have happened. The movie making is filled with technology. You'll probably see Avatar over Christmas is that's doing things that people couldn't have even dreamt about a couple of years ago and incorporating new technology into the creative storytelling process that we are enormously supportive of. And I don't think it works just as a cost-cutting tool, I think you'll alienate audiences and it will be bad for everybody.

Does AI, in your view, make short-form platforms more powerful and create more competition for Netflix in terms of engagement?

Look, there's a case to be made that's the opposite is that more and more content that is coming out that people are less and less attached to and more -- less passionate about it. The content creation starts with a great story. It starts with great writing, all those kind of things that happen -- that have to happen before audiences connect. We have a lot of things that you put in all those efforts and people just go to the next one. And that's failure.

But I would say what's happening now is that's built for people to go to the next one. And so I don't know that necessarily that strengthens them for the long haul. It's interesting. It's fun. That probably adds to a level of freshness to it. But I don't know that it improves in my earlier point, better, faster and cheaper.

Ultimately, we believe that telling stories incredibly well consistently is a very scarce commodity out there. And we believe we've got the business model, the best business model for those creators. And so ultimately, we feel like they'll find their home in Netflix.

You will have to fundamentally believe that there are -- all of us have a great story in us. I don't think we do. Sorry.

There's some evidence to support that.

There's a real skill there in being able to be a great writer and a great storyteller.

So do you guys think AI enhances the value of IP and the library? I mean over time, does it help you tell the stories better?

You also have to be careful not to trash it with it. That's what I was getting at. I think it's really important that you apply it in a way that it helps consumers. It helps fans. It feeds fandom versus running the risk of destroying it.

I think that's right. But if you do think that there's this commodity layer of content, see, ocean universe out there, then what sets you apart, what differentiates you from that? I think IP can do some of that work.

Maybe quickly on video games. Are the video game efforts scaling as you expected? And are they contributing to engagement and maybe subscriber growth through churn? Or just lay that out for me.

Yes. We've been doing a lot of work over the last couple of years. A lot of it has been, I'd say, in 2 categories, building plumbing, if you will, building the infrastructure to create development environments for people to author games and bring those games to the service. And a lot of work has basically been also understanding the strategy and sort of seeing, as we always say, you never know what you've got until you get out there with consumers and you figure it out.

So we've learned a lot from that. And now we're at the point where we're really unlocking sort of the value of the strategic refinements that we've made, which have been super exciting. You see a couple of different categories that we're really going after and we feel are consistent with what we -- the value we can deliver to members, which is differential, which is take immersive narrative games that are based on IP that we have.

So you can imagine fans of Squid Game, going super deeper into that universe. It was actually fun because we did a fun game around golf, but not like it's an incredible massive piece of the game around golf. And then with Happy Gilmore, you see all these people that are playing it. So you see that need there. Kids is another space. We think we can give a very safe space for kids, no in-app payments, no ads and just give them a place to play there.

Also taking story game IP and just finding another distribution range for that. We did it with Grand Theft Auto. We just released Red Dead Redemption, which as you can see, is topping the game charts on mobile. So that's another great example that's there. And the fourth one is what we think about is social games. This is like Family Game Night, reinvented or maybe even the extension of what used to be the game show, right?

And we released a bunch of games on the TV that is designed for folks to sit around the TV with their phone as controller and play, think Boggle, Pictionary, LEGO. We're seeing really big take-up in that. And then we've got a new game, quiz show game coming, Best Guess, which is super exciting, which gets into that a little bit of that game show space and how do we bring interactivity into the linear world, too, because we see this [ really world ] as blending. And so now we're definitely seeing those numbers come up in terms of...

That's across games and live and all these other new skill sets that we're building out...

Thinking about all these things working together.

Did you get a chance to play with any of the games at home that over the...

Okay...

Anyone here play any of the party games yet?

I would take a chance with [ Eric ] all right.

You'll have fun. You'll have fun.

And does the Warner Bros. assets enhance or accelerate the success in the gaming side?

Yes. And maybe worth going back again to sort of how we thought about the deal and building our valuation model. While they definitely have been doing some great work in the game space, we actually didn't attribute any value to that from the get-go because they're relatively minor compared to the grand scheme of things. Now we're super excited because some of those properties that they've built, Hogwarts is a great example of that, have done quite well, and we think that we can incorporate that into what we're offering. They've got great studios and great folks working there. So we think that there's definitely an opportunity there. But just to be clear, we haven't built that into our deal model.

Got it. And by the way, all those IP enhancements that will come from gaming would apply to all those...

Yes. That's right. Great point.

Okay. And maybe one last question on a stand-alone basis, how should we think about sort of stand-alone Netflix sort of content spending over the next several years? Again, on a stand-alone basis, probably won't come into play, but -- and your visibility in terms of margin expansion that you have right now?

Yes. So maybe just the core engine of our business has been to deliver more value, more entertainment value to our customers. And then we have got a business model, which we feel is very effective for getting paid for that in terms of revenue and ultimately growing profit. So if you go back to the view hours, 8% in the United States, we're under 10% in every country that we serve. We believe there's ample opportunity to essentially continue to grow that value that we are delivering and grow the business as a result. We're at $18 billion in '26 content spend.

We anticipate we have opportunity to grow that in the future, $30 billion combined entities. We have the ability to grow that as well. And we have a model where that sort of content expense, we grow revenue higher than that content expense that allows us to expand margin. And we believe we're going to continue to do that going forward, and we're excited about that opportunity.

That's just a thing to reiterate, which is that we have been growing content spend and expanding margin as a stand-alone, and we've modeled to do that in the future as well.

Yes, under any condition.

Okay. That's great. Any wrap-up comments?

If you're wrapping up, I just would like to say something obviously, to the folks in this room and the folks on the stream. Many of whom have been owners of Netflix for the long haul while we've navigated some really complicated things is that we are going into a deal that we are really excited about. We think this deal with Warner Bros. is good for our shareholders. We think it's good for consumers. We think it's good for creators. We think it's great for the entertainment industry as a whole because we're creating and protecting jobs in production, and we're going to continue to grow the business and which we're really excited about.

And we just wanted to say to all of you that we've appreciated you sticking with us through these things. And this is, in many ways, not as complicated as many of the things we've already done. So we look forward to the next phase of this and getting this deal approved and moving forward. Very excited.

And then looking forward to delivering all the value that we see in that deal for everyone.

Fantastic. Greg, Ted, thanks for being here.

Thank you.

Welcome to the Netflix to acquire Warner Bros. Conference Call. Our host for today's call is Spencer Wang.

[Operator Instructions]

I would now like to turn the call over to your host, Spencer Wang, you may begin.

Thank you, operator, and good morning, everyone. Thanks for joining us on such short notice to discuss our agreement to acquire Warner Bros. You can find more information about the transaction in a press release on our Investor Relations website at ir.netflix.net. Today's call is also being webcast. After the call, we'll post a replay and transcript and our investor presentation on our website.

Joining me for today's call, our co-CEOs, Greg Peters; and Ted Sarandos; and our CFO, Spence Neumann.

We'll now run through a quick presentation and transaction summary, and then we'll open it up to Q&A. As a reminder, we will be making forward-looking statements, which are subject to risks and uncertainties. Please read our cautionary statement at the end of this presentation. You may find further information on the risks and uncertainties that apply to any forward-looking statements in Netflix's and WBD's SEC filings on our respective investor websites.

With that, let me turn the call over to our co-CEO, Ted Sarandos.

Thank you, Spencer, and good morning, everyone. This is a big day. We're really beyond excited to welcome Warner Bros. to Netflix. And I want to start by thanking David Zaslav, the Warner Bros. management team, the Warner Bros. Discovery Board of Directors for trusting us with this incredible legacy of world-class storytelling.

To recap the news, I'm sure you've all seen, earlier today, we announced an agreement to acquire Warner Bros., including its film and TV studios, HBO Max and HBO in a cash and stock transaction with a total enterprise value of approximately $82.7 billion. This acquisition brings together 2 pioneering entertainment companies. The transaction is expected to close between -- in the next 12 to 18 months and follow the previously announced separation of WBD's Global Networks division, Discovery Global.

The acquisition is also subject to regulatory approvals and approvals by the WBD shareholders and all the other customary closing conditions. Our plan is to operate -- continue to operate the iconic Warner Bros. motion picture and television studios, including HBO and the theatrical film releasing.

I'm grateful to David for agreeing to run the company until the transaction is complete. I know some of you are surprised that we're making this acquisition, and I certainly understand why. Over the years, we have been known to be builders, not buyers. We already have incredible shows and movies and a great business model, and it's working for talent, it's working for consumers, and it's working for shareholders. But this is a rare opportunity that's going to help us achieve our mission to entertain the world and to bring people together through great stories.

We've built a great business and to do that, we've had to be bold and continue to evolve. Remember, we started off as a DVD-by-mail company, then we moved to streaming, to producing original content, live programming from a U.S.-centric business to a global business.

In a world where people have so many choices, more choices than ever, how to spend their time. We can't stand still. We need to keep innovating and investing in stories that matter most to audiences. And that's what this deal is all about. The combination of Netflix and Warner Bros. creates a better Netflix for the long term. It sets us up for success for decades to come.

Warner Bros. has some of the best entertainment in the world, period, from the top time franchises like Harry Potter, brands like the DC Universe, shows like Friends and Game of Thrones as well as both Warner Bros. CBM film production and HBO and HBO Max programming. HBO Max also has a large and loyal audience with a streaming subscriber base of roughly $100 million across 100 markets.

Finally, Warner Bros. is a world-class organization. recognized as a leading supplier of television and powerhouse in the films entertainment. HBO and HBO Max also provide a compelling complementary offering for consumers. We expect these businesses by joining forces, we are creating a stronger organization than either of us could have achieved alone. We have the innovation, global reach and the best-in-class streaming service to bring these franchises, brands, shows and movies to a larger audience than ever before. And that's why we think this deal makes so much sense.

Netflix and Warner Bros. really do complement each other. Together, we can give audiences around the world even more value and choice and get one step closer to being the most loved and the most valued entertainment company. Warner Bros. has helped to find the last century of entertainment. And together, we can help define the next one. And with that, I'm going to turn it over to Co-CEO, Greg Peters, to talk more about the strategic rationale for the deal.

Thanks, Ted. I just want to take a few minutes to elaborate on why this deal makes strategic sense for Netflix, for Warner Bros. and all the stakeholders that we serve. First and foremost, consumers. This deal provides greater choice and value for consumers. Warner Bros. has one of the world's deepest libraries of IP, of films and TV shows and for our members, that means more bang for their buck, that means a wider variety of high-quality shows and movies. It's also great for Warner Bros. and for the creators that they work with, our global audience, our high expertise in streaming. That all means that their stories are going to reach more people, they're going to track more fans than they do today.

This combination will also strengthen the entertainment industry in a couple of keyways. Warner Bros, of course, has got extensive studio assets. They've got great capabilities, including a leading television studio. And this acquisition will allow us to significantly expand our production capacity in the United States and keep investing in original content over the long term.

That means more opportunities for creative talent means more jobs created across the entire entertainment industry. Warner Bros. IP also means that we'll be able to build on worlds and characters that audiences absolutely love, which means more opportunities for creators to tell those great stories. Finally, we expect this transaction to create value for our shareholders. Warner's IP and library accelerates our ability to execute on the goal that we've always had to deliver more and even better content for our consumers and to entertain the world.

By offering audiences more of what they love, we expect to attract and retain more subscribers, drive more engagement and generate incremental revenue and operating income. We think this acquisition will make Netflix even better and accelerate our business for decades to come. I'll tell you a little bit more about that and to go over the details of the transaction, I'm going to turn it over now to our Chief Financial Officer, Spence Neumann.

Thanks, Greg. So let me walk you through some of the key financial details of the deal. We're acquiring Warner Bros. in a cash and stock transaction valued at $27.75 per Warner Bros. Discovery common share. WBD shareholders will receive $23.25 in cash and $4.50 in shares of Netflix common stock for each of WBD common stock outstanding at the close of the transaction. The stock consideration has a collar mechanism to protect both sides which is further detailed in our press release and our recently filed 8-K.

As Ted mentioned at the beginning of the call, this deal will close after WBD separates its Global Networks division, Discovery Global into a new publicly traded company, which is now expected to happen in Q3 of 2026. Our transaction, which has been unanimously approved by the Boards of both Netflix and WBD is expected to close in 12 to 18 months, subject to customary closing conditions, including WBD shareholder and regulatory approvals.

The equity value of this acquisition is $72 billion, and the enterprise value was $82.7 billion. We intend to fund the transaction through a mix of cash on hand, new debt financing and stock, which we detail on this deal summary slide. We expect Warner Bros. to generate roughly $3 billion in EBITDA in 2026 and with the addition of an expected roughly $2.5 billion in run rate cost savings. That implies Warner Brothers EBITDA of approximately $5.5 billion and a post-synergy enterprise value to EBITDA acquisition multiple of 14.3x. In addition to the strategic benefits that Greg outlined, we expect to drive a number of financial benefits from this combination: First, by offering more TV series and films to members, Netflix expects to attract and retain more subscribers and grow engagement, revenue and operating income.

As I just mentioned, we also expect to realize at least $2 billion to $3 billion of annual cost savings by the third year post closing, and we expect the deal to be accretive to GAAP EPS and by year 2 post closing. And post close, we're committed to maintaining a healthy balance sheet and our solid investment-grade credit ratings. We expect pro forma leverage to be elevated at closing with a clear plan to bring that back under rating agency targets for our current ratings within 2 years after closing. While we'll prioritize deleveraging during this period, we also expect to continue share repurchases. We are excited about what this combination means for Netflix. You heard that from Greg and Ted. This deal gives us more tools to innovate and grow. We're confident it will help drive long-term value for our shareholders for years and years and decades to come. So with that, I'll hand it back to Greg for a few closing thoughts before we open it up for questions.

Thanks, Spence. Before we move to that Q&A, I think it's worth just reiterating the bottom line for us in this deal, and that's that we think this deal is really good for all of our stakeholders. It's going to mean more options for consumers, it's going to mean more opportunities for creators more value for our shareholders. Together, we've got the chance to bring great stories, cutting edge innovation and more choice to audiences everywhere. And we can do that all while preserving the century of incredible storytelling that makes Warner Bros. so special. I know I speak for Ted, for Spence, for the rest of the Netflix leadership team when we say we are really looking forward to working with Warner Bros. exceptionally talented teams to deliver the absolute best entertainment for our members around the world.

With that, operator, let's open the call for questions.

[Operator Instructions]

And our first question will come from Ben Swinburne, Benjamin Swinburne.

I'm sure there's a lot of hard work to get to this point. You guys are spending quite a bit of money to acquire this asset, obviously, a much larger acquisition that you've ever done before, $70 billion plus. So you must think you can create value for your shareholders. You talked about that a bit in the prepared remarks and make these businesses worth substantially more than what you're paying. So could you talk about how that happens at a high level? Because the release kind of talks about both leveraging this IP on Netflix, but also continuing to run the businesses kind of as is.

And to some degree, there's no free lunch, right? It's sort of one or the other, at least on a specific show or film basis. So I'd love to hear more about how you think this ultimately creates value for your shareholders? And specifically, how you think about running these two businesses, the Studio and HBO in the long term alongside, obviously, the core Netflix business.

Yes, maybe I could kick it off with the HBO side of things and maybe Ted, hand it to you on the studio side. Then you say there's no free lunch, and I get the fact that there's no free lunch, but there is actually sort of some positive dynamics in bringing complementary assets together and having essentially more levers and more options to figure out how we deliver value to customers.

I would start by saying the HBO brand, the HBO service, they're clearly valued. They've proven that they can attract a bunch of subscribers. We believe that actually having more room to figure out how we allocate that content across a range of offerings, how we think about bringing that into our plans offering today, will actually unlock value that isn't being unlocked today.

And one of the most sort of obvious things to think about here is that we believe we've got the best tool for connecting incredible stories with people around the world. And we think actually bringing more of that Warner Bros. content into that tool, if you will, will just unlock value in and of itself. Ted, maybe I'll turn it over to you on the studio side of things.

Yes. Well, first, I'd say on all these assets, what we think is that these assets are more valuable in our business model, and our business model is more valuable with these assets. So I just think it really is a win-win in that way, then. On the studio side, this is -- obviously, the -- they've had a great summer, proving that this is an incredible creative machine. And I just think that we are complementary business model, both in ways to bring content closer to consumers and better -- to offer more and more value also to create a new IP universes for us to create it and to grow in.

They've got 100 years of creative development experience. We've been at it for a little over a decade. Thrilled with our progress and how we're doing. I think these things coming together really is one of these one in one equals 3 or 4 models. And I think our more modern approach to the business model to connect people with these great stories is going to be a big win for all -- every constituent involved.

Maybe it's worth noting that we're not talking about reinventing anything here. This is actually a lot about supporting the existing flywheel that we've got. We think about if you bring great stories and you find a great way to distribute and connect with lots of people around the world, you drive more engagement, that drives better retention, better acquisition that basically is the flywheel that supports revenue and profit for our business.

Our next question comes from Rich Greenfield, LightShed parkers.

I think the most obvious is why now. You could have bought Warner Bros. when the stock was at 6, nobody wanted it. Skydance was tied up buying Paramount like you had a unique window of time. Is there a reason now in terms of like looking at the need to accelerate engagement? Or I guess, just what was it about this timing that it became so important to go after this asset now.

And then I think I just have to ask, Greg, you came to the Bloomberg conference and you made a very specific quote that there is a long, long history of media transactions that do not end well. I guess for everyone listening, why is this going to end differently than every other media transaction essentially of this scale in history?

Greg, before you go to that quote, I think it's worth pointing out, Rich, that why now? It wasn't for sale before. And they certainly hadn't cleaned up the assets or separated the assets in the way that they have right now. So I think that kind of goes to the why now. And Greg?

Yes, that's great. I think so -- and just to reiterate, Rich, I think the question behind your question, look, we're very excited about our organic growth situation right now. We're doing a great job delivering double-digit revenue growth. We've got key opportunities for growth in the business. So this isn't really reacting to any situation, which I think is what you're pointing at. And to Ted's point, we didn't think this asset was for sale in this way until right now. So you -- I love the fact you referenced the -- my statement of Bloomberg. It was a more complete statement, I think, a balance statement that got reported in the press. But I think it is true.

Like historically, many of these mergers haven't worked. Some have, but you really got to take a look at this on a case-by-case basis. A lot of the failures that we've seen historically is because the company that was doing the acquisition didn't understand the entertainment business. They didn't really understand what they were buying. We understand these assets that we're buying.

The things that are critical in Warner Bros. are key businesses that we operate in and we understand. A lot of times, the acquiring company, it was a legacy non-growth business that was looking for sort of a lifeline. That doesn't apply to us. We've got a healthy growing business that we're super, super excited. So we got a clear thesis about how the critical parts of Warner Bros. accelerate our progress.

We also know, look, it's going to be a lot of hard work. We're not expert at doing large-scale M&A, but we've done a lot of things historically that we didn't know how to do. We put our minds to it, we iterate it. We put the right energy on it, and we've shown that we can work the problem and be successful and execute. So whether it's going from DVD to streaming or U.S. to global or licensing to originals, all those are examples of us sort of getting in, sorting it out and ultimately iterating over time and being able to deliver on the promise of the opportunity that we see.

And we'll move next to Steven Cahall with Wells Fargo.

So first, just wanted a little more clarity on how you're envisioning HBO. Spence, I think you talked about the subscriber engagement benefits to the transaction. And Ted, I think you said that HBO would remain in some sort of shape or form. So should we think about HBO as being an entirely separate service for the long term? Or could it be a hub sort of inside of Netflix where the brand remains so significant as it is today, but there is kind of a bigger synergy inside Netflix to members. And then just on the content side of things, I mean, I kind of think about this as an acceleration of future content spend into this $83 billion enterprise value for studio and library. I don't know if that's exactly how you think about it. But how do you think about content spend for the combined company on a pro forma basis? And what kind of savings would you expect from Netflix' content spend given this big library in studio you're acquiring?

Great. Yes, I'll kick it off with the first one and then maybe hand it over to Ted. So I start by saying that we think it's quite early to get into the specifics of how we're going to tailor this offering for consumers. So we're probably going to -- not satisfy the full intent to your question. But needless to say, we think the HBO brand is very powerful for consumers. We think that the offering could constitute and would constitute a part of our plans and how we structure those for consumers. And then that gives us a lot of options to figure out how do you package things in different ways to make sure that we're maximizing the value for consumers and maximizing the value of the assets that we're then being able to present. So then -- and then I'll turn it over to you for the studio side of things.

Hey, guys, I am getting a little bit of feed.

Steve, can you mute your phone, please.

Yes.

Yes, you should think about this as a continuation of this content spend for Netflix, for HBO and for the studio. They have a slate of content that goes through. We think that the HBO model itself is working and quite beloved by consumers and want to keep investing in that along the way, investing as planned in Netflix as well.

Yes. I just want to kind of reinforce that you have both things that were said here. First, we've got a lot of value levers in this deal to continue to grow our business across the combined business across revenue and profit there -- between the kind of driving that engagement revenue profit flywheel that Greg talked about a bunch and then kind of optimizing across these 2 complementary streaming services and delivering more value to members.

So we're not going to get into specifics today. We obviously have a lot of work to do. We have thoughts on it, but there's a lot of time to work through our operational plans. And in terms of that content investment, it's fair to think about it is that it does accelerate our ability to kind of deliver more and more great storytelling members because we've been in the original content business for about a decade and as Ted talked about. Now we also have a studio with 100 years of history in storytelling and so forth. So that makes us stronger. But the key is that the combined is we're going to continue to grow our content investment. We'll grow it in a very disciplined way. I'm sure there'll be some efficiencies along the way, but we're going to continue to grow that content offering and entertainment offering for our members.

[Operator Instructions]

We'll move next to Robert Fishman, MoffettNathanson.

Ted, you've been focused on keeping the value of Netflix content exclusive to your platform, mostly avoiding theatrical releases. So can you just discuss why do you plan to change that strategy now with the Warner Bros. theatrical releases? Or would you be open to evolving Netflix's release to a day and date type of tentpole strategy in the future? And then maybe just on a related note, when we think about all the third-party licensing that Warner Bros. Studio does today, how is that going to evolve over time, both in the U.S. and internationally?

Sure. So a reminder, we've released about 30 films into theaters this year. So it sounds like we have this opposition to movies in the theaters. My pushback has been mostly in the fact of the long exclusive windows, which we don't really think of that consumer friendly. But when we talk about keeping HBO operating largely as it is, it also includes their output movie deal with Warner Bros, which includes life cycle that starts in the movie theater, which we're going to continue to support.

So I don't -- I wouldn't look at this as a change in approach for Netflix movies or for Warner movies for that matter. I think over time, I think the windows will evolve to be much more consumer-friendly to be able to meet the audience where they are quicker, all those things we'd like to do.

But I'd say right now, you should count on everything that is planned on going to the theater through Warner Bros. will continue to go to the theaters through Warner Bros. and Netflix movies will take the same strides they have, which is some of them do have a short run in the theater beforehand. But our primary goal is to bring first-run movies to our members because that's what they're looking for. And up until now, this was not our business model. I said that many times. We are acquiring a business that is -- that is part of the business model, and we intend to continue with that.

Anything you want to say on third party.

Sorry, third-party production. Similarly, we've not produced for third party through our studios. They do, and they're quite successful at it and we want to keep that successful business operating, producing for third parties as well. Netflix Studios doesn't plan to have a change in that model we continue to produce for Netflix. But the Warner Bros. Television studio will be producing for third parties to continue to.

Operator, next question, please?

That comes from John Hodulik with UBS.

Congrats on the deal. Just can you guys talk a little bit about your thoughts on -- are your expectations from an engagement standpoint. It would seem that just adding the engagement you're seeing on Netflix and HBO would understate the benefits you would get just given the sort of Netflix effect we've seen on previous content.

And then aside from that, just what this transaction could do to your ad business? It would seem in the sort of crawl, walk, run, this would sort of accelerate you guys to the run phase much quicker.

And then lastly, any change in terms of the importance of sports content just given the broader platform, the broader reach you guys have, just the importance you think in terms of adding live content and sports to both platforms going forward?

So on the engagement question, you're right. And I think it's implicit in the core thesis we have around the deal that there's sort of value creation and complementarity in the 2 -- bringing the two companies together that we would expect the ultimate engagement over time exceeds just the linear combination of the two separate engagements because we think we can actually bring better distribution, a better product experience, better discovery and choosing to the titles that Warner Bros has. So incur with your thesis there.

On the ads question, there's 2 really components or 2 vectors I can think about sort of what's the -- what's -- how do we build a future -- continue to build the future into ads. One is, call it, reach and engagement, how we get more audiences on board, including more engagement, more hours through the combination we just talked about drives the component of that. Another component of this, though, is actually the technology that allows us to deliver more value at any given hour of engagement or any given impression.

And so that's something that this deal doesn't actually add to. That's something that we're continuing to build on our own. We've got a good road map there though and we're super excited about it, and we've been executing into that road map with high velocity. I think we're bringing that organic capability that we've been building and we've been very happy with the results so far into now more engagement, and that's where I think the value in this deal comes from on the ad side. Ted, do you want to talk about sports?

Yes, I agree. And I don't think you should think of look at this as any change in our sports strategy at all.

Our next question will come from Jessica Reif Ehrlich with Bank of America.

I guess, one, it doesn't sound like you're changing at least initially any of Warner Bros. operations. So if there's something -- if you're thinking about it differently, I'd just be curious to hear your thoughts on that. And how do you plan -- Warner Bros. has the most successful and the deepest film and TV library. And you talked about creative universes. Can you just share your thoughts on how you plan to exploit it differently or more deeply than it's been done. And the cost savings, where will they be coming from?

So look, on the IP, you should think about ways that you can explore all these IP universes beyond that of just making tentpole movies. You can see we had some early success in digging deep into the bigger pools of IP, do the spinoff. I mean there is a good example, I think, would be prior to Wednesday, The Addams Family probably didn't carry that much value for MGM. I think that we have the ability to unlock storytelling and world building out of this existing IP in ways that are even difficult to imagine today. That we're really excited about.

And examples would be some of the earlier moves from the DC universe for things like Penguin has turned into great television. I think those opportunities are pretty limitless.

And Ted, have you seen opportunities maybe also in development?

Yes. I mean I think I said before that the development infrastructure, the development expertise of Warner Bros. has been building for 100 years. We have been the original content business for about a decade, running as fast as we can. So really not investing and developing that much expertise in our development work. So that development pool, I think will also be a very valuable asset for us.

K-pop came out of that.

Yes. I mean, the examples of that, of course, would be what we saw with our Sony deal. K-Pop Demon Hunters was one of these projects that was deeply developed for many years before it was decided not to be produced at Sony. And then similar to the next month, we have a movie coming out called People We Meet On Vacation, which was also something kind of out of the deep development pool. We are very -- our deep development pool is quite shallow. So we're moving pretty quick in how we bring development to the screen. I think this will accelerate that dramatically. And Spence, you want to take -- the cost synergy spend?

Yes, yes, sure. So we talked, Jessica, about roughly $2 billion to $3 billion of synergies in the first few years of the transaction. And think of that as if that $2.5 billion number and kind of the midpoint, it's mostly SG&A. So think of it as kind of support areas of the business where there's overlap, there's also overlapping tech stacking capabilities. So that's the bulk of what we're talking about there. There's -- there will be presumably some content efficiency in there over time as all, but that's not the bulk of the savings.

We'll move next to Kannan Venkateshwar with Barclays.

So starting with some of the obvious concerns people have had with the deal and the dissynergies. I mean, HBO and Netflix presumably overlap significantly when it comes to subscribers. It sounds like you want to keep the businesses separate but presumably over time, these would be combined in some way, either through a bundle or something along those lines. So it would be great to hear your thoughts on how you handle those dissynergies that might arise from the deal.

And then secondly, I mean, when you think about the content scale, I mean, you're spending $80 billion buying this asset, presumably, there will be a pipeline of content development to back up this investment and it sounds like Netflix is not going to bring down its normalized content spend significantly. So when you combine that, too, it sounds like content investment as a proportion of revenues of the 2 companies actually goes up. Are we reading that right? I mean, could you just expand on how you plan to deal with some of these items.

Can I just have that last one first, maybe. What I'm thinking on is that we're going to be continuing to grow our combined content investment across the company. But I also said there's efficiencies over time. So think of it as it is content spend growth, but I'm not going to tell you exactly what those numbers are. We're not putting projections out there right now. But think of it as that as we're spending, we're also a more scaled business. So we expect to have -- continue to improve our profits, our margin profile over time. So I don't think of it as content expense as a percentage of revenue is going to grow. Content spend will grow, but our top line is also going to grow.

And then owner EBITDA numbers that Spence referred to earlier include their content spend -- their content spend already.

Yes. And then on the first part of the question, we do -- like we think the 2 services are very complementary. And to your point, there is a high overlap of existing HBO Max subscribers who are also Netflix subscribers. That number is quite large. And they are paying a nice discrete amount for the value of entertainment they're getting. And we think that, that's a really strong affirmative case on the value of the Warner Bros. titles and how they're monetizing with consumers.

We think that, that specifically gives us other levers to think about packaging and how do we deliver that. We've also seen that sort of some of these bundles and models, if you construct them correctly, have all sorts of benefits, retention benefits, engagement benefits as well, but there's also a lot of value in the flip side of this. So you can think about the many, many Netflix members around the world who are not currently HBO Max subscribers and are not getting any value from that HBO Max titles, Warner Bros. titles.

And there's a real opportunity we think of actually figuring out how do we bring more of those titles in the right way through some combination of plans and tiering, et cetera, to unlock the value in those assets.

We'll move next to Michael Morris with Guggenheim.

I wanted to ask a couple of questions about the process. There has been some press that this combination could face a pretty challenging regulatory review process. And so my question there is, what gives you the confidence that you will be able to pass through that process. That's my first. And my second is, there's also a coverage that it's been a pretty competitive bidding process with respect to some other bidders. Do you expect there to be a continuation where another bid could come in? And you have to raise the offer? Or should we assume that this is sort of the final structure of what this will look like.

Well, first, we'd say we're highly confident in the regulatory process. This deal is pro-consumer, pro innovation, pro worker, it's pro creator, it's pro-growth. And our plans here are to work really closely with all the appropriate governments and regulators, but really confident that we're going to get all the necessary approvals that we need. These 2 businesses are complementary, as Greg said earlier, and they're also loved businesses, which is really fantastic. Having been deep into this process, if we sound a little tired, it's because we are, we have found this to be an incredibly rigorous and competitive process. And in terms of anyone else coming from now, we've signed our deal and we are running full speed towards regulatory approval.

Yes, we're focused on giving this deal done. We're not going to speculate on what comes after that. And this is a -- we're full-steam ahead. Yes.

We don't do many of these, but we are deep in this one. I could tell you that it was competitive and rigorous and we're glad we're going to be done with it this morning.

And we'll hear next from Laurent Yoon with Bernstein.

Obviously, Warner Bros. is an amazing asset, but you're also an amazing company with unparalleled growth momentum driven by your own content, both in TV and films, but engagement has become a question over the past year, perhaps increasingly so. So what does this deal all long form, especially at this level of valuation signal to the market about your view on the challenges you're facing and increasing engagement. And in other words, will having more of general entertainment category content truly increase engagement materially, not just in the short term, but also in a sustainable way.

Maybe just -- go ahead, Greg.

Okay. Sorry. I'll kick it off and then pass it back to you, Ted. So I just want to start with the perspective of we aren't doing this deal because we believe we can't grow engagement organically. We believe we can and we believe we have been growing. We've accelerated our growth and engagement this last quarter from the first half of the year. So we're excited about that. We're optimistic about our slate and where that's going to go as well. And also, let's be clear, too, that we drive the business primarily to revenue and profit, right?

Those are the metrics that we ultimately focus on at the end of the day. Engagement is a good leading indicator into that obviously. So that's -- we support looking at that as well. But we're also excited about the fact that we're delivering double-digit revenue growth, and we're excited about continuing that path going forward.

Now we believe that as we discussed previously in this call, that by adding the amazing titles that Warner Bros has, we believe we can actually unlock more engagement growth as well through that process. And that's engagement growth beyond just the sort of the linear addition that the engagement that the current Warner Bros. properties are winning HBO and HBO Max. So that's where we see the value in the deal, and that's why we believe we do have because we think that this accelerates our progress as a business in that way. And Ted, do you want to add more there?

No, you said it all, I just -- again, we had record engagement previous quarter. We're happy with our outlook for the ongoing organic growth and engagement, like you said double-digit revenue growth and strong key cash flow. Our core fundamentals are strong. This gives us a very unique opportunity to accelerate an already very successful model.

Yes. I mean we just had a release on Stranger Things, I think, a few days ago, I mean, you kind of see like how that launched. So our business continues as we say, we feel great about the business. It's got a very healthy growth profile, including that engagement revenue profit flywheel, but this is just a way to kind of, as Greg said, accelerate that long-term opportunity, but it's not the kind of thing that we ever said we had to have a must-have.

It's a great marriage of 2 businesses that is better together, but not -- but something that was opportunistic for both of our companies, which is great.

And maybe if I could just build on that, Laurent. I think maybe the subtext of your question is how does our content and programming serve younger audiences, right? And I would say we see -- as Ted just mentioned title of Stranger Things. There's a lot of engagement from the younger demographics. We see that with outer banks as well, and K-pop even [indiscernible] is probably you need a more amazing example of that as well. So I'd say, for us, what we found is when you have great quality series and films, you see engagement across the board they're younger folks or older folks. So I just wanted to add that, too.

Yes.

Operator, we have time for one more question, please.

That question will come from John Blackledge with TD Cowen.

Great. Maybe, Ted, if you could just add on U.S. production of film and episodic shows, what that kind of looks like post the deal? And how does the creative community around the world benefit from the deal?

Well, look, going into this, Netflix is growing. We've been growing our production in the U.S. as well. We're in the midst of a large investment in a new studio that we're building at Fort Monmouth in New Jersey. We've built out a fantastic studio in New Mexico and we produce -- we're one d of the -- we are the largest producer of original content in California. So we're continuing to produce original content at a great pace.

And this gives us the ability to then invest in production through the HBO brand and production through the Warner Bros. brand, the Warner Bros. television studio. We'll be able to continue to invest in the growth there as well. So I think this is a good story because this is a healthy, growing business that is going to help another business grow in a more healthy way and open up to more -- open up audience reach that these creators have never had before. And I think the opportunities are great for American production and for the entertainment industry as a whole to be much more active than it has been over the last several years.

I want [indiscernible] compete on that. The key on that is that this is a growing, profitable, successful business model that we're going to continue to build. And that's great for the entertainment industry. It's great for production. And so that's what we're going to keep feeding. The combination of these businesses is going to be more and more successful over time and kind of grow that production infrastructure and investment for decades to come.

That's sort of thing I'd say I'm most proud of that we've been able to do, which is we've created a business model that ensures the ongoing production and creation of movies and television. So I think by putting more things in -- through that model, the more success we can all see.

Thank you all for your questions and for joining us today, particularly on short notice. We're super excited about this next chapter for Netflix and Warner Bros together, and we look forward to sharing more with you all in the coming months. Thanks, and have a great day.

Thanks, everybody.

And this concludes today's conference call. Thank for you attending. Thank you, everyone else has left the call.

Good afternoon, and welcome to the Netflix Q3 2025 Earnings Interview. I'm Spencer Wang, VP of Finance, IR and Corporate Development.

Joining me today are Co-CEOs, Ted Sarandos; and Greg Peters; and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We'll now take questions submitted by the analyst community, and we will start with our results and outlook.

Our first question comes from Ben Swinburne of Morgan Stanley who ask, as you begin to wrap up 2025 and look to 2026, can you talk broadly about the health of the business and how you would frame the opportunity ahead?

Yes. We think the business is very healthy. We feel good about our progress on our key initiatives. We've got also a lot of opportunity ahead of us, but we've got a lot of work we need to accomplish and fully realize those opportunities. So what's working, we had a good Q3. We had revenue in line with expectations. Our operating income would have exceeded our forecast absent the Brazilian tax matter.

We're also seeing good progress against our key priorities. So engagement remains healthy. We achieved record share of TV time in Q3 in both the U.S. and the U.K. We recorded our best ad sales quarter ever. We are now on track to more than double ad revenue this year. We're continuing to build out both live offerings and games is the emerging capabilities in the live side, we saw Canelo-Crawford. That was the most viewed men's championship fight this century. We recently announced the ability to play Netflix Games on TV with friends and family playing together at home using just that TV and the phone is the game controller.

So this progress in these areas is indicative of how we think we can best compete and grow the business over the long term. We focus on a few key areas that we think matter the most, and then we work hard to deliver continuous improvement in those areas. It sounds super simple, but building a real at-scale global streaming business is hard because you got to combine great tech product and great content from all around the world, and we believe we can continue to improve in both of those areas. But Ted, maybe you want to comment on that...

Yes, I would just say, looking ahead, we continue to have a massive opportunity since we're only about 7% of the addressable market, in terms of consumer spending and only about 10% of time spent on TV in our biggest market. So enormous room for profitable growth in the core business.

And this is a very exciting time in terms of a lot of innovation, a lot of competition, but that's been true for the last 25 years. And one thing as a company, we've always embraced change. We thrive on competition. It pushes us to improve the service even faster for our members. Back at the beginning in the early DVD days even and now in streaming and global streaming of original content, we could be with the biggest players in the world, tech and media. And as you see, we keep growing engagement, revenue and profit.

So today, we're an entertainment company. We program for an audience that's approaching 1 billion people around the world. We're producing series and films for local audiences in multiple markets. Many of those films and series resonate around the world. And a really great example of that, I think, is this summer's KPop Demon Hunters. Obviously, a smash hit, but it's also emblematic of exactly what we're trying to do every day.

In fact, feature animation is an example of that continuously improving the core. We've been grinding away at original feature animation for a few years now. And KPop Demon Hunters is our most popular film ever. And again, it proves our ability to create breakthrough hits and move the culture.

Today, we announced Mattel and Hasbro have been named the global co-master toy licensees for KPop Demon Hunters. This is a rare, maybe unprecedented partnership for them, and we're going to need them both to help meet the massive demand for fans to get closer to their characters off-screen every day.

We're here to entertain the world and we're delivering tremendous value to our members every day. When you have to hit the size of Kpop Demon Hunters, it stirs imagination of how big we could take this. And as long as we keep improving on the core business every day. So we feel great about the business. And as Greg said, we are as energized as ever.

Thank you, Ted and Greg. Our next question comes from Steve Cahall of Wells Fargo. Can you please provide more color on the nature of the tax expense and why you fell above the operating line?

Sure, Spencer. I'll take that one. Greg and Ted are on a roll, but I think I will take the short straw for this one. And I'll spend a minute on it because this Brazilian tax matter, it's a bit complicated, and I want to be sure we're being really clear about what it is and what it isn't.

It's not an income tax. It's a cost of doing business in Brazil. It's a gross tax on outbound payments and it's called the Contribution for Intervention and Economic Domain. So it's a bit of a mouthful. It involves a 10% tax on certain payments made by Brazilian entities to companies outside of Brazil. It's not a tax that's specific to Netflix. It's not even specific to streaming. So we assume other companies will be impacted by this.

In our case, Netflix Brazil pays Netflix U.S. for services that enable Netflix Brazil to offer subscriptions to our Brazilian customers. And we actually received the favorable ruling from a lower court back in 2022 that concluded we were not subject to this tax, which is why we believe we couldn't accrue this previously.

The legal issue in question relates to the scope of the transactions covered by the tax and in particular, whether the tax applies to service payments that don't involve a transfer of technology. We flagged this as a potential exposure in our prior 10-Ks and 10-Qs dating back to our 2023 10-K.

And then in August of this year, the Brazil Supreme Court reached a 7-4 decision against an unrelated company ruling that the tax applies to a wider range of transactions than we thought was legally permissible. In particular that it applies even to service payments that don't involve a transfer of technology.

So given that court's ruling that's caused us to reevaluate the likelihood of prevailing and we now deem the loss to be probable. And that's why we recorded the expense in Q3. And again, it's not an income tax, and that's why we recorded the expense as a component of our cost of revenues.

And as we said in the letter, the expense we booked in this quarter, it covers the periods from 2022 through Q3 of 2025, of the amount we booked in cost of revenues this quarter just about 20% of it is for the year 2025 with the remainder related to those 2022 to 2024 period.

So look, I know that was a lot of -- there's just 2 really important takeaways that I want to leave you with. The first is that the Contribution for Intervention and Economic Domain, it's a unique tax. It is a mouthful. No other tax looks or behaves like this in any other major country in which we operate. And secondly, absent this expense, we would have exceeded our Q3 '25 operating income and operating margin forecast, and we don't expect this matter to have a material impact on our results going forward.

Great. Thanks, Spence. I'll move on to the next question, which comes from Tom Champion of Piper Sandler. Do you have any early views on revenue and operating income growth for 2026?

I'll take this one as well -- yes. Okay. So look, we'll issue a full year 2026 guidance on our next call in January. But our financial objectives are unchanged. We look to sustain healthy revenue growth to expand margins and increase free cash flow. Now we did last year on our Q3 call, we did issue a full year guidance, but that was in advance of sunsetting membership reporting. So it was a pretty unique timing given that upcoming change in reporting for '26. Again, we'll issue the full year '26 guide as we more typically would on our next call in January.

Thanks, Spence. I'll move us along to a few questions we've received on the topic of advertising. The first one comes from Jason Helfstein of Oppenheimer. Given your comment of doubling upfront commitments in the earnings letter, should we interpret this to mean that full year 2026 advertising could also double?

Well, I'll start by just saying it's exciting to see our progress in 2025, more than doubling our ads revenue there. While, of course, it's still off a small base relative to the size of our subscription revenue. But we feel like we've established the fundamentals of the business now. We've proven we know how to scale. We see plenty of room for growth ahead. And what's making up that growth right now, as you mentioned, we more than doubled our U.S. upfront commitments. That lands partly in '25 and partly in '26, which I think you're alluding to here.

Perhaps even more importantly, though, we're seeing even higher rates of growth in programmatic. And that's more important because we believe that's going to be an increasing part of that incremental revenue contribution going forward.

What are driving those results? Advertisers are excited about our growing scale. We've got a highly attentive and engaged audience. The rollout of our ad tech stack means we've got more formats. We've got more measurement. We've got more ways to buy. And of course, our slate is a critical and important source of competitive differentiation. So while I'll refrain from offering any '26 guidance, I would say we are feeling good about our growth trajectory.

A follow-up on that one from Vikram Kesavabhotla of Baird. Your offering to advertisers has evolved significantly in 2025, including the launch of the ad suite and the integrations with the additional demand sources. As we look into next year, what are some of the key priorities for the advertising business?

Yes. Consistent with the last comment and answer, we made considerable progress in building out our general capabilities in the ad space. So if you use our beloved crawl-walk-run model, we're now squarely in that walking phase. The rollout of the ads suite, our own ad suite has been great because it means we're just continuing to learn and improve the stack based on client feedback. So we've got really fast iteration loop going there that we're excited about.

Key priorities and focus for us is making it easier for advertisers to buy on our service. We want to increase the diversity of advertisers we have. That's a key direction of growth for us that enables that revenue growth. We're adding more demand sources like Amazon DSP, AJA in Japan. We're improving our own ad sales and go-to-market capabilities. We're also iterating on ad formats. Later this quarter, we'll be introducing ad interactivity.

And taking that into 2026, you're going to see us continue to develop along some of those lines. So more ways to buy, more data for targeting and media planning capabilities globally more modular in interactive ad formats with enhanced AI capabilities and more measurement functionality in all of our markets.

And then in 2027, we get to pivot to make more focused investments in data capabilities such as ML-based optimization, advanced measurement, advanced targeting. So I would say we're getting our legs underneath us. We're making a good pace, but we've got a lot ahead of us to go do. And quite frankly, we expect we're going to be able to move more quickly than other streamers as we leverage pre-existing tech and data science assets and expertise.

And to round out our last question on advertising. This one comes from Dan Salmon of New Street Research. Our fill rates improving in line with your expectations as the Netflix Ads Suite and new demand partnerships scale up.

Now we focus on overall revenue is the most important metric we're seeking to optimize. But having said that, fill rates have improved, and we believe they're going to continue to improve as we continue to develop our go-to-market capabilities, more measurement, more targeting.

Thanks, Greg. I'll now move us along to the topic of content and engagement. A lot of questions there. We'll begin first with Steve Cahall of Wells Fargo. Are you seeing a pickup in engagement like you've expected?

Yes. Total view hours grew a bit faster in Q3 '25 than in the first half of '25. In fact, in Q3, we achieved our highest quarterly view share ever in the United States at 8.6%. And then the U.K. at 9.4% according to Nielsen and Barb, respectively. These are just 2 countries that we've got really good measurement on that share.

We also believe we're going to continue to see steady growth in view hours over time. We grow engagement by expanding our programming in the range of our offering. These are critical and very proven dimension of growth for us.

But we're also seeing that certain engagement delivers outsized and different value. And we saw pretty good examples of this in Q3. You got the Canelo-Crawford fight, most viewed men's championship boxing match this century. We got KPop Demon Hunters, our biggest film ever, huge impact on the cultural zeitgeist. Both are great examples, and they're also from really different parts of our programming spectrum of this punctuated value.

Now we believe we've got a better understanding of the streaming business than any of our competitors, but we're also continuing to learn. And we're in the process of really building a better understanding of how these particular moments deliver differential value to our members and the business.

Yes. I mean, just to add here, Steve. We're going to continue to benefit long term from the trend, just so folks moving from linear viewing to streaming that has a kind of a natural adoption curve. But I also look forward and we have an incredible slate in Q4, and we're really excited to follow that up in 2026.

But it's not about any one single title in Q4 or next year. As you know, even our largest titles and the biggest success generally drives less than 1% of our total viewing. So it's really about having a steady drumbeat of shows and films that our members love. That's what drives continued steady growth and engagement over time.

And we gave a lot of detail about our Q4 coming up in the letter, including an incredible slate of film and the wild ride finale of Stranger Things.

But I want to give you a little bit of color on '26. Maybe this is a longer answer than you were bargaining for, Steve. But we're really particularly excited about a few things coming up next year, like the return of some of our biggest and most loved shows, like Bridgerton, Beef, Emily in Paris, One Piece, Outer Banks, Virgin River, The Gentleman, Avatar: The Last Airbender, Running Point, Ginny and Georgia, Lupin, all coming back for new seasons in '26.

We've got amazing slate of films with a big event film from Greta Gerwig with Narnia. Here Comes the Flood starring Denzel Washington. Ben Affleck is directing this great movie for us called the Animals. Apex from Charlize Theron, an incredible action movie. Matt Damon and Ben Affleck are on screen together and starting in The Rip. A couple of great rom-coms, Office Romance with Jennifer Lopez, People We Meet on Vacation. Our French team has got an incredible epic film, Quasimodo, coming up and Peaky Blinders fans are going to freak out for the Peaky Blinders movie, The Immortal Man with Cillian Murphy.

So really great and lots and lots of brand-new series of work going on this year coming out in '26. Golf with Will Ferrell, Little House on the Prairie, Man on Fire. We have new series from the Duffer Brothers, amazing slate of K-dramas. That's just to name a few. But in other words, we've got a pretty great '26 coming up after this pretty phenomenal Q4.

Thanks, Ted. Dan Kurnos from Benchmark Company has a question about our Spotify partnership. How should we think about the recent deal with Spotify how aggressively will you build out this podcast category?

So this deal is a video co-exclusive partnership with Spotify and secures a curated selection of their top podcast to help us provide even more entertainment options for our members when they're looking for a pop culture or lifestyle or sports or true crime, and we get to deliver to them wherever and however they want to watch. And we're going to build into this category like we do with our other categories based on demand signals that we get from our members. And we see this as really the opportunity to integrate high-quality video broadcast that broadens the Netflix offering beyond all the incredible films and series that Ted just mentioned beyond the live events that we are building, stand-up specials and games. And we hope that, that ultimately reinforces our value as the most important service for our entertainment needs.

Our next question comes from Robert Fishman of MoffettNathanson. Following the strong theatrical performance of KPop Demon Hunters, can you share your updated perspective on monetizing some of your content in the theatrical window on an exclusive or nonexclusive basis?

Well, first of all, thanks, Robert. There's no change in the strategy. Our strategy is to give our members exclusive first-run movies on Netflix. We occasionally release certain films in theaters for our fans like we did with KPop Demon Hunters, or as part of our launch strategy, publicity, marketing, qualification, all those things, and we'll continue to do that.

We believe that this film, KPop Demon Hunters actually worked because it was released on Netflix first. Look, we had a film that people fell in love with, that's first and foremost. But not in a huge way on the first day or even the first weekend. In fact, it was the super fans who watched the movie and repeat watched the movie that drove the recommendation engine that got it in front of more super fans who also fell in love with the movie.

So that ease and value that allowed folks to repeat view it. The ubiquity of distribution, which took all the guess work out of how to watch it when you did finally see it show up in your social media feed, all of this contributed to KPop Demon Hunters blowing up all over the world. And I would argue in a way that it couldn't happen anywhere else. If anything, this actually reinforces our strategy because being a Netflix gave the film a chance to build momentum. And it allowed fans to learn the songs and to watch it over and over again and to make their own post and their own dances around KPop Demon Hunters.

Now for some films, seeing it together and seeing out loud, super fun and it's a differentiated experience and we were able to do that with the KPop Demon Hunters sing-alongs. 8 weeks after the film premiered on Netflix, and we did have a good weekend. But we created a great night out, and we're going to do it again on Halloween weekend. And this time, every major theater chain is on for the ride. We're also adding a few international markets. So it's been really fun to see this film and to see our ability to bring through pop culture on par with some of the biggest theatrical films ever. And it's even better that it's with an original animated feature because it's so hard to do.

Great. We now have a question on our live events from Vikram Kesavabhotla, Baird. What were your observations from the Canelo versus Crawford fight in September? Are these types of live events impacting engagement, acquisition and retention on the platform?

Yes. Well, like Greg said earlier, that the Canelo-Crawford fight was the most viewed men's championship fight of the century, had over 41 million live+1 viewers. It was in the top 10 in 91 countries. And it was a great fight. So we believe these big events that attract mass audiences are kind of differentially valuable for our members. It's a kind of urgent viewing that our members love and value. So these events typically have outsized positives for conversation for acquisition, and we strongly suspect retention.

However, we've said earlier, live is only a small portion of our content spend, and it's a very small portion of our 200 billion hours viewed. So it's a relatively small still, but hugely outsized impact. And we like we see with other titles, this has had that kind of positive impact on acquisition. It's a little too early to say for sure and retention. But so far, it looks a lot like the Jake Paul-Mike Tyson performance, and we remain incredibly excited about the opportunity in life. So upcoming, we've got Jake Paul versus Tank Davis from Miami, November 14. And we really are trying to grow our capabilities outside of the U.S. as well, which you'll see next year with the World Baseball Classic from Japan.

Ted, and that's a good segue to our next question, which is the quarterly question about sports for us. This is from Robert Fishman of MoffettNathanson. Since last earnings, we've seen several sports rights deals, including Apple F1, Paramount UFC, et cetera, et cetera. While we still await an official MLB update, can you help us think about the importance of global sports rights versus local rights to Netflix? And do the sports rights you look to acquire need to materially accelerate your advertising growth?

So as for local versus global, it's just a scale question, local costs versus the size of the local audience. And no real change in the approach, we're focused on big live events, which sports are a subcomponent of the live strategy. We said before, we're not currently focused on the big season packages.

In terms of global versus local, also, we think about it just like series, it varies. Some like the Canelo-Crawford had big global appeal. We think World Baseball Classic in Japan was actually built and designed and budgeted for a specific geography.

On the -- as far as advertising is concerned, the #1 important thing we have to do is thrill our audiences. We -- the revenue from advertising or subscription is a reward for thrilling the audience. So we have to stay disciplined on that approach. But for upcoming live events, and we're excited about it, I mentioned Jake Paul versus Tank. That's November 14. We have our double-header NFL Christmas Day games with Dallas versus Washington, Detroit versus Minnesota. Skyscraper Live is going to be wild. The SAG awards, we got WWE every week. I mentioned the World Baseball Classic in Japan in 2026. And in 2027 and '31, we've got FIFA's World -- Women's World Cup as well. So we're pretty excited about the slate and there's going to be a lot more that will come in between.

We'll take our next question from Rich Greenfield of LightShed Partners. Are you testing premium tier free trials. We recently -- we meaning, Rich, recently opened Netflix and were prompted with a 4K upgrade screen. Is this a typical promotion? Or are you selectively testing free trials?

Yes. We test and productize a variety of offers that we think help members understand and sometimes try a feature of benefit that we think they might enjoy. So if you got a 4K TV, as Rich does, you might get a notice from us and say, do you want to try watching, let's say, Skyscraper Live that Ted mentioned somebody free climbing Taipei 101 in 4K and decide if that's a good option for you.

But ultimately, we want a range of plans, we want a range of features, different price points. And then we want to help members choose the right plan for themselves. We think that yields a better member satisfaction, that yields better engagement and retention and a better long-term business.

We've gotten a series of questions on M&A on that topic today. Not surprising given the announcement from our friends at Warner Bros. Discovery. So we'll take this next question from Jessica Reif Ehrlich of Bank of America. Do you see potential industry consolidation reshaping the competitive landscape? Do you see that as an opportunity or a threat? What implications might that have for Netflix's content strategy and differentiation?

Thanks, Jessica. We'll take it in 2 parts. First, the opportunity. It's true that historically, we have been more builders than buyers. And we think we have plenty of runway for growth without fundamentally changing that playbook. Nothing is a must-have for us to meet the goals that we have for the business.

But as we wrote in the letter, we focus on profitable growth and reinvesting in our business, both organically and through selective M&A. And when it comes to M&A opportunities, we look at them and we look at all of them, and we apply the same framework and lens that we look at when we look to invest in a build.

Is it a big opportunity? First question. Second, if it's IP, does it strengthen our entertainment offering? Is there additional value in ownership? Does it strengthen our existing capabilities somehow? Does it accelerate our existing strategy? And by the way, and you look at all these things relative to the price relative to the opportunity cost and relative to other alternatives.

We've been very clear in the past that we have no interest in owning legacy media networks, so there's no change there. But in general, we believe that we can be and we will be choosy. We have a great business. We're predominantly focused on growing organically, investing aggressively and responsibly into the growth and returning excess cash flow to shareholders through our share repurchase. Greg, do you want to add there on?

Yes. Maybe I'll try and speak to the second part of this, the third part of the question. We've always faced significant competition. We still face it today. This is an incredibly competitive entertainment environment. We've also seen a lot of industry consolidation over the years. Think about Disney Fox and Amazon picking up MGM, of course, Time Warner and AT&T and then Discovery and Warner. But none of those mergers were a fundamental shift in the competitive landscape. And we have seen also a wide range of outcomes from such mergers.

So watching some of our competitors potentially to bigger via M&A does not change in and of itself, at least our view on the competitive landscape. And we don't think it changes the substance of the challenge that our competitors face. Specifically, the range of activities that we and our competitors have to get great at has never been assembled in a single company before.

Think about producing film and TV shows across multiple genres in multiple languages and dozens of countries around the world. I'm trying to figure out how to incorporate the latest technology, including AI and Gen AI. We're trying to figure out how we build better product experiences that can serve consumers better around the world. How about customer acquisition and retention? How do we optimize global payments? How do we optimize global partnerships? There is so much and we want to get better at all of those things. Our competitors are seeking to get better, all those things, of course, as well.

But you have to do that by the hard work of developing those capabilities in the trenches day to day. You don't get there simply by buying another company that is also still developing those same capabilities. So maybe I'll just end by reiterating what Ted said, which is it's our responsibility to look at every significant opportunity, we do that. We've got a clear framework to evaluate those opportunities, and we'll do whatever we think is best to grow the business.

Great. Thank you. David Joyce from Seaport Research Partners has a slightly different angle on the M&A question. Should potential industry consolidation with embedded studio and streaming assets could that lead to less third-party content accessibility for Netflix?

Thanks, David. Look, original titles are the big business driver for us. That's why we got into this more than 10 years ago. And that's why we continue to grow and expand the original content investment across new genres, new content forms in multiple geographies. So we're happy to license titles from industry suppliers to complement our offering. But it's worth noting that we've always seen these kind of ebbs and flows from third-party content in terms of access to it. Our competitors are also our suppliers. So they changed their mind sometimes about selling to competitors. So we've been dealing with that since the beginning of streaming.

But as we sit here today, we're not dependent on any single supplier. No single supplier represents more than a small minority of our total view hours. And more importantly, I think, is that we've proven time and time again, that licensing to Netflix is the best way to build audience, build revenue and create value for your IP whether it's Suits or Peaky Blinders or Breaking Bad, we played a very positive role in the life cycle of other folks IP, and we suspect that dynamic will continue.

Great. We now have a question from Justin Patterson of KeyBanc. Netflix recently launched party games that are playable on the TV. How do you think gaming could change the time members spend with Netflix each day?

Well, games are clearly a form of entertainment that consumers care about in terms of the time they spend, which you noted as well as the money they spend, it's approximately $140 billion opportunity in consumer spend, ex China, ex Russia. That doesn't even include the ad revenue, which, of course, is linked to the time and engagement.

We've mostly talked so far about our work in this space as games because that's an easy shorthand, but we see this initiative as more about interactivity broadly. And how does interactivity become complementary to linear storytelling, how is it able to unlock whole new entertainment experiences. For example, real-time voting will be our first live interactive feature. We're currently testing it on Dinner Time Live with David Chang. It's going to roll out more broadly starting with Star Search in January. And we expect to provide other interactive features to deepen engagement with live events as we go in the future.

And then when it comes to actual games, we've been building a ton of foundations for the last few years, things like the ability just to develop games, to get those games on to service, connect games with players, give them a high-quality experience. And going forward, we're building on top of that foundation, but focusing on offering more high-quality games and few key genres and targeting the right cohort of users. So this is a less -- is more strategy on a few identified verticals.

Those verticals include immersive narrative games based on our own IP. You can think about Squid Game: Unleashed, Thronglets from the Black Mirror Universe or Golf with Happy Gilmore. Got games for kids, this is Peppa Pig, no ads, no in-app payments, safe within your subscription. Mainstream established titles, think about what we did with Grand Theft Auto. As well as socially engaging party games, which you noted, we're rolling out this holiday season, a slate of party games on TV, it's great for the whole family when you're in front of the TV, all you need is a TV and your phone as a controller. Like Boggle Party, Pictionary Game Night, LEGO Party, Tetris. We've got Party Crashers, which is a social deception game.

And the part that I like most about this is these games are super easy to access. It's just like our series and films, you scroll the Games tab, you pick whatever you want, click it and you're in. You don't need a special controller. That's key to this access.

In the years ahead, actually speaking of controllers, we expect creators will really find interesting and novel ways to unlock all of the power that is in this incredibly advanced control that we all happen to have in our pockets, which, of course, is our phones.

So we're just starting to scratch the surface today. We think there's much more we can ultimately do in this space. Yet we already see how this approach not only extends the audience's engagement with the story but it creates a synergy that reinforces both mediums, the interactive and the noninteractive side. It drives engagement, drives retention, and therefore, supports the business. So looking ahead, we're going to ramp our investment in this area judiciously based on demonstrating that we're ramping returns to the business, but we're extremely excited about the progress we've got ahead of us.

I would say, do not play Boggle with Greg. He's very, very good.

He's our head of the games unit, but he's good.

He has a leg up on us. He's very good.

He does. I think he gets to play quite often.

All right. We have another question from Steve Cahall of Wells Fargo. Last quarter, you talked about Netflix being a great place for some creators on YouTube. Since then, you've announced 1 new creator deal with Mark Rober. Should we expect more on this front and what kinds of content are you looking for?

Yes. Thanks, Steve. I said before, but we want to be in business with the best creators on the planet, wherever they are. And some of them are in Hollywood, some of them are in Korea, some of them are in Paris, and some of them are sitting on social media platforms that have yet to be discovered.

So not everything on YouTube are fit for us, but there are some creators like Mark Rober, like Ms. Rachel that are a great fit for us.

And remember, working with content creators from other platforms isn't a recent thing for us. And the folks remember over the years, we made Hype House. We partnered with Miranda Sings. She had a standup comedy special and a series called, Haters Back Off. King Bach, who's a big star in social made, you could see them in a lot of our films, Babysitter: Killer Queen, when we first met, just to name a few. But now we -- and we also have created a curated-like section of video podcast as well. So some of the stuff is just a very natural expansion and there's plenty of room for the world's best creators wherever they are.

Great. We'll now wrap up with our last topic, which is Gen AI and -- 2 sort of questions or maybe a 2-part question. The first part comes from Doug Anmuth of JPMorgan, who's asking how has your thinking evolved over the past couple of years about Netflix's ability to leverage AI and related, John Hodulik at UBS asks, what are your thoughts on the impact from Sora 2 and other new AI content creation apps in terms of increased competition from short-form video, do you think it creates new competition from an engagement standpoint?

Perhaps, I'll kick it off on the first part of that question. And our thinking about AI hasn't really changed over 1.5 decades more. We've had a long history of developing ML and AI solutions. We've got deep DNA, technology DNA, got significant data assets. We've got scaled consumer products, scaled business processes. All of that, we think, enables us to have the opportunity to leverage new technical capabilities as they come online. And that's our job. We're engaging proactively to do so.

As we said in the letter, specifically with Gen AI, we see huge number of places in the business where we can bring these technologies in. They provide more capable tools, they improve productivity, they improve velocity of innovation. They deliver better results from members, for creators, for partners. The vast majority of those cases involve us going to market for solutions and just integrating them into our existing tools and products.

But there are a few spaces where we think that making targeted investments is important. We think we can develop often using building blocks from others. So think about this as foundational models that we get open source or commercially to make cutting-edge tools and cutting-edge experiences. And those targeted areas of investment are better product experiences, content production and advertising. And maybe, Ted, you want to pick it up on the content creation apps as part of the question.

Yes. Look, what we've seen so far from these content creation apps is that it's likely to have a lot more impact on UGC creators the most in the near term. In other words, AI content replacing viewing of existing user-generated content, that starts to make sense. Before we do, it takes a great artist to make something great. Writing and making shows and films well is a rare commodity, and it's only done successfully by very few people. So AI can give creatives better tools to enhance their overall TV movie experience for our members. But it doesn't automatically make you a great storyteller if you're not. So if music is a leading indicator of all this, AI-generated music has been around for a long time, and there's a lot of it.

And it's a pretty small part of total listening and established artists like Taylor Swift continue to be more popular than ever. So even in a world filled with AI music, AI seems to be mostly a tool for musicians to take -- to make -- to take their sound in new directions. And so we're confident that AI is going to help us and help our creative partners tell stories better, faster in new ways, we're all in on that. But we're not chasing novelty for novelty sake here, and we're investing in what we believe delivers value for creators and members alike. So we're not worried about AI replacing creativity, but we're very excited about AI creating tools to help creativity.

Great. Thank you all for your questions. So we're now out of time. So we thank you for joining us for our Q3 call, and we look forward to speaking with you all next quarter. Thank you.

I think we're all going to try to get settled here. I know we're making the transition around lunchtime. It's my pleasure to host Greg Peters, Co-CEO of Netflix. As a reminder, Netflix may be making forward-looking statements, and actual results may vary.

Greg Peters was named Co-CEO of Netflix in January 2023. Previously, he served as Chief Operating Officer and Chief Product Officer. And before that, Greg was International Development Officer for Netflix. Greg, this is your second time in the conference. Thank you for coming back.

My pleasure. Great to be here.

Greg, great to talk to you. I do want to start with your title. It's been 2.5 years, Co-CEO, you and Ted. Talk about how that relationship has continued to evolve and how you guys think about the priorities that each of you have in running the business on a day-to-day basis.

Sure. Well, it's probably worth noting that this position and how I got here is the result of 10-plus years of succession planning by Reed really. And so it didn't happen overnight. And it's been -- he was building it a long time coming and really, I think, a tremendous credit to his long-term strategic view and also discipline as a founder to take this step and say, I want to make sure that it's happening in a way that will set the company up for success.

So in terms of priorities, we think about it as a shared set of priorities. We don't think about it as a split set of priorities. If you think about where I think the priority of the company is where Ted would think the priority is the company.

First and foremost, priority one is we have to take what we call the core business, which is the film and series subscription business essentially and make that continually better. And really, that comes down to 3 things. It's better content, so more diversity, more quality of film and series that we're presenting, a better product experience, which we really think is a force multiplier to that content if we do a better job with the product experience. That means more -- we're delivering more value for every dollar that we're investing to members. That's a high leverage point for us as well. And then ultimately, we need to close the loop on all that, which we call the commerce component of this, which is essentially how do we effectively bring that back in terms of revenue to the business through more subscription, pricing, now an ads business as well. And so those are key components.

And maybe if I can -- if I just go on that for a second on the content side, making that better. It's been a great couple of weeks, right? We've had some record-setting moments. We had Happy Gilmore 2, which came out. That was the opening weekend record in the U.S. for Nielsen, 2.9 billion minutes viewed there. That was exciting.

And then KPop Demon Hunters, which has just become an absolute sensation, record-breaking as well. For us, it's the biggest film we've ever had, 266 million global views in the first 11 weeks, but a cultural phenomenon way beyond even us in terms of KPop merchandise or sales are up 80%. The National Museum in Korea has seen record-setting visitors. Even the noodle maker, spicy noodle maker has seen their shares go skyrocket because of this. So that's been incredible to see as well.

Well, it speaks to -- I know you guys have referenced it a lot of times over the years, the halo effect around the platform in general. It's not just about distributing content, whether you think about the lift that comes from commerce or influence, there's a second and third derivative effect around a lot of this very successful content.

Yes, we call it the Netflix Effect and when it works, it really -- it's incredible, the power to see it.

When you think about that core proposition around user engagement and tying it back to incremental investments in content, why don't you level set what you guys are seeing in the business about striking the right balance between investing in content and driving engagement and making sure you've got sort of the pockets of alignment you want for the medium to long term?

Yes. And to be clear, the direction of travel is very obvious. And every time we've run analyses or run experiments around, the answer is unequivocal, which is our members want more entertainment for us. They want an increasing variety of entertainment, more shows, more titles. So we're committed to going to do that.

When it comes to engagement, we've seen absolute engagement over the first half of the year grow, which was exciting because we knew we had a particularly back-weighted slate. So we anticipate that we'll see essentially engagement in the second half grow even more as we see a faster rate of growth.

And there's some good initial data points to that effect. In July in the United States, let's hit the Nielsen numbers, for example, we saw about a 40-basis point increase in engagement there. That got us to a new higher watermark we haven't seen before. So that's pretty exciting.

But it is not just the U.S., we see it in other territories around the world. U.K. is another good example. Barb is the ratings agency there. And we saw a 140-basis point increase on Barb as well. So same period.

Got it. Okay. So understood on the engagement side. You're about 4 months into the rollout of the user interface. So sort of building on this idea of engagement, changing the experience that your users have globally? What have been some of the key learnings as you've rolled out this new user interface? What were some of the strategic priorities that drove making the decision in the first place?

Yes. And this is that sort of second category of what -- how do we basically make our core business offering better. And so the way I think about this is if we can make the user experience 10% more effective in connecting our members with titles that they're going to love. It's essentially like we spent 10% more money on the content investment side. So it really gives us a huge leverage point there.

So we are excited to get to the point where we rolled out this new user experience to about 80% of our TV or TV connected devices. So it's gotten good reach at this point in time, which is fun to get to. And when you're putting a new user interface against a user interface that's been in the wild for 10-plus years and has had some constant evolution, it's very hard for that new experience to compete effectively. And we saw a little bit of this when we were testing it.

But actually, upon rollout, we've seen even better performance than we've seen in the testing period, which is great evidence to indicate that we've got the right structure to take us forward. And you talked about what were the goals, were the KPIs, how do we think about this? A lot of this just sits in the space where we built the UI that we had before, 10 years ago, essentially with the design was created.

And the business is just in a totally different space today than that point in time. And so we're asking that UI to do way more than we were back then. Part of this is just think about live, which is an exciting new area for us. Netflix was on demand. You showed up whenever you wanted to and you could watch whatever you want. That was great. It's still great. We love that. But now when we have Canelo Vs. Crawford, which we have in a couple of days, we have to communicate to our members, if you want to be part of this joint collective experience, which has got tremendous value to be part of that, you got to show up at 8 p.m. and watch it all together. And so we need the UI that was capable of doing that. So that's just having that flexibility to accommodate new content types has been an important initiative for us.

Maybe even more important, though, is an architecture that allows us to take advantage of new technologies and partly one of these examples of this is having a UI that dynamically responds to the job that you needed to do in the moment. And when we show -- when our members show up to Netflix, if it's Sunday afternoon, you've got the whole family around the TV, you need a certain reaction from us, a certain kind of experience from us.

If it's Thursday night, and you come home after work or after dinner and you just want to binge the latest episode of the series you're watching, that's a very different need state that you've got. And so partly, what we're trying to go do is make sure that we can, through a variety of explicit signals, you're telling us what you need at this moment. And implicit signals, how you are using the UI essentially dynamically respond to that and provide exactly the experience that you need.

So that's an exciting avenue of travel. And I would say, to getting to this point, the real important part is having 10 years' worth of iterative development opportunity and the potential for unlocking that value.

And maybe if I could just follow up there because it seems like that's such an interesting dynamic. You have such a wide array of content, you have such a wide array of users, and you're constantly sort of solving for discoverability when intent is expressed, for lack of a better term.

So how should we think about the new UI maybe longer term, marrying better discoverability and actually being an incremental driver of engagement if you can marry that even better than it is today.

Yes. And it's interesting when you say intent is expressed because part of, I think, what we can do differentially, maybe uniquely is to actually unlock intent when it's not understood by the user initially, right? And I think Squid Game is a good example that you and I were talking about it beforehand, if you had given the log line to Squid Game to all of our members around the world and said, this is the kind of show this is, how many of them said oh, yes, I definitely want to watch that. Not as many as we actually ended up watching that.

And that's where this -- I think the UI can really do some work because it can find what are areas of interest on a member-by-member basis, then present the right information, the right visual assets, the right video assets in a way that's unique and specific to that individual user to create that connection and have them watch it. So we do more discovery when there isn't an explicit intent than we do when there is.

And so we actually think of like that explicit intent as a relatively subordinate use case to solve. So back to your point, what we saw through the 10 years of the last UI and what I very much expect that we will see in the 10 years of this next UI, we can measure on a sort of content catalog normalized basis, increased engagement because of the work we do in the UI. And again, when we do that, that means that the now growing to $18 billion of content investment we have, every single one of those dollars is worth more to the users.

And I think of these sort of 3 dimensions of compounding leverage essentially, right? So if we can invest more in content, that means more value delivered to users. If we have a better product experience, that means every incremental dollar that we invest is actually worth more in addition to the existing dollars that we're investing. And if we can do it at a broader scale, that means we're actually building that over a broader base, and those things all compound together.

Okay. Super interesting. The other side of this is the company has been on a journey over the last couple of years with respect to the pricing narrative around the product, the tiering narrative around the product and the way it's brought to market.

Talk a little bit about some of the key learnings as the evolution of this has moved forward over the years of trying to align value given to the consumer with striking the right price to extract from an economic standpoint and how tiering also plays a role in sort of incenting some levels of growth as well.

Yes. Maybe start with a couple of key principles that we think about. One is you've got to earn it, right? And so the first job that we got to do is we have to deliver more value to our members. We can't ask them to pay more unless we've done a great job. And we don't -- you don't have a long-term sustainable business with increasing revenue and profit, if you don't do that work.

Consumer choice is another one. All -- not all consumers around the world are created equal. They have different needs from us. We want to create a set of offerings for them that allow us to present different features and allow consumers to opt in at different price points.

Low entry point, an accessible plan is super important to us, right? So making sure that around the world, we have -- we think it's a pretty incredible entertainment offering available to people at a pretty low price. That's important to making sure that we have the broadest scale -- consumer scale that we can have, which has other compounding effects back to the KPop Demon Hunter. If you think about a very niche, premium offering, you couldn't have the KPop effect that you have, right?

So having that low accessibility or the high accessibility lower entry price is super important to us. And I think if you look at the United States, $799, the amount of entertainment that you are getting for that price is astonishing in my mind, right? And then at the end of that whole list, we have to make sure that the pricing and the plan structure we have works for the business, too, because obviously, the goal is that we continue to grow revenue, continue to grow profit, and that allows us to invest in that cycle and keep that whole process going.

So I would say that's how we think about it. The price changes that we've done recently. You've seen us do changes across a wide range of countries across different parts of our plan have all largely gone as we've expected. So that's a pretty good sign that the model we've got is working. We don't anticipate changing that model. We'll retain some flexibility on the structure approach.

So I think we'll be keeping -- think about is there more we can put in the top end to make the top end even more attractive to the super fan. Obviously, that's -- we think that's a good direction of travel. But this core anchor of a low price, high accessibility is a pretty important component of what we're doing.

Yes. How does live play into a broader strategy around tiering and pricing? Because obviously, those are this is me editorializing, typically more expensive pieces of content relative, maybe not all pieces of sports content, but some are, and trying to align the value proposition of the cost with audience generated, how do you think about striking that balance?

Well, we try to do that with all of the content we have, right. So we try to be really disciplined at saying, what are we investing into this versus what is it returning to our members and make sure that we're not in a position where those are widely off base.

But stepping back on how we think about live, I would say the evolution of the entertainment landscape that we're in, I think, is moving into sort of multimodal bimodal kind of model, where you have a real center of value in personalized content, speaking to you specifically, it's very niche, maybe in some cases, and then the other end of the spectrum is a joint shared experience that many, many of us are having. And we seek to operate at both really, right?

And so we have a wide range of programming, some of which is very, very targeted and some of which is very broad. So if you're going to watch Stranger Things, it's going to be a phenomenon. KPop is going to be a phenomenon. We're going to have a shared experience.

Live events, we think can play really in that role, right? So if we are all watching the same boxing match, if we're watching The Roast of Tom Brady, we've got live events. We got a first live event outside the United States and Japan, which is the World Baseball Classic, which we just announced. So I'm pretty confident that, that will be a huge moment of shared experience and conversation in Japan. We think that, that offers a really interesting complement to the entertainment offering that we're delivering.

And so we want to go do that. But again, we want to do it in a disciplined way, which is why I think you've seen us be very targeted about the kinds of events that we've gone after and how we think about growing that.

Understood. You referenced earlier giving consumers a compelling price point around the advertising tier. Over the last 3 years, you've been on quite a journey with the advertising tier in terms of the learnings you've had as a company, how your strategy has evolved and what you own and operate, how you invest?

Maybe just reflect backwards first before we talk about the going forward, what have been some of the key learnings about growing and scaling an advertising business that you might have over the next 10 years plus?

Yes, I very much come from the perspective, when you start something, you don't really know what you're doing. And our job is to essentially be okay with that and then to start the learning process and see how quickly we can learn and develop a capability, a high-quality capability in that space.

And so very much that got to how we thought about starting, which is essentially like what is the fastest way to get this going and to get something out there and really start learning. And I think it was really effective what we did essentially because there's a tremendous amount of time where we were figuring out the consumer part of the offering, right?

We were tweaking the features. I don't know if you saw this, but we started with different resolution. We started a different thing. So we were tweaking the feature set. We were treating the pricing. And we sort of figured out, oh, this is what we need to do. This is the right mix right here to work for consumers, and that really allowed us to grow scale. -- and we were able to operate because of a partnership in that period of time.

And then at some point, we realize, okay, now we're ready to take the next step where we really want to own our own destiny with regard to the technology that we're using to deliver ads. And we built our own ad stack quite quickly. We've now actually launched that in all of our ads market. So that's exciting to get to that moment. And that really is the foundation from which we can then pivot to the future and think about what are we building and what do we need to build from here.

Okay. And in terms of the financial implications of advertising, I think one of the most often asked investor questions is sort of at some point in the future, getting to where there's no dilution from the ad tier relative to the subscription supported tier. How do you think about that journey and where we are on that journey in terms of -- as a broader goal for the business?

From my perspective, our goal should be ultimately thinking about the total revenue optimization across the business. And there's a variety of pushes and pulls in there. I mean like clearly having a lower consumer-facing price as part of the subscription gives you a huge price elasticity benefit and allows you to build a bigger audience as well.

So right now, to your point, our arm -- composite arm, which is subscription plus the advertising revenue on a per member basis on the ad side is less than our median non-ads arm. So there's a gap there. But I really see that as an opportunity. That's actually a source of potential growth, right? Because we're in a position where we know there's a ton that we can go do to improve the ads business, improve ads performance. We just launched on our own tech stack. We know that there's format innovations.

We're providing interactive formats later this year. There's a ton of other new formats that we plan on going out with -- we know that there's data targeting personalization benefits that we can drive. We know that those will drive incremental adds performance as well. we're just actually getting to the point where we're actually getting to reasonable advertiser diversity. There's a ton of room that we can grow on that side.

Part of that is building out our own go-to-market capacity, and we're hiring very rapidly in that space. Part of that is adding demand sources, external demand sources that allow more advertisers to buy with us more easily. So there's a ton that we can do in that space. And that's not even getting into like the much more sophisticated things that we can do with ML and AI in terms of targeting, improved targeting there as well as actually using AI and a creative capacity as well.

So I look at this as like it's almost great to have a little bit of a gap there because I feel like we can build into that for many years to come.

Understood. You referenced a little bit AI in the ads offering. But just broadly, I think there's a debate across the media and entertainment industry about the role AI might play in content creation going forward. There's a pretty heavy debate at this conference even though we're only about halfway through the first day about the role AI will play internally in organizations around productivity.

How do you guys think about deploying AI as a company when you think about some of the external opportunities and the internal opportunities?

Maybe start with -- we've had deployed for nearly 2 decades. I don't know if anybody remembers the Netflix prize, but this was a moment we went out to the academic and broader community and said, hey, can you beat our own recommendation systems with better ML approaches?

So I would say we're -- we think we're positioned because of that lineage, our tech DNA, huge data sources, well-structured data sources. Having a consumer product that's at scale, having business processes at scale, we think we should be in a position to be an incredibly proactive, effective adopter of these new technologies. So we're doing that.

We want to do it also in a responsible way. Now I would say, I think back to like a handful of years ago, everyone told me, you need an NFT strategy, right? And I'm very glad that I did not go pursue an NFC strategy.

So we want to be very thoughtful about where we apply this, where does the technology relevant levered. Generative is a totally different thing and NFT generative is -- it's the real deal. It will make a bunch of differences. But we want to make sure that we're doing it in a way which is not performative or reactive, but actually seeing a real business value.

Now we went to the company and said, let's take -- do some more care and figure out where can we leverage this, we came up with hundreds of use cases, hundreds of use cases. The vast majority of them fit in the category. I think you were getting to sort of productivity where we're going to go to the market to solve this, right?

So finance and legal and customer support, there's so many different places we can literally go to a provider and say, you've got a solution, let's integrate that solution into what we're doing. There's a handful of cases where we think that we can invest to create a differentiated type of tool or process using most -- in almost all cases using essentially building blocks that exist out there.

So we don't want to be a frontier model builder. We don't think that that's the role that we play in the ecosystem. Our job is to take the people that are spending hundreds of billions of dollars, building frontier models and leverage them, whether it's an open source or in a commercial licensing basis. Use the data that we have to refine those models, make them more specific to the job that we have done and then integrate them into existing tooling that we have our consumer products.

Just to give you a sense of like where do we see that -- what are those spaces that we think we can actually do that kind of investment. The consumer product is one. We mentioned the recommender systems that we use. We actually see using these new more architectures as a way to improve the quality of recommendations we have and maybe even more importantly, to basically provide high-quality personalization for new content types as we roll that out. We can really quickly do this with these new generative techniques.

It also means new types of consumer experiences. So we have in beta right now, a conversational discovery experience.

This is where you can sit down and you can say like, hey , I had a hard day at work. I want something uplifting and funny. We give you a bunch of different possible recommendations. You say, these look great, but I'm also feeling nostalgic, give me something from the '80s and then you land on the thing that you actually want to watch. So that's an exciting new thing we can go do.

Content is another area. You mentioned that. We see a lot of our creative partners using these tools for pre-vis, pre-visualization. So imagining how this will go before you actually spend the money to do a live shoot. Shot planning and shot composition, pro forma budgeting, scheduling. We see it in visual effects. There's a lot of work that we can do in postproduction. And we -- our job, we think, is not to tell creators, this is what you have to go do.

I think our job is to enable creators with a bunch of tools that work well together. So we're investing in centrally building a bigger palette for them. And just like we had -- seen with animation or VFX, as new technologies come online, creators will figure out how to leverage them, and we think that, that will result in a better output to the screen. They'll put something on Netflix that will be even more compelling to viewers.

Now we want to do this responsibly. We actually just released a set of guidelines to using generative AI technology so that we think about the artistic community, how do we be responsible consumers of this and guide our partners to do things responsibly. While we are enabling them to make sure that the folks that want to be aggressive about this are aggressive about it.

Maybe one more, I'll just offer on this is the advertising space, which is super interesting as well. Now there's targeting and personalization capabilities that we think are going to be unlocked by generative.

But one of the most fascinating areas for me is the ability to do creative generation. And if you think about the acme of the advertising industry and what CMOs wanted for a long time is to be able to tell a authentic brand-forward story in a way that was matched all their messaging goals, but do so in the creative universe of the title that they're basically putting that spot against.

It was incredibly hard. It has been incredibly hard to go do that because you have to line so many things up. The creative process can take a long time. You don't have fast iteration cycles. And so it was very rare that you could actually pull that off.

But we think with generative techniques, we can actually decrease the bar to go do that successively. And you can imagine a universe where the brand brings essentially a lot of guidelines, rules, information, assets, messaging examples.

We bring that into the show universe and all of that. And essentially, kick out potentially 20 creative spots or treatments of it, and the CMO says, ah, this one really works for me and then we can work on refining that process. So we anticipate that, that will happen a lot more because of these technologies.

Interesting on the advertising front. Yes. Just building on that, there's obviously new media formats that are always up and coming and continue to evolve. The creator economy is one of them, the creator economy is one that typically is latching on to a lot of some of these AI creation tools to speed time to market. How do you think about embracing new media formats and sort of factoring them in and folding them into your broader content strategy as a platform?

We want to be clear about what part of the entertainment ecosystem we're serving because I think that, that's important to be disciplined about that. I think we want to open up the aperture on that from time to time, and there's things like video podcasts, which we sort of see as the evolution of the talk show that we want to embrace. But we want to make sure that we're doing the jobs that we think we can win at.

But when you get to creator economy, one of the opportunities we think there is to work with a whole new set of creators. So we work with creators that came from traditional methods like film school, that came through broadcast or maybe theater.

But now we've got creators that are emerging from YouTube or TikTok and places like that. And we're starting to do essentially work with those creators when they want to tell a story, which we think meets that target of what kind of storytelling we are delivering to consumers but they want to do it at a scale, at a quality level that isn't necessarily supported by the platforms that they've grown up on. So Ms. Rachel, The Sidemen in U.K., Mark Rober, all good examples of this.

We have a business model that allows us to invest forward and allow those creators to basically tell their stories at a higher quality level than they might be able to do on other platforms. And we really want to unlock that where it fits for what kind of entertainment we're delivering.

Okay. Building on sort of new formats for you or relatively newer formats, you talked earlier about your approach to live. Talk to us a little bit about where you look for opportunities in the live content space. How wide an array of geographic approaches do you take to this or format approaches do you take to it? I think the knee-jerk is to fall back to the more traditional North America-based sports, but there's a much bigger world out there of live entertainment.

There's definitely a bigger world. First and foremost, we think about this as like back to that creating the shared moment where we're all watching the same thing, we have a conversation. I think that's the job that live is doing and that's what we should focus on.

Now sports has been super effective historically for doing that, so we want to embrace the kind of sports events that where we can do and we think we can do on economic terms that work for the business. But we also want to think more broadly than that.

And so there's opportunities to do that across whether it's music, whether it's award shows, there's comedy, things like The Roast of Tom Brady is a pretty good example. Even when we did the 2 NFL games, we added Beyoncé into the mix as an extra musical factor.

So there's a lot that we're going to figure out and a lot we're going to try quite frankly, to see how broad a set of formats we can go deliver in that space. But it's ultimately with that goal, which is how do we create this conversational moment, but also do it on an economic model that works for the business.

Okay. Last one on sort of newer-ish formats. You made a big push into gaming over the last couple of years. This is a new initiative of yours in the last couple of years. Can you hit refresh on where the gaming strategy sits today and how you think about what gaming does for the platform of users against maybe some of the investments that are needed against it?

Yes. So maybe just start with the opportunity size. We think games is a big consumer entertainment market, $140 billion outside of China, outside of advertising. So really just in the space that we operate.

What we've seen from our track record so far is that when we have the right game, I'll give you 2 examples, Grand Theft Auto is one, Squid Game: Unleashed, which we launched with Squid Game, the narrative title. Those really work our members. And what we see in terms of how it delivers the business is pretty much what you'd expect, which is increased engagement and increased retention. So that's the core things that we're seeking to drive.

Now what we're doing is basically just trying to refine our strategy to make sure that we are delivering more of those games that actually matter. And we're really looking at 4 verticals to go do that. One is narrative games that sit within the IP universes that we're launching back to Squid Game and Squid Game: Unleashed. We think that, that's a really good model. I'll give you just one fun example on this. When we did Happy Gilmore 2, we launched the Happy Gilmore: Golf game from 1998, and it did remarkably well. So this was very opportunistic, but it just shows like when you're in Happy Gilmore world, you want more. And this is the way games is a way to go deliver more of that. So that's one place we want to go to that.

Kids is another space we want to do this, where we can give an ads-free in-app purchase free experience for kids games as part of the subscription model that works quite well. We want to give families the opportunity to have essentially the evolution of family game night or the evolution of the game show on TV, brought to you in an interactive place where you cannot just watch but play.

We think that's really relevant and delivering that on TV is an important model to do it. And you'll see us do more game distribution where you take a known game title like Grand Theft Auto and release it to the world because we found the dose to be quite efficient as well.

Super clear. Okay. I know we only have a few minutes left. Maybe try to bring it together with one bigger topic I'll ask you about. When you think about the evolving media landscape and you think about over the next 3 to 5 years, talk to me a little bit about the working assumption about how the media landscape might continue to evolve in the next 3 to 5 years. And how you guys as a team are sort of aligning your investments and your strategy to capitalize that at Netflix?

Well, I think we've gotten to the point where everyone now acknowledges that linear is on a declining path and that streaming is the way to go. So it's fun to get there because we, of course, have predicted this for a long time and sometimes you were like, why isn't everyone else not embracing this reality, but I think we're at this point now.

And that's great because I think we see competitors starting to rationalize against that reality. They're thinking about profitability on the streaming side. That means over-subsidized content investment to low consumer pricing, those things are changing. And I think that, that creates a better competitive environment for us as well.

But if I think about where do we go from here, I'd say the easiest thing that you can go do is sort of go into that cream skimming mode where our traditional media competitors certainly got out there and they said, let's just grab as many subscribers as we can in the United States. Let's think about where there's low-hanging fruit in terms of folks around the world who want English language content, the kind of content that they have invested in. And that's the easiest thing to go do.

And then you have to go do the really, really hard work, which we have been working on for more than a decade, which is figure out how do you work with local creators be included in the creative community in 50-plus countries around the world and tell stories that really work for those local audiences, some of which will become big globally, but you really have to start with the local audience. How do you understand go-to-market in all those different markets around the world? How do you think about pricing? How do you think about -- how do you even take payments in so many countries around the world? How do you think about partnerships that expose your service to cohorts of folks that don't even know what streaming is? And we've done that in Japan in many cases as an example or India in many cases as an example where we had to really work with local partners to go do that. And I'm excited to be in the position that we've been in this process for a long time.

Many of our competitors are just starting that journey, and our job is obviously to use this moment. We've got a pretty good foundation. We're at scale. We've got a profitable business. We want to keep investing and keep that process of growing and learning going.

Okay. Well, I think we're going to leave it there. Please join me in thanking Netflix for being part of the conference.

Thank you.

Good afternoon, and welcome to the Netflix Q2 2025 Earnings Interview. I'm Spencer Wang, VP of Finance, IR and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann.

As a reminder, we'll be making forward-looking statements, and actual results may vary. We'll take questions submitted by the analyst community, and we will begin with our results and our forecast.

The first question comes from Steve Cahall of Wells Fargo. The question is, since the revenue increase in your forecast is primarily FX-driven, we're curious about the components of the constant currency increase. Is this due to a better underlying revenue growth? Or are there specific expenses that are coming in better like content amortization?

I will take that one. Thanks, Steve. So as you saw on the letter, we increased our full year revenue guidance to $44.8 million to $45.2 billion. That's up from the prior guide of $43.5 million to $44.5 billion, so up about $1 billion at the midpoint of the range and a tighter range. As you know, it primarily reflects the FX impact from the weakening dollar relative to most other currencies. But the good news is we're also seeing strength in our underlying business. We've got healthy member growth, and that even picked up nicely at the end of Q2, a bit more than we expected. And we think that will carry through with our strong back half slate. So we're reflecting that in our latest forecast.

And we're also seeing nice momentum in ad sales still off a pretty small base, but good growth, and it's on pace to roughly double our revenue in the year, and it's a bit ahead of beginning of year expectations. So when we carry all that through to operating margin, our operating expenses are essentially unchanged, which is part of your question. So they're basically unchanged forecast to forecast. So we're largely flowing through the expected higher revenues to profit margins. So that's why our updated target full year reported margin is up 1 point from 29% to 30% and that 50 basis point increase in FX neutral margin is really just that revenue lift from stronger membership growth and adds relative to prior forecast flowing through the margin.

Thank you, Spence. We'll take our next question from Barton Crockett of Rosenblatt Securities. Why is operating margin guidance for the full year only 30% after the upside in 2Q and a forecast of 31.5% for the third quarter. Is there a timing issue, FX issue? Or is there a new level of spending that will continue beyond the fourth quarter of 2025?

Well, this is really mostly timing. So thanks, Barton. We primarily. As a reminder, we primarily manage the full year margins, and we expect our content expenses will ramp in Q3 and Q4. We've got many of our biggest new and returning titles and live events in the back half of the year. We've also -- Q4 is typically and generally almost always is a heavier film slate. Sure we'll talk about -- I expect we'll talk about more of this on the call. We'll also be marketing to support that heavier slate, and we're continuing to aggressively build out our ad sales infrastructure and capabilities through the year.

So all of that is to be expected. We can manage to, will we manage to those margins. And even with that back half ramp in expenses, we expect operating margins to be up year-over-year in each quarter, including Q4, and as just noted, we expect to deliver a strong full year margins as we just took up our guide to 29.5% FX neutral, 30% reported.

Great. Thanks, Spence. The next question comes from Tom Champion of Piper Sandler. How has your view of the consumer and the macro economy changed over the last 90 days?

Similar to last quarter, we're carefully watching consumer sentiment in the broader economy. But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the business. Those are retention that remains stable and industry-leading. There have been no significant shifts in plan mix or planned take rate. and the price changes we've done since the last quarter have been in line with expectations. Engagement also remains healthy.

So things all look stable from those indicators and big picture, entertainment in general, and Netflix specific have been historically pretty resilient and tougher economic times. We also think that we are an incredible entertainment value, not only compared to traditional entertainment, but if you think about other streaming competitors when we start at $7.99 in the United States. And you think about all of the entertainment you get. We have a belief and expectation that the demand for not only entertainment, but for us, specifically will remain strong.

Thanks, Greg. I think it's a nice follow-up to this question will be on advertising. So from Ben Swinburne at Morgan Stanley. Can you share any data points around your upfront negotiations?

Yes. As we noted in the letter, our U.S. upfront, it's nearly complete. We've closed a large majority of deals with the major agencies. Those results have generally been in line or slightly better than our targets and consistent with our goal to roughly double the ads business this year. and what are advertisers excited about. Growing scale is something we definitely hear also a highly attentive and engaged audience. So bigger audience, but also an audience that's more engaged relative to our peers. The rollout of our own ad tech stack, which helps deliver a bunch of features and then our slate, which is generally amazing and includes a growing number of live events that advertisers are excited about.

Great. Follow-up question on advertising from Vikram of Baird. How have advertisers in the U.S. responded to the Netflix Ad Suite rollout since the April launch. What features and capabilities are attracting the most interest? And how is the initial feedback in other regions outside of the U.S.?

We've completed the rollout of our own ad -- tech stack, the Netflix ad suite to all of our ad markets now. So we're fully on our own stack around the world at this point. That rollout was generally smooth across all countries. We see good performance metrics across all countries and the early results are in line with our expectations. Now we're in this phase of learning and improving quickly based on the fact that being live everywhere means that you get a bunch of feedback about what we can do better, which is great.

As we mentioned before, the most immediate benefit from this rollout is just making it easier for advertisers to buy on Netflix. We hear that benefit, that ease from direct feedback talking to advertisers. They tell us that it's easier. We see it in our overall sales performance. We've seen an increased programmatic buying. So all of these are consistent with what we are expecting both qualitatively and from a metrics perspective.

We're also, I guess, worth noting that we're going to roll out additional demand sources like Yahoo!, that will further open up the market for us. long term being on our own stack that improves the speed of our execution to deliver this pretty significant road map of features that we have in front of us. It's things like improved targeting and measurement. There's also leveraging advertiser and third-party data sources, which we definitely hear demand for as well. And it will ultimately allow us to improve the ad experience for our members, which is critically important. So that means better adds personalization. So the ads that I see are increasingly different from the ads that say, Ted would see, and they're more relevant for each of us, which is good for us as users and it's good for the brands.

We're also going to be introducing interactivity in the second half of the year. So that's exciting. So that's all to say this is a pretty significant milestone for us. One, we're super excited to get behind us because now we can shift into the steady release cycle where we're dropping new features all the time, both for advertisers and for members. And that's the development and release model that we have in other parts of the business. So it's fun to be able to get to that point.

Thanks, Greg. I'll move this along now to a set of questions around content as well as engagement. This one comes from Ben Swinburne of Morgan Stanley. 1% engagement growth year-over-year suggests engagement is down year-over-year on an average per member basis. How do we reconcile that with engagement growing on a per member, household basis, if that's still accurate?

So total view hours did grow a bit in the first half '25, and that's despite a particularly back half-weighted slate. But to your point on engagement on a per member basis, we've mostly been focused for the last few years on measuring engagement on what we call an owner household basis. So this takes out the borrower effect, and we obviously think this is the best way to assess our engagement per member because it removes the tricky comparison impacts from paid sharing.

So that metric per owner household engagement has been relatively steady over the past 2.5 years. throughout the rollout of paid sharing and amidst increasing competition for TV time is more viewing moves to streaming and gets this on-demand benefit. So we're glad to have held that normalized engagement level, but we clearly also want to increase it. And to that end, we're optimistic and expect that our engagement growth in the second half of this year will be better than in the first half given our strong second half slate.

Thanks, Greg. Great segue to [ Doug Amit's ] question from JPMorgan. The content in the back half of the year looks strong with quite Three, already the third most popular non-English series ever and Wednesday and Stranger Things releasing in the coming months. You often say that no single title drives more than 1% of total viewing how do you think about the business currently as being boosted or had driven? And are you confident that both original and licensed content momentum can continue in 2026?

Yes, I'll take that. And thank you, Doug. On the first part of your question, we're definitely riding this long-term trend of linear to streaming and that has a natural adoption curve, but we can accelerate our growth with big hits. But as you said, each one of them, even in success going to drive about 1% of total viewing. So you need a lot more than just a big hit every once in a while. So to your point, it's not about the single head. So what it is, is about a steady drumbeat of shows and films and soon enough, games that our members really love and continue to expect from us. So like by way of example, we had 44 individual shows nominated for Emmys this year. So that's what quality at scale looks like.

We ended the quarter with a huge return of Squid Game. Thanks for acknowledging I go into the second half with the return of Wednesday and Stranger Things. And a really strong slate of supporting titles and favorites like -- and new shows like next week, this week, we had [ Eric Ban's ] on tamed. Next week, we have [ ] new comedy show line both look really great. And that's just to name a few. And the back half of the year also has perhaps the most anticipated slate of new movies that we've ever had. That starts on the 25th with Happy Gilmore 2, followed by, we have a new knives out film. We have new films from [ Noah Bambec from Gamble Del Toro ], from Catherine Bigelow, and it does not stop there.

It does roll right into 2026. And that's the second part of your question, and we're looking forward to movies like the RIP from Ben Affleck and Matt Damon, Charleston, it's a new movie called Apex, which is a phenomenal action movie. Millie Bobby Brown is back in an Enola Homes 3. Recall that in 2023, Enola Homes was our biggest -- 2 was our biggest movie. So we're looking forward to that new sequel. And [ Greta Garwig's ] Narnia is going to be phenomenal. And then on top of that, we're talking about return of Bridgerton, One Piece, Avatar, The Last Air Bender, all 3 huge successes around the world. The Gentleman Four Seasons, Point Break -- I'm sorry, Running Point, sorry, Beef, which as you recall in 2023, won just about every award imaginable and was a gigantic success for us, it's back for a new season in '26.

3 body problem, Love is Blind, Outerbanks and not just from the U.S. from France, we have upon from Spain. We have Berlin. We have a new season of 100 years of saved from Colombia. So big hit returning shows and new series from each of our regions around the world. And the new stuff we've got coming up like Man on Fire, Reimagining, A little house on the Prairie, the Duffer Brothers from Stranger Things have a brand-new show, The Boroughs. We've got The Human Vapor from Japan, [ Operation Suffered Cigar ] from India, Can This Love Be Translated from Korea.

So again, popular programming, new and returning from all over the world in 2026. Unscripted shows like the Reboot of Star Search. We've got Into The doll Universe, with Wonka's Golden Ticket, which we're really excited about, and In Our Life, we've got a few surprises for you next year. But of course, we have our NFL Christmas stay double header than we're really thrilled about too. So we're really incredibly excited about the back half of this year and confident that it keeps rolling in '26.

Thank you, Ted. We'll take the next question from Rich Greenfield of LightShed Partners who asked, are you concerned by the stagnation in your viewing share domestically? I think Rich is probably referring to the Nielsen Gage data. Do you need to spend more on programming or spend differently to materially move your viewing share higher?

Thanks, Rich. Look, our goal continues to be to continue to grow our share over the long term. And over the past few years, you're right, we've been able to maintain our share even as we work through a growing number of TV-based streaming services, some free, some paid and the impact of paid sharing that Greg mentioned earlier. As well as this 2025 slate that was more back half weighted than we typically have in previous years. But over the long term, we tend to keep growing as the other 50% of TV viewing migrates from linear to streaming. And we'll do that by doing what we've always done continuously improve the service.

So keep in mind, since 2020, our content amort has grown more than 50%, from under $11 billion to more than $16 billion that we expect to do this year. And for that same time period, we definitely had -- we saw increased spending, but also increasing agent increased revenue, increased profit and increased profit margin. So that's our model in action. It is our objective to sustain healthy revenue growth, reinvest in the business to improve on all aspects of the service. And that includes growing content spend, strengthening and expanding the entertainment offering and to drive that positive flywheel of growth by adding value to our members and all the while growing engagement revenue and profit around the world.

Great. Thank you, Ted. I'll move to Alan Gould from Loop Capital next. Can you provide more information on the TF1 partnership? Why did you choose to add TF1 in France as opposed to other broadcasters as your first partner? Why is now the right time to create such a partnership? Should we anticipate similar partnerships in other countries?

Yes, perhaps just start with the rationale for the partnership. You would think with that long list of amazing titles that had just rattled off, we would have enough to satisfy every person on the planet, but it turns out actually consistently hear from our members that they want more. They want more variety, more breadth of content. So the fundamental purpose for this TF1 partnership is all about that goal of expanding our entertainment offering. How do we enhance the value we deliver to members? We want to provide more content, more variety, more quality.

So just as you've seen us do with licensing and production, this is just another mechanism to expand that offering. And in this case, it's specifically about highly relevant local for local content in a country that has strong demand for that local content. This is an accelerated way to satisfy that need. Why now? Why was this time the right time? Well, we've invested a lot in a bunch of enabling capabilities that are either required or highly leveraged by this deal. You can think live, ads, the new UI, among other things.

And then why TF1 versus some other partner? Well, we know each other really well. We wanted our first partner to be in a big territory. We wanted to pick the leading local programmer. We wanted to be highly aligned in terms of the deal and the shape of the partnership and the values that we thought we could generate mutually by working together for our customers. And we both look at this as an opportunity to learn to figure out how do we scale the local content that TF1 is producing to more customers in France. So we're looking forward to seeing what consumers think, you never really know until you get out there and get the real reactions. And then obviously, we'll factor that into our plans going forward.

Thanks, Greg. From Robert Fishman of MoffettNathanson, with reports suggesting Apple is now in the driver seat for F1 rights, haha, pun intended, I guess, plus UFC and MLB still looking for new deals and the NFL may be looking to come to market a year earlier, can you share updated thoughts on how you are approaching sports rights for Netflix and where you draw the line on something that can move the needle?

Well, thanks for that, Robert. Remember, sports are a subcomponent of our live strategy but our live strategy goes beyond sports alone. Our live strategy and our sports strategy are on change. We remain focused on ownable big breakthrough events that -- because our audiences really love them. Anything we chase in the event space or in the sports space, has got to make economic sense as well. We bring a lot to the table and the deals that we make out to reflect that. So live is a relatively small part of the total content spend, and we've got about 200 billion view hours. So it's a pretty small part of view ours as well right now.

But that being said, not all view hours are equal. And what we've seen with live is a outsized positive impacts around conversation around acquisition, and we suspect around retention. And so right now, we're very excited where we sit. We're very excited with the existing strategy. We're excited about the Canelo vs. Crawford fight in September and the SAG Awards and our weekly WWE matches, and the NFL, of course, which is a great property, and we're happy to have Christmas Day double header, which includes Dallas versus Washington and Detroit versus Minnesota.

So today, our live events have all primarily been in the U.S., keep in mind. So over time, we're going to continue to invest and grow our live capabilities for events around the world in the years ahead. So we're excited, but the strategy is unchanged.

Good follow-up question on that one from Steve Cahall of Wells Fargo. What investments have you made to increase your capabilities in producing live events. What have you been able to do in-house in 2025 that you couldn't do last year? And how long will it take before you have the capability to produce large-scale events like NFL games?

Yes. Thanks, Steve. I'd say, remember, when we started original scripted programming, we had 0 production capability. House of Cards was, in fact, thinking about our first 3 years of original programming, all of those shows were produced by others. You have to go 3 years later, we produced Stranger Things in-house. Today, we still have shows that are produced by others. Universal, 20th Television, which is Disney, Paramount, Lionsgate, Winter Television there's lots of available infrastructure to produce TV, and that is true of live events and sports as well.

When we do more and more, we may choose to bring some of that in-house. We've already produced a few, and we're just as likely to continue to use partners with existing production infrastructure and work to make sure that those productions are bespoke and do they feel like they could only be on Netflix. So you shouldn't think about the mix partnerships and self-producing as a -- we think about it as a scaling tool, not backfilling some lack of ability in some area of the company. And I should note, by example, CBS is a phenomenal partner producing NFL games with us, and we're thrilled to work with them again this year on Christmas Day.

Maybe take this opportunity just to some commentary on the general capability we've been dealing with live. When we start something new, we pretty much expect that we're not going to be brilliant at the beginning. But we -- yes, that's true. Unfortunately, we don't have any really reason to believe that. But we don't let that stop us from kicking off initiatives that we believe have a strong strategic rationale, even though now we need to develop that capability. And of course, our job is to get out there and learn by doing and get world-class as quickly as we possibly can.

And if you look at our current capabilities around live, we are in just a completely different place today compared to when we first started. As a good example that just happened last Friday, we had our first concurrent pair of live events we had Taylor vs. Serrano globally delivered alongside WWE Smack Down, which was delivered ex U.S., both events at scale and delivered with extremely high quality. So it's great progress we've seen and we've got a great road map of features ahead of us to continue to enhance those experiences for folks.

Last question on the content side or the topic of content comes from Ben Swinburne of Morgan Stanley. What are the learnings from the success of K-Pop Demon Hunters, more animated musicals with fictional bands, perhaps a question more?

Then that is a question from the manager has probably has that movie playing on repeat in their home, if I guess it correctly. KPop Demon Hunters is a phenomenal success out of the gate. One of the things that I'm excited, really proud of the team over is original animation, not SQL, not live-action remake original animation feature is very tough and has been struggling for years. And I think the fact that our biggest hits now, Leo, Sea beast and now KPop Demon Hunters our original animation. So we're super thrilled about that.

The mix of music and pop culture, getting it right matters, get the storytelling matters, the innovation and animation itself matters. And the fact that people are in love with this film and they love with the music from this film that will keep it going for a long time. So we're really thrilled. And now the next beat is where does it go from here? So we put in the letter how just how successful the music has been and continues to be and we think that will drive fandom for this fictional K-Pop band that we have.

But more importantly, for the on Golden and for the song soda pop, these are enormous hits and they all came from a filmness available only on Netflix. So we're really excited that we can pierce the culture with original amid features considering that folks have been poking us on it. Let's do it again later in the year within your dreams, right? Under Dream is another very funny one and also complete the original.

Great. I'll move this on now to a few questions on plans as well as product. So from Michael Morris of Guggenheim Yes, Netflix continues to broaden content genres, notably with live sports and the recently announced TF1 partnership. Is there a path to additional tiers of service based on types of content available? Or will Netflix always make all content available at the ad-free ad-supported price points?

I've learned to never say never. So I would say we remain open to evolving our consumer-facing model. I think we've got a few principles, important principles that we're carrying with us that I don't see changing significantly. One is we want to provide members choice, right? So how do we have a different set of plans at different price points in different futures allows folks to opt into what the -- is the right Netflix for them.

Also, how do we provide good accessibility to new members around the world we want to grow, and that means making sure that we've got accessible price points. And then finally, the plans we offer, they have to ensure that we're having reasonable returns to the business based on the entertainment value that we delivered, and we're hoping to grow those. And so those returns would grow as well. And obviously, the reason to do that is we can continue to reinvest and adding more entertainment and building a better experience.

And maybe one other thought, too, is there is a component of complexity and choice stack that we have to consider and how we think about our offering is structured. So having said all that though, I think we believe that the bundle is a great value for members. It allows members around the world to access a wide range of entertainment in a very easy way, at a very reasonable price. So I would expect that, that will remain an important feature of our offering for the foreseeable future.

A lot of value and simplicity, yes. .

Yes. From Rich Greenfield, the Lightshed partners, help us understand why your new UI/UX is so important as you expand live content. Beyond live, can you provide some color on what metrics have improved since the launch of the new UI such as speed of users finding a title and change in failed sessions?

Yes. As we said previously, it's really hard for new immediately compete, be better than the UI that we've had for the past 10 years has been iteratively evolved and improved. But now that we've actually rolled out this new UI to the first large wave of TV devices, we're actually seeing performance that's better than what we saw in our prelaunch testing. And to some degree, that's expected because we made some improvements based on the results of that testing phase. So it's exciting to see that those delivered actually better results.

But the rate of that change actually gives us increased confidence that this new experience will drive better performance by the variety of metrics we look at, some of which include the ones that Rich is mentioning in relatively short order. And then maybe just a point on why do we build this and launch this new experience in the first place? Why was it so important? Bluntly, the previous experience was designed for the Netflix of 10 years ago. And the business has evolved considerably since then. We got a wider breadth of entertainment options. We got TV and film, more of those, of course, from around the world, but now also games and live events.

And if you think about the discovery experience that's best suited for these new content types, it's inherently different. Helping our members understand that there's a really good reason for them to launch Netflix and tune in at 7:00 p.m. on a Friday night versus just showing up whenever they were free and wanted to be entertained. That's a totally different job, and we really need a different user interface to do that job well. Add to that, we saw the opportunity to leverage newer technologies like real-time recommendations that respond dynamically to what you need from us in that specific moment. So the Netflix you get on a Tuesday night is different from the Netflix you get on a Sunday afternoon.

But all of those rationales together and what we're seeing in terms of the performance of far, we're very confident that we've got a much better platform in this new user experience to build from to continue to improve, and that will help us meet the needs of the business over the years to come.

Thanks, Greg. The next question comes from Steve Cahall of Wells Fargo. YouTube is the only streamer that exceeds Netflix in terms of U.S. share of TV time. Do you see an opportunity to bring notable YouTube creators and their content exclusively to Netflix? How big could this opportunity be?

Thanks, Steve. Look, we want to be in business with the best creatives on the planet, regardless of where they come from, some of them are here in Hollywood. Others are in Korea, some are in India and some are creators distribute only on social media platforms and most of them have not yet been discovered. So for those creators doing great work, -- we have phenomenal distribution, desirable monetization, brilliant discovery in our UI and a hungry audience waiting to be entertained.

So Steve, you recently -- I think I listened to you on a broadcast where you talked about our business model and I believe on this very topic. And we largely agree with you and believe that working with a wide set of content creators makes a lot of sense for us. And as you said, if I'm remembering it right, not everything on YouTube will fit on Netflix, and we couldn't agree with that more. But there are some creators on YouTube like Ms. Rachel that are a great fit. If you saw on the engagement report, she's had 53 million views in the first half of 2025 on Netflix. So she clearly works on Netflix. And we're really excited about the Side Men and Pop the Balloon, a wide variety of creators and video podcasters that might be a good fit for us. And particularly if they're doing great work and looking for different ways to connect with audiences.

And maybe broadening this out for a second and taking that question to look at sort of all of the competitors that we face for a share of TV time. We've always said that the market for entertainment is very large, and we face competition from all kinds of directions. So whether it's linear or streamers or video games or social media, it's also a very dynamic competitive market, as we and all of our competitors seek to provide better and better options for consumers. And one of those changes, one of those vectors of dynamicism has been that sort of steady inevitable shift to streaming and on-demand as more services move to deliver their content in a way that we all know consumers want. That creates increasing competitive pressure for us that we've got to respond to.

We also see free services as a form of strong competition. Three is it's very powerful from a consumer perspective. So it's not surprising that some free services are growing in engagement. But I think Ted said it well earlier in the call, not all hours are created equal. And we have a different profit model from other services, a strong profit model. So we're going to compete to win more moments of truth for sure, but especially compete to win those most profitable moments. And back to your specific question, it's worth remembering there's about 80% of total TV view share that neither Netflix or YouTube are winning right now. We think that represents a huge opportunity for which we are competing aggressively and we aim to grow our share.

The vast majority of our money and attention is focused on that 80%.

Next question from Justin Patterson of KeyBanc. Could you please talk about your generative AI initiatives? Where do you think Gen AI will be most impactful over time, revenue or expense efficiency?

Well, let me start with Gen AI. We remain convinced that AI represents an incredible opportunity to help creators make films and series better, not just cheaper. They're AI-powered creator tools. So this is real people doing real work with better tools. Our creators are already seeing the benefits in production through pre-visualization and shot planning work and certainly, visual effects. It used to be that only big budget projects would have access to advanced visual effects like de-aging.

Remember, last quarter, we talked about Pedro Paramo. That's just no longer the case. And this year, we had a [indiscernible] is a very big show for us from Argentina. And in that production, we leveraged virtual production and AI-powered VFX and there was a shot in the show that the creators wanted to show building collapsing of [ Buenos Aires ]. So our ILI team line team partnered with their creative team using AI powered tools, they were able to achieve an amazing result with remarkable speed and in fact, that VFX sequence was completed 10x faster than it could have been completed with visual -- traditional VFX tools and workflows.

And also, the cost of it just wouldn't have been feasible for a show in our budget. So that sequence actually is the very first Gen AI final footage to appear on screen in a Netflix original series or film. So the creators were thrilled with the result. We were thrilled with the result. And more importantly, the audience was thrilled with the result. So I think these tools are helping creators expand the possibilities of storytelling on screen, and that is endlessly exciting.

And maybe to cover a few of the other areas. The member experience is a place where we feel like there's tons of opportunity to leverage these new generative technologies to improve the experience. we've been in the personalization and recommendation business for 2 decades, but yet we see a tremendous room and opportunity to make it even better by leveraging some of the more newer generative techniques.

We're also rolling out, have piloted right now a conversational experience that uses, allows our members to basically have a sort of natural language discussion with our user interface thing. I want to watch a film from the '80s that's a dark psychological thriller, get some results back, maybe iterate through those in a way that you just couldn't have done in our previous experiences. So that's super exciting and we see that all of the work that we do there essentially is a force multiplier to that large content investment that we're making. If we do a better job there, that means every dollar that we spend means more value back to our members by connecting them with the titles that they're truly going to love.

Advertising is another really great area. We've seen -- it's a high hurdle to create a brand forward spot in a creative universe of one of the titles that we're currently carrying. But it's very compelling for both watchers and for those brands, and we think these generative techniques can decrease that hurdle iteratively over time and enable us to do that in more and more spots. So there's a bunch of places where we think we've got an advantage in terms of data and scale where we can leverage these new generative techniques to deliver just more benefits for our members and for our creative community.

If you don't mind me coming back for 1 second, I just rolled off inline knows an [ Eye Line ] is. I probably should clarify, that Eye Line is our production innovation group inside of our VFX Scan Line, and they're doing a lot of this work with our creators. So I just realized that just through that out there, as everyone knew.

Thanks for clarifying, Ted. Let's see. Our next question comes from Brian Pitz of BMO Capital Markets. With your evolving gaming ambitions, including partnerships with Grand Theft Auto and the recently announced roadblocks agreement, can you talk to near-term monetization opportunities within gaming?

Sure. We look at the near-term monetization opportunity with games, very similar to how we've looked at other new content categories. You can think in scripted or film or on and on. And that's essentially, if we deliver more value to our offering, we get increased user acquisition, we get increased retention, we get increased willingness to pay. So it drives all of the core fundamentals of our business. We've seen those positive effects, albeit in a small way relative to the size of our overall business when it comes to members playing games on the service. We already have those positive proof points.

And we're going to ramp our investment in this area, which is currently quite small compared to our overall content investment as we ramp the size of those positive effects. So we want to remain disciplined in not investing too far ahead of demonstrating that we know how to translate that investment into value for our members. We've seen good progress, as you know, with licensed games like GTA. We've seen good progress with the games we developed like Squid Game Unleashed. So you'll see more from us in both of those categories, as well as a whole new set of interactive experiences that we think that we're either in a unique or differential position to deliver.

So we're super excited to roll those out over the next year. And then we remain open to the core question, remain open evolving our monetization model, but we have got to get to a lot more scale before that becomes a really materially relevant question. So we're going to do that work first. And it's probably worth restating the TAM for this market is very, very large. We remain convicted about our strategic opportunity and excited to make more progress.

Thanks, Greg. We'll take our last question from Jessica Reif Erlich of Bank of America Securities. Given your healthy balance sheet and what appears to be a coming wave of M&A in media globally, are there certain types of assets that would strengthen your moat, i.e., what is your view of owning successful IP or studio assets as they come to market?

I'll take that one, Spencer. Thanks, Jessica. Well, we agree. Continued consolidation of studio and network assets is likely. But at least with respect to consolidation within legacy media, we don't think it materially changes the competitive landscape. As you also know, we've historically been more builders than buyers and we continue to see big runway for growth without fundamentally changing that playbook. You heard a lot of that today. So we look at a lot of things. We apply a framework or lens to those opportunities when we look. Is it a big opportunity? Does it strengthen our entertainment offering? Does it strengthen our capabilities? Does it accelerate our strategy?

And we look at all of that relative to the opportunity cost of distraction or other alternatives. We've been pretty clear in the past that we also have no interest in owning legacy media network, so that also kind of reduces the funnel for us. But in general, we believe we can and will be choosy. We've got a great business. We're predominantly focused on growing that organically, investing aggressively and responsibly into that growth and returning excess cash to shareholders through share repurchase. And I think you'll see us continue on that path.

Great. Thanks, Spence.. And that will wrap up our Q2 earnings call. So we thank you all for taking the time to join us, and we look forward to seeing you all next quarter. Thank you.

So I'm going to start with you, Wayne, if I may. Obviously, you produced some amazing shows like The Crown, Sex Education and just landed Department Q (sic) [ Dept. Q ].

Have everyone watched Department Q yet?

To seeing...

Me and Larry, there, you should watch it.

on Netflix? So Kevin referred a little bit to the environment that we find ourselves in. And I was wondering, from your point of view, what -- how do you see the production world over the last 12 months?

Well, there's been a lot of gloom and people quite unhappy about the state of the production business, particularly in the U.K. And it's true, there was a -- there has been a period of turbulence. We found particularly in high-end drama getting American presales and sales in Americas has been particularly difficult as we came out of the strikes, et cetera.

And there's also a tremendous shift in the industry because our industry was built on -- the British TV industry really was built on creating nonscripted formats for linear TV channels. And the fact is linear TV channels are in the past. And audiences don't want much of the content that we used to make in enormous numbers. So that is changing and people are having to adapt to it.

We're having to adapt at Sony to the YouTube is the biggest TV market in the world. The ad money is hurtling towards that. We're probably at a tipping point. So our connection with a platform like YouTube and creators is interesting. But the overall market, I still see for me and my business, which is largely drama in the U.K., we're predicting for the next few years growth.

Actually, we've got -- Netflix is a key partner to us. We love Sky. This is going to be a love-in, by the way. We love Sky because for Sky, of course, we retain distribution rights, and we can package that around the world, et cetera. But we're also going to see the likes of Disney, Amazon and Apple have all seen what Netflix have done with British content around the world, and they're all going to follow that. So I, as an optimist, I'm very optimistic about the future, particularly if you're British because British content, as we know, travels like no other content around the world.

And just sort of thinking about the YouTube aspect of it. Where do you think that -- we talked a little bit about viewing there. Where do you think that viewing is going for?

Well, I was quite interested about podcasting, et cetera. We've seen that. I mean I'm particularly interested in that. I'm also looking at territories around the world where YouTube is particularly important. I've got a global job. So for me, a country like Brazil, the biggest YouTube market in the world or India, that's really interesting. And learning, they are predicating what the future will be like in Britain. So we're trying to learn in those markets and working creators there actually.

Brilliant. And finally, before I move on to Cécile, Channel 4 has announced in-house production, good thing or bad thing from your point of view?

Ridiculous. It won't work. I mean those of us who run in-house production businesses or any production business know how difficult it is. And if you're starting where you don't own any IP, you have no institutional knowledge of how to run a production business, it could be potentially disastrous for Channel 4 because it's got limited resources.

It's got to adapt to a change in broadcast market, which has been doing very, very well under Alex and it's very focused. This will take focus away. What are you going to be? Are you going to produce drama? Are you going to do nonscripted? If you -- everyone in this room who's done a business case for any production business will know, you lose money for the first 3 years and you probably -- if you've got really great people, you're going to start to making money in 5 years, but not the sizable money that will really dent and help Channel 4 to grow. It's preposterous. It will have a very difficult birth. It will probably struggle through its childhood, and I suspect won't last much longer than that.

So you're remaining equivocal on...

The real thing for Channel 4, frankly, is the government should stop thinking about that or off or whatever. And actually, how do we bring Channel 4 and the BBC together. We've got 5 public service broadcasters in Britain. The rest of the world doesn't have -- you might have one. Actually, it is unsustainable. And the future has got to be surely Channel 4 and the BBC coming together. And we should -- that should be the focus for a new Chair of Channel 4 and a new CEO, I would argue.

And on that bombshell, I'm going to shift gears a little. So Cécile, you've obviously seen some huge notable scripted successes recently with Jackal and very excited to see Mountainhead making a lot of waves. Do some of the points about Wayne's sort of cautious optimism on production in the commissioning market resonate with you?

Look, I love Wayne's optimism. I think it's -- we have to sort of stay optimistic. It's a force multiplier. But look, there's no question it's been really tough. And anybody who's been in the production business in the last few years sort of would echo that.

I think it's been tough for a number of reasons. There's less has been commissioned. Although I think I haven't done the numbers, I think if you look back over a period of 10 years, I'm not sure there's less today than there was sort of 10 or 15 years ago. So we had an amazing bubble. Everybody got used to the bubble.

And obviously, that is now -- we're sort of not coming back down to volumes that are more akin to those that we experienced 15 years ago. So there's less volume. There's pressure on the license fees. So even though the volumes are probably, again, probably similar to what they used to be, I think the license fees are probably lower.

And then on scripted and Wayne sort of touched on that, there's been a funding issue because the U.S. hasn't been co-producing sort of British content nearly in the same way or actually not at all potentially. So all that sort of stays true. I think what we're seeing, I think, Europe is actually coming into some shows.

So we've seen that on some of our own sort of programming. So you have to be very entrepreneurial these days and sort of look at how to sort of get things financed unless you're a global player like Netflix is. Having said that, at Sky, if I can sort of bring it back to Sky for a second, we never -- we were never a volume player.

So actually, what we've been doing has been very consistent and sort of very steady. And because we're part of the Comcast Group, we're able to be flexible on the funding model. So we've been able to fully fund the scripted shows when we needed to. And equally, when we have a partner like Sony, who really want to retain the global rights on certain projects, we've made those accommodations. It's not the norm.

It is the exception, but we've been able to make those exceptions. But sort of looking forward, I think things will settle again. Hopefully, the U.S. will start to come back online at some point sort of this year or next year. So I remain cautiously optimistic because ultimately, great shows will continue to get made, but you have to approach it differently.

And I also sort of believe that the production costs need to also come under control because obviously, it's -- if the envelope stays the same, you sort of need to allocate sort of your funding, and it's about capital allocation. And so we need to sort of see the production costs come down and be contained again.

And have you observed any movement in production where the costs have been managed a bit more in the last year?

I mean look, there's kind of a piece of the answer there is also about adjusting the budget to the conceit of the show. Like if you're going to make The Day of the Jackal, that you need a certain level of budget to make that and to make that well.

And so some of it also is about commissioning shows that are just fundamentally more contained. And so to you manage your envelope that way. And I've been in the production business for a very long time. You don't make an expensive show for cheap. You have to -- again, it's about sort of being creative about how you make things and to not cheat the audience, right?

Because ultimately, you need to make a product that the audience sort of recognizes and of quality and quality, again, is -- has to be defined in relationship to the format that you're producing.

Thank you, Cécile. I'm going to move to Larry actually. So you've obviously had a huge amount of success with U.K. commission content. In fact, I think Ted Sarandos last year was saying that 4 out of your top 10 shows originated here, not to mention the recent global success of Adolescence. So what are your plans and interests in the U.K. market? Are you expecting to invest more here? How do you see it?

Yes, we are. I mean the creative community here is exceptional. And the storytelling that is coming out of the U.K. is just really amazing. So we've grown our investment here. It's our second largest production center outside of North America. We've invested $6 billion -- over $6 billion in the last 4 years on U.K. production. So for us, it's all about U.K. storytelling for the U.K., first and foremost. And what we've seen is when things work in the U.K., we're successful.

And then things might also work outside of the U.K., but we're really commissioning with a local mindset for the U.K. audience. But we do expect to continue to grow. We're also not just relying on the creative community here, but developing the next set of creators. We put more than 5,000 creators and production talent through training programs here in the last 5 years, and we expect to continue that.

Which is terrific news for the U.K. There's often a debate where people will say, well, a streamer would never have commissioned debates. Is that something you would recognize or not particularly as Netflix?

You know what, it's great that you asked that question. Maybe this is finally my chance to just debunk this myth. And I understand that there might be people who have an interest in saying we're commissioning for international audiences. But we know and they all know it's just not true.

We -- Anne Mensah and her team in the U.K. commissioned Adolescence and Baby Reindeer and Toxic Town for the U.K. audience first and foremost. And their huge success here in the U.K., just what you're describing, Wayne, is what sparked the interest, and we heard Kevin up here talking about Mr. Bates that huge success in the U.K. is what sparked the interest and success around the world.

So we are absolutely focused. And that's also true if you're Tinny Andreatta in Italy, commissioning The Leopard or if you're Diego Avalos in Spain, commissioning Casa de Papel, we're focused on the local audience first and foremost. And that's our whole investment approach, which is about local audience. So maybe I can finally put that to rest here to say that we absolutely would have commissioned Mr. Bates if we had the opportunity, and we think our U.K. audience would have loved it.

So is that an interesting take where people feel that PSBs are doing things that are distinctively British when, in fact, you would argue that you might go for some of that same material.

I just want to say that -- am I happy and proud of Adolescence success around the world? Yes, of course. But does it make it any less British? I just don't think so. The same way Fawlty Towers or Planet Earth are no less British because they're globally successful and watched by hundreds of millions of people. And so one doesn't replace the other.

Also, I think what's brilliant, Adolescence, it's sort of a strange critique that somehow you would never commission a show like that where you did. You commissioned Adolescence because on the face of it is not a commercial title, and you give a platform for British talent around the world. I mean it's sort of -- I don't understand that.

We're all confused up here.

I think it's a good moment for you to go to Sarah and talk about you've got a commissioning sort of ticket, which is you make go incredibly well on 5 with some extraordinary successes. But you have a PSB remit. So you have a different set of cards played to you at 5. How do you see that? And how does it work for you?

Before I answer that question, can I just say these are very uncomfortable chairs and these are very bright lights. So far, Wayne said linear is dead, I run a linear channel. Cécile said you make good quality content expensively. I make good quality content quite inexpensively. When you have 6 billion, all that's taken seems to be British. So I'm glad to be forced to answer.

Linear is not dead because linear is a means of distribution. It's about brands. It's about your editorial tone and your brand, and we are not linear first or streaming first, we are audience first, and we're very proud to have a brand that understands its audience and caters to it.

I'm sorry, I'm not going to -- I can't remember your question, but I want to just respond to those 3 points. There is the most -- we are so lucky to live in this market, this nation that produces so much content and buys the other good stuff. And in foreign language as well as English speaking, we were to write subtitles on Netflix last night, which has educated all of us to watch content with foreign language. So aren't we lucky that we have everything we could possibly want, but it's not just about the big shiny dramas. I mean you surely expect me to say that, they're glorious and I watch them.

But it's about so much more this cultural system that we operate in, and that's what public service is for. Now of course, we have dramas too, and we have big and shiny dramas, and we're very happy to put them on Netflix because it means it makes them more famous and has a nice brand on it. And every time we put one of our quite inexpensive dramas on Netflix, it gets the top 10.

So the system is working. But we are there for so much more than that. You do distinctly British content, and I applaud what Netflix is there for. But you don't do documentaries about Shetland Isles and you don't do regional news and you never will, you never should. And you don't work with small indies, who are unproven and need to learn. And we do. We have a quote of a 10% regional production. But this year, we're tracking at 45 that we worked -- last year, there were 400 distinct U.K. commissions on our channel from 73 different producers.

That's the market that fuels what we can talk about being big and shiny and expensive and successful. And we are such a critical part of it. We're the smallest, but we are noisy, and we should have been noisier over the years because we are helping fuel the funnel that we can celebrate alongside us. That is unique in the world.

So you've got to sustain a lot of genres. I was -- Wayne was talking about the challenge of unscripted, but 5 is doing a fair bit of that.

Yes. I mean, look, we acknowledge. I think one point I will take that the audience habits are changing. They are, and we need to work differently with different platforms and different types of content. But we -- our unscripted is a core part of our audience -- of the appeal to our audience, and it will always remain so. Six years ago, we had 8 hours of drama. This year, we'll have 100. So we are recognizing that you need box sets, you need to migrate audiences to streaming.

But we work very creatively with small producers. We tend not to pay for development. We tend to go straight to commission. We tend not to commission. We tend to commission too. We work as much as we can with the various screen bodies around the country. And we're increasingly interested in getting into people that come in television for the first time to help them.

So we have a new scheme on drama production, for example, with student writers and directors where we can give them a break that they don't have. When I was growing up, you had regional theater and you had regional franchises, and you don't have that anymore. So if we don't invest in smaller producers, scripted and unscripted, and I don't just mean on screen, I mean behind the screen. I mean the skills and talent, and we talk a lot with the new government, thankfully, about joining up skills, talent and creative ecology. So we still have these exports, then they simply won't be there for the bigger shows.

It is sustainable. I'm a little bit sick, to be honest, 18 months into this role of being told that my model is unsustainable. We're profitable, and we're playing our part. It's just that we're only part of the ecosystem that the U.K. has. I've always call it tapestry today. I think I'll call it a mosaic. We're part of a mosaic. Yes.

And we had -- we heard a little bit from Wayne and Cécile about how there's some adaptation to the budgets available for -- to get some great shows out but for less money. How does 5 approach this conundrum? And what more do you think could be done in that area?

So we partner, partner, partner. I hope I don't suspect there aren't many small in this room, but I hope people find us easy and straightforward to deal with. We give quick answers. Our budgets are known. We don't pretend. We are very flexible on second windows and sharing. We like being to Alison earlier called YouTube a distribution platform. That's how we see it.

I was amused on the way here, I was trying to work it out. When I was at Channel 4 in 2009, I was involved with the first YouTube deal, the one where Channel 4 always first put its long-form content on YouTube and YouTube took adverts on the side of buses saying YouTube's got telly and nobody watched it. It was brilliant for us because we took loads of money out of it.

And Enders ever visionary wrote a report saying, this is the beginning of many broadcasters coming on to YouTube. Well, 16 years later, they were right. My point is it's taken the market a while to understand that you can't just hone your own service. That's not how the audiences operate.

You have to take your content and go wherever it is. And that includes doing funding models that work with partners to get maximum distribution. The one call out I would like to do slightly on the inexpensive point actually is there's a lot of lobbying at the moment for drama and for tax credits to be applied to the high-end drama, but to a lower bracket because we are going to have to find a way of making drama less expensively.

And the lobbying group, we're very active and very supportive of them have lobbied for the drama between 1 million and 3 million an hour tariff, which probably feels like the lower end of drama. We make it for less than that. So we, and I think I've already said this publicly, are lobbying to for exactly the same principle, but for it to be less than 1 million as well.

So then when the dramas that really do fuel, and we've had the biggest streaming quarter ever on 5, when they fuel our growth and when they then go on to platforms like Netflix and others and help fuel their growth, they want to be shot in the U.K. And they're written by U.K. writers and they're directed by U.K. directors. So we can make -- we can pass the cultural test.

We don't particularly want to have to go to Malta, Hungary, Spain, nice as those places are. We want to film them here, and we want to bring the skills and talent here. So I think that the role of PSB, and I'm afraid I missed what Tim said earlier, so I hope I'm not contradicting. I hope I'm supporting. We need to take our own fate in our hands and not expect anyone to give us an answer.

But we do need the market to recognize what we're here for and to support us. So the Media Act is a brilliant example of that. Prominence is so important to discover our content. Partnership is important. But also things like tax credits that enable us to make content and fuel the skills and talent that then feeds the funnel that makes the mosaic we live in, we really need that support as well.

Thank you, Sarah. So I'm going to...

Feels like the bright lights now.

So I wanted to pick up on something that Wayne said and obviously something from the last panel as well on YouTube. I wanted to talk to Larry actually in the first instance. So YouTube, very interesting. I mean I think Ted Sarandos might have referred to it before as a worthy competitor, which is praise indeed. What's Netflix's approach to the creator economy? You've obviously got -- done some things in there with Jake Paul versus Mike Tyson and the Sidemen series. So how do you embrace or not embrace that creator economy from a Netflix point of view?

Very worthy competitor. I still look at the 80% of viewing on the TV that's still out there to compete for. So I'm optimistic about the landscape there. And look, we always have to earn our audience every single day, and it's no different vis-a-vis YouTube. And we're finding YouTube is a great place to discover talent.

So we offer something to talent that YouTube doesn't. We are much better at helping them monetize. So we derisk that user-generated content investment, and we can guarantee them profit and cash flow upfront. We also give them access to a different audience and a really massive audience. And then for our members, we're bringing that content to them. So you mentioned the Sidemen. We've also worked Ms. Rachel or Killer Tony, and we've actually expanded their audiences in a different way.

So it's not only a place to find new talent. And Sarah mentioned as local theater is getting less common. We need to go to film schools and festivals and local theater and Edinburgh. YouTube is an amazing place to find new voices and to find new creative talent. So we're using it for that as well.

And Cécile, you're in a really interesting position because you obviously ran YouTube as well and now at Sky. What are your observations? Is there a lot of crossover between the creator economy and TV in your view? Or does it work? Does it not work?

Yes. So I mean YouTube, there is a creator economy, of course, and it's the core of YouTube's how it started. But now it's much more than that, right? It's -- and I think Alison spoke about, it's a distribution platform. And so what we're seeing is Sarah was sort of mentioning your first sort of Channel 4 deal. There used to be a lot of reluctance from what we call the traditional media sector to engage sort of with YouTube.

And then finally, it's realized actually it kind of needs YouTube and that YouTube is a mighty distribution platform and that has incredible sort of reach as we all know, and you can't ignore it. And you have to think of it as another window to your content.

Now from a Sky standpoint, we're a pay service. So that brings sort of different kinds of options and challenges. But that's what it is, right? It's another sort of window into your content. That's one thing. We're at Sky, very successful on YouTube with Sky News. So we have a lot of audiences that engage with Sky News through YouTube, Same with sports.

A lot of highlights, so huge, huge audiences. And the sports team has done an amazing job in sort of tapping into the under 35s through their sort of YouTube, both the highlights, but also sort of bespoke programming that they create for YouTube. And on the content side, it's a lot about including it in the marketing plans, but also starting to think of it as another platform, another distribution mechanism. And then with talent, yes, of course, there's great talent on YouTube. And to Larry's point, you look at it as you would sort of talent coming out of theater or other places.

I think the notion that somebody has a huge audience on YouTube and you'll be able to tap into that by bringing them into a traditional kind of long-form format, it's more complicated than that. It doesn't necessarily follow. So you can't make that assumption.

You have to kind of, again, think as any kind of casting exercise. So whether talent is right, whether that audience will actually like them doing something different in a different platforms in a different format. So I would caution against sort of making those sort of kind of those judgments as a rule. I think it's -- again, it's another interesting place to look at.

You can't bet on that audience coming over.

No. You can't. You can't. No.

Thank you. And now final question. So a quick fire round, starting with Wayne. I'd like one show on your slate that you -- this is for everyone. One show on your slate, you're watching love and one show on arrival slate, please.

Well, I'll put another plug out for Dept. Q or if you've already watched that and watch This City is Ours on iPlayer, the highest completion rate of any drama apparently on iPlayer ever apparently. It's brilliant. And I love Andor. I think Andor is a really clever show about middle management, which is...

Cécile, what's your vote?

So at the moment, I'm absolutely loving Billy Bob Thornton in Landman. He's -- I mean we have always -- he's absolutely spectacular in that series. And then on Sky, I'm going to -- the one I'm going to go to is a documentary series actually that we launched in 2 parts, Scott Frost Vs. And it's 6 episodes that use David Frost archive to sort of reexamine basically just a number of decades, starting with the 60s all the way to -- it includes -- there's a whole episode on his very famous interview with Nixon, which is incredibly relevant actually today.

And then one on the Middle East because he had every single leader from the Middle East on his program from Arafat to Moshe Dayan, Rabin, et cetera. And again, a brilliant episode and quite devastating actually to see how close we got. It was all the way to [ Camp David ] to peace process. So I would -- it's a sort of different kind of series for Sky, but it's been very, very successful.

And it's just brilliant to see somebody like David Frost. It's just amazing, amazing broadcaster and who just knew how to create the right environment for people to really open up in a way that I don't think that format exists today. Today, we're a lot more confrontational and polarized and there's a lot of lessons, I guess, in it. So enjoying it hugely.

Thank you. Larry, what's your two?

Well, Wayne mentioned Dept. Q. Thank you, by the way, for an incredible series. So I'll bring up Secrets We Keep from Denmark. If you like Adolescence, this is beautiful people in beautiful homes in a crime mystery, which is really wonderful. And then -- well, to have some fun, there's an Apple show called The Studio. And one of the later episodes, there's an actor playing Ted Sarandos who's just quite -- it's quite an incredible performance. So I've been watching that.

Thank you. And Sarah, the two?

The current favorite on arrival because he doesn't like a bit of Jon Hamm. It's Your Friends and Neighbors. That's great. And actually, I just realize there is a connection because the one I'm going to choose on my slate is also a very British version of British version of Neighbours, The Feud, where you build an extension and neighbors aren't so happy about it and all sorts of dark secrets get uncovered. And actually, it's remarkably addictive. Both of them are at the opposite end of the spectrum, which I occupy, high-end American and lower-end British.

Very addictive on your home life, I'm delighted to say. Great. Thank you so much for an absolutely stellar set of insights. Really enjoyed that. Thank you all very, very much.