Netflix, Inc. (NFLX)

Q2 2010 Earnings Call

July 21, 2010 06:00 pm ET

Executives

Erin Kasenchak - Senior Manager, IR

Reed Hastings - CEO

Barry McCarthy - CFO

Analysts

Steve Frankel - Brigantine Advisors

Dave Miller - Caris & Company

Youssef Squali - Jeffries & Company

Ryan Hunter - Wedge Partners

Ben Rose - Battle Road Research

Dan Ernst - Hudson Square

Jeff Rath - Canaccord

Nat Schindler - BofA-Merrill

Jason Helfstein - Oppenheimer

Scott Devitt - Morgan Stanley

Doug Anmuth - Barclays

Mark Mahaney - Citigroup

George Askew - Stifel Nicolaus

Ralph Scharkart - William Blair

Tony Wible - Janney Montgomery Scott

Justin Patterson - Morgan Keegan

Wayne Chang - Canaccord

Barton Crockett - Lazard

Mike Olson - Piper Jaffray

Imran Khan - JPMorgan

Brian Fitzgerald - UBS

John Blackledge - Credit Suisse

Ed Williams - BMO

Jim Friedland - Cowen

Andy Hargreaves - Pacific Crest

Heath Terry - FBR

Presentation

Operator

Good day everyone and welcome to Netflix second quarter 2010 earnings Q&A session. Today's call is being recorded. At this time for opening remarks and introductions, I'll turn the call over to Erin Kasenchak, Director of Investor Relation. Please go ahead.

Erin Kasenchak

Thank you and good afternoon. Welcome to the Netflix second quarter 2010, earnings Q&A session. We released earnings for the second quarter at approximately 1.05 PM Pacific Time today. Earnings press release, management's commentary on the quarter's results and the webcast of this Q&A session are available at the company's Investor Relations website at ir.netflix.com.

Like last quarter, this call consists solely of Q&A and we are going to conduct the Q&A via email. Please email your questions to ir@netflix.com. We may make forward looking statements during this call regarding the company's future performance. Actual results may differ materially from these statements due to risks and uncertainties related to the business.

A detailed discussion of such risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the commission on February 22nd, 2010. A rebroadcast of this Q&A session will be available at the Netflix website after 6.00 PM Pacific Time today. Before moving into Q&A, I would like to turn the call over to Reed for a few opening remarks.

Reed Hastings

Welcome everyone and let's just jump in with question, Erin.

Question-and-Answer Session

Erin Kasenchak

Great, first question is from Steve Frankel at Brigantine Advisors. Will the recent content deal with Relativity Media signal a material increase in the overall content expenditures or a continuation of the trend of shifting investment from physical to digital?

Erin Kasenchak

Steven, it's a little of both, we have been investing more in streaming content, quarter-after-quarter, year-after-year, as we get revenue growth and confirmation that the streaming content investment is a smart one. And Relativity does indicate a material step up in that, most of that doesn't come in until Relativity delivers the films so that would be next year and beyond. So it's a material step up this year for Relativity. But we are out looking for more content and unique to Relativity is that it’s completely exclusive for internet subscription to Netflix, so it's the first essentially a shift in our strategy which is to also be licensing exclusive content in addition to non-exclusive content. We don't see a big radical shift. It's a thing we are doing some of the content on movies and TV shows exclusively now which as you know is open to new parts of content of availability because much of the content in the pay-TV window is sold exclusively.

Erin Kasenchak

And second question is what is the percentage of subscribers on Blu-ray plan?

Reed Hastings

Steve, it's a little over 10%.

Erin Kasenchak

Great, next question from Dave Miller of Caris & Company. Can you confirm whether or not the introduction of the iPad app has resulted in additional subs beyond your expectation or whether the Netflix app has resulted in already existing subs acquiring iPad?

Reed Hastings

Well Dave, every new platform whether that's the Wii, the iPad, all of the platforms, do both. They help us with existing subscribers getting more value from the Netflix service and they help us attract new subscribers and the iPad was big success for us as the Wii was and as really all of our platforms have been.

Erin Kasenchak

Next question from Youssef Squali at Jeffries & Company. How is the rate of activations on the Wii versus what you have seen for the Xbox in the first 90 days?

Reed Hastings

Youssef, we don't break out platforms specifics. But I would say that we were very happy with Xbox when it came out and we've been very happy with the PS3 and now we're very happy with Wii. They all have large install bases and that's a meaningful way for our subscribers to get value from our service, and watch great movies and TV shows.

Erin Kasenchak

The second question, is there a subscriber segment? Is there a sub-segment of subscribers who only stream the service and stop ordering DVDs? If so, can you quantify?

Reed Hastings

The majority of subscribers do both stream and take DVDs.

Erin Kasenchak

Next question from Ryan Hunter at Wedge Partners. Are marketing expenses associated with the Canadian expansion already factored into your operating margin guidance for 2010?

Reed Hastings

Yes, it is.

Erin Kasenchak

And what percentage of your CDM partners will support Canadian subscribers?

Reed Hastings

Assuming that you meant CDN, in which case there is no real issue of the internet, our providers such as Akamai and Limelight and others that's out in Canada.

Erin Kasenchak

Great next question's from Ben Rose at Battle Road Research. As Netflix gears up to enter the Canadian market and for similarly other foreign markets, what is the most significant content delivery challenge facing the company? Do you expect higher content delivery unit costs than you have in the US?

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

GE's Exit From Dow Could Be a Blessing in Disguise, Goldman Says

GE's Exit From Dow Could Be a Blessing in Disguise, Goldman Says

Stocks Posts Gains, Nasdaq Strikes Record High

Stocks Posts Gains, Nasdaq Strikes Record High

Own Retail Stocks? This Chart Will Make You Want to Instantly Cash Out

Own Retail Stocks? This Chart Will Make You Want to Instantly Cash Out

Disney CEO Bob Iger Touts Benefits of His Firm's Deal for Fox Beyond Just Money

Disney CEO Bob Iger Touts Benefits of His Firm's Deal for Fox Beyond Just Money

2 Things Fed Chairman Jerome Powell Just Said Upset Investors

2 Things Fed Chairman Jerome Powell Just Said Upset Investors