$NFLX Netflix Q2 2026 Earnings Conference Call

I'll take this one and unpack it a bit since I know that there's plenty of interest on this topic. Start by saying there's not a linear relationship between view hours and revenue and profit because all hours are not created equal. All hours don't provide the same kind of value to the business. And a really great example of this is live programming. So, live events do a lot of lifting for us for acquisition. They're good for monetization. They drive ad revenue, fandom. They're also a promotional platform, but they do not yield typically as many raw view hours. So, live we expect will be 5% of our content budget this year, but we think that'll only be 1% of view hours. Having said that, six out of top 10 new member sign up days of the past 5 years have come from live events. And if you compare that to another content category, take animation series, kids family TV, that's also about 5% of our content spend, the same amount of spend, but it's going to drive, we expect 8% of view hours. So, same spend and 8x the raw view hours. So, you can see the differences there, even though as indicated by the amount that we're investing in both those categories being the same, we think they're doing the same value for the business. So, we're constantly looking to improve across every dimension of engagement. We look at these as three dimensions: quality, variety, quantity, because they taken collectively drive acquisition, drive retention, drive the value that our consumers and our advertising partners ascribe to our service. We described in the last few earning calls the progress we've made in quality over the years. We're not going to go into the details of those quality metrics because frankly it's taken years for us to develop it and vet it and assess it and improve it, and we think that those details are a competitive advantage. We're also continuing to expand the variety of our entertainment offering. You see us launch new types of content like live, like video podcast, cloud TV games. These are all doing different things in our portfolio to support different needs from our members. And then on quantity, view hours grew 2% in the first half of 2026. That's an incremental 1.5 billion hours relative to the same period last year. It's a slight acceleration compared to 1.5% growth in 2025. And just to be very clear, like all those other dimensions, we remain focused on continuing to grow that number. And better understanding how we are doing at delivering member value, member love is critical to our business. We get it. We geek out on improving that understanding, operationalizing that understanding. And with regard to engagement, when I started about 20 years ago, we had one number to describe engagement, hours. Just flat hours, no weighting, no adjustments. And very similar to how we've evolved other metrics in the business since then, we've gone through about a dozen major iterations of our understanding. We get more and more sophisticated because we know, ultimately, it's combined quality, variety, and quantity of engagement that translates into satisfaction and value for members. And that drives the strong business outcomes we see right now: industry-leading retention, increased willingness to pay, strong advertiser demand. And those ultimately drive the top-level metrics of our business, revenue and operating profit, which are really the ultimate signs of our health.

Those are 20 years of debates and walkie-ness.

Let me take that, Steve. Look, when it comes to programming spend, there are three really important takeaways. First, the thing to remember is that the vast majority of our programming spend goes into the core TV series and film, where we have a really strong track record. More than a decade of translating those investments into value for our members and returns for the business. I'm going to come back to that core in just a second, but the second one is that we're really disciplined investors. So, there isn't some hyper acceleration of content investment. We grow the content spend slower than revenue while we're continuing to invest in a huge addressable market. So, we're forecasting content expense up about 10% this year. It's a little higher than the 8% we averaged over the last 5 years and below the 14% we averaged over the past decade. The third thing we want you to remember here is that when we expand into new entertainment offerings, new initiatives, we do it gradually. We do it where we believe we can add more value for our members and we do it where we believe we have the right to win. And then we look for the positive signals before we invest at material scale. This is our MO. It's been our MO for some time. You ask how the slate is performing. There's a lot to be happy with in Q2. I Will Find You was our biggest launch of original series this year. Swapped is on track to become the second biggest original animated film right behind K-Pop Demon Hunters, which is exciting. Speaking of K-Pop, we have K-Dramas like Teach You a Lesson, which is on track to become the second most watched South Korean show ever globally and it's on track to be our biggest series in South Korea of all time. There's a show called The Polygamist. You probably is not on your radar maybe, Steve. But it's out of EMEA. It's another great example of the understanding of the local markets and the local regions. The Polygamist was a popular novel from Zimbabwe more than 10 years ago from an author named Sue Nyathi. And the teams adapted that into a soapy series for South Africa where it's now a huge hit and is traveling all over the region and all over the world. In Latin America, we've got a big season that just came back for Rosario Tijeras. This was a show that started its life as a licensed show from TV Azteca in Mexico. After three successful seasons, we picked it up and produced it original season 4, season 5, and just screened season 6. So, you're seeing the slate perform around the world, which is a real differentiated part of our business. Now, with that said, with the core, we're also really pleased with the investment so far in our live programming. It plays a really important role as Greg mentioned earlier, driving acquisition, accelerating ad revenue, fueling conversation, helping us to launch new shows. It's helped us build our and it's also helping us to understand what are the benefits of live over the entire catalog. So, we're ramping up our live event slate. You saw the Kevin Hart roast in Q2, Major League Baseball Home Run Derby earlier this week. What was really fun at the Derby, we produced an original and exclusive Hot Ones special that we shot on a baseball field to promote Will Ferrell's new series The Hawk, which just launched today actually. And I think it's a cool example of the intersection between our core, that core series The Hawk, of our expansion of the new exclusive creator content with Hot Ones with Sean Evans as a best-in-class creator. We're thrilled to be in business together. Plus live sports, all coming together on a baseball field and on Netflix around the world. The result is a highly attractive, scalable return on content investment and it ladders up to healthy business metrics that Greg just detailed and our strong growth in revenue, dollar profit, and profit margin.

Yeah, Ted. Thanks for asking, David. I really appreciate the question because in aggregate we are not seeing any material change in our second season viewing compared to season ones. Our second seasons are performing well within our bands of expectation. We, you know, very often we see drop off from season 1 to season 2. It's very common in the industry and it's even more so with us because we launch our show so big. So, our global reach, our discovery mechanism, releasing all at once, this enables us to find a very large audience early. So, our shows tend to start really big while most other places, their shows start pretty small and occasionally grow from there. For example, I just mentioned The Polygamist from South Africa. That show has already had 24 million views in 5 weeks and it's still recharging. When we look across the entire portfolio, across all the regions, all the content categories, our season 2 falloff is actually slightly improved this year relative to last year. Now, of course you can pick any five data points to tell any story you want, but I'm going to repeat this: Our season 2 falloff is actually slightly improved this year relative to last year. So, no changes in release strategies. Thanks, Ted.

Yeah, look, great. Thanks for asking. We talked about this a lot last quarter. It was World Baseball Classic on Netflix in Japan was a huge hit. It became our most-watched program ever in Japan. It was the biggest baseball streaming event ever. World Baseball Classic is kind of like these other big live events and they behave a lot like our returning seasons of our big shows. They drive disproportionate sign-ups and because of that acceleration, they can exhibit slightly higher churn. But the results are exactly consistent with that trend and in line with our expectations and all of our modeling. So, we're thrilled and we're continuing to see, you know, to lean into live events because they have a big outsized positive on the business. They drive conversation, drive net acquisition. So, we're going to continue to build out that global live event calendar and include expand it to include some regional live events as well.

Well, let's not get into areas that we may be exploring here, and let's not pre-announce anything. But I am pleased with the early progress we're making with vertical clips for choosing on mobile, and certainly video podcasting. We mentioned in the letter, we announced a partnership with publishers like Condé Nast and Hearst and People. So, we're going to bring on some lifestyle content on the service next month. And with the podcast, we're super encouraged with the viewing patterns that we're seeing. They've convinced us that this viewing is definitely incremental for us. We're seeing that in daytime viewing. So, we're engaging our members outside of primetime where we historically have done most of the engagement on Netflix. And keeping in mind that professional long-form content is a pretty small part of mobile, it's exciting to see that our video podcasts are out-indexing on mobile for us. So, it's really great progress on both fronts. It's really important for us to meet our members where they are with the kind of entertainment that they're trying to enjoy. So, we've been building out this great lineup of podcasts that include a mix of owned and licensed with creators like Martha Stewart, Kate and Oliver Hudson have a great new one. We're thrilled to have Jay Shetty's On Purpose exclusively on Netflix. And our members are starting their day with The Breakfast Club, they're loving the official Bridgerton podcast, Bill Simmons, Pete Davidson, Brian Williams, just to name a few. These are examples of us continuing to evolve and deliver members more entertainment value and in more ways to engage with stuff they love. But to take a step back and contextualize this, over the last 15 years the definition of TV has broadened and our definition has changed along with it. So it's easy to forget, but if you rewind the clock to say 2013, we had a single prestige English language scripted drama show. No unscripted, no local language, no originals, no comedies, no competition shows. And now we're the number one creator of original programming around the world. Just this week the Emmy nominations were announced and we have an Emmy nomination in nearly every category. We didn't even know back in that first year if House of Cards would qualify for the Emmys. There was a bunch of debate as to whether or not it was TV. So these just announced nominations I think are a testament to the quality, the quantity, and the variety of our original programming. These expansions though are evolutionary, not revolutionary. These are expansions on the same continuum that we started on years ago. Adding new things as they come available to us as we see signals that our consumers would get value including in their Netflix subscription. That continuum has served our members and our business really well. So we're really excited about the progress on.

I'll take that. So you're right, Jessica. We do benefit in a number of ways from the tremendous scale that we worked so hard to build over the last 20 years. We've invested in a number of areas of the business. I look at our tech investment where we spend billions of dollars every year, and as a result, we have best-in-class discovery, personalization, plus a bunch of great R&D and innovation, including in production, in distribution, in data that we can draw on to constantly improve every aspect of the business, and the breadth and depth of our content catalog. These in combination all deliver this kind of flywheel of advantages. We have the biggest, most engaged audience in the world. Creators and advertisers love that. We lead the industry in monetization. We have better programming ROI because we amortize across this global footprint, and very often that programming is very travelable. This is good for our members, it's good for our business, it creates a really healthy model for organic growth. Greg mentioned TF1 earlier. I think it's being able to bring that scale to work with partners like TF1 in France to bring content to our members in multiple ways and multiple business models. I think that really helps when we can bring that distribution scale to local players. And finally, Jessica, regarding consolidation, the industry has been consolidating for over 10 years, so this isn't new. We focus all of our energy on pleasing our members and sustaining healthy growth for the business.

Great. Well, look, it's early days on Enterpositive, but we're broadly seeing that GenAI is starting to have an impact across hundreds of our productions. So, important to note that we have other GenAI tools in addition to Enterpositive. We're thrilled with the speed they're bringing to market for us. But we also have I-line, and we have our animation lab. And what's cool is that they're all working together to drive innovation. We said in the letter, but GenAI is scaling quickly across the entire creative process, from concept to pre-vis, through post and delivery. We're making higher quality output more quickly and efficiently than we could have using traditional methods. So, GenAI workflows now have been used in roughly 300 of our titles, with the largest concentration to date on post-production. But we're leveraging GenAI for really complicated shots and sequences. We called this out in the letter, things like enhancing crowds or historical battle scenes, those kind of things. And we keep in mind that in many cases, productions would have left out those key shots because they just wouldn't have been able to afford them. They wouldn't have been able to do them in the time frames that they're working on. So, those sequences are saved by the availability and access to these GenAI tools. On the content side, we believe it takes great artists to make something great, and AI is not changing that. AI will give creators better tools to bring their visions to life. Movies are being made by people who make movies. AI provides them with better tools to make them even better. So, today our talent leverages tools for things like set references and previs and VFX and sequence prep and shot planning. It all makes the production itself so much more smooth and efficient and fast. And that's just the beginning. We're seeing it across the entire production life cycle. And AI, those use cases are scaling faster and faster. Our documentary series we just released called American Experiment. That series features 17 minutes of AI-enhanced footage. It enabled us to expand the scope of the series in ways that just wouldn't have been feasible before. Those 17 minutes were produced twice as fast and at half the cost of previous options. So, by equipping creators with these tools, we believe they're going to enhance their abilities and we are going to have better and more impact for every dollar we spend on our programming. So, content creation timelines can be shortened and quality can be enhanced. So, the cost savings will likely be reinvested in more content on the service, which fuels high-quality engagement. And that whole revenue profit flywheel that we've been talking about from day one.

Well, I'll take this if you don't mind guys. Dan, we're not going to comment on market speculation but I'd like to take the opportunity to remind everyone about our core philosophy. You know, we have multiple ways to achieve our goals: producing, licensing, partnering. And we're constantly seeking ways to allocate our resources in the most attractive options to maximize value for our members and deliver a return for our investors. As we said, we're primarily builders not buyers, and that remains the case today. So others will speculate about our intent because they have their own reasons for that. But our track record is clear that we have a very high bar to do any big M&A. Spencer, you want to add anything?