Welcome to the Netflix Q3 2024 Earnings Call Transcript. I am Spencer Wang, Vice President of Finance, Investor Relations, and Corporate Development at Netflix. Joining me today are Co-CEOs Ted Sarandos and Greg Peters, and our CFO Spence Neumann. Please be advised that we will discuss forward-looking statements, and actual results could differ.

Let's address some questions that have been submitted by analysts, starting with Eric Sheridan from Goldman Sachs. Eric asks about Netflix's key investment priorities for 2025 and beyond and how they've evolved over the past 12 to 18 months. Ted Sarandos responds by expressing confidence in the business as they head into 2025. He emphasizes that Netflix had a plan to reignite growth and succeeded, as seen in the 2024 financials. The focus was to achieve 15% revenue growth and improve the operating margin by 6 percentage points, achieved by enhancing member engagement. The platform has maintained healthy engagement with members consuming about two hours of viewing per day.

Recent hits like 'Perfect Couple' and 'Monsters: The Lyle and Erik Menendez Story' have contributed to their successful quarter. Ted is excited about the upcoming Q4 slate, highlighting diversity in titles from the U.S., Brazil, Korea, the U.K., and Germany. Looking into 2025, Netflix intends to build on its success, with new shows and returning favorites, reinforcing their commitment to showcasing global creative talent. Greg Peters reiterates Netflix's dedication to continuous improvement in service quality, an approach that has served well for over a decade. The focus remains on enhancing film and series offerings. Netflix's investment in global markets is showing dividends with a regular stream of hits, signaling sustained engagement from diverse creative communities.

Beyond enhancing content, Netflix is also improving the user experience with a more intuitive TV homepage. They aim to expand their entertainment offering with new initiatives including games, live events, and expanding the advertising business to provide a lower-priced subscription option. Spence Neumann addresses a question from Jessica Reif Ehrlich of Bank of America regarding Netflix's revenue growth strategy. Key components include organic membership growth, ARM increases, and advertising, with particular emphasis on improving conversion of consumer demand and growing ads revenue. In response to a question from Justin Patterson of KeyBanc, Spence talks about Netflix's strategy to increase operating margins over the long term. He maintains that gradual margin increases are preferable, allowing reinvestment back into the business for further service enhancement.

Spence also discusses the slight LatAm member net loss in Q3, attributing it to recent pricing changes dampening near-term growth, but reassures that the region is already seeing signs of recovery in Q4. Questions on advertising from Steve Cahall of Wells Fargo reveal Netflix's priority in growing ad-tier memberships and improving monetization strategies. Greg Peters mentions that the Netflix ads tier accounts for over 50% of sign-ups in ad-supported countries and engagement remains healthy with ads plan members watching similar content to non-ads plan members. The company is executing partnerships with The Trade Desk and Google to boost demand, confident these moves will deepen sales channels and efficacy.

Ted Sarandos notes that any technological advancement, including AI, must enhance the quality of content, as success hinges on story-telling quality rather than cost reduction. Responding to questions on Netflix's theatrical strategy and pricing, Gregory K. Peters emphasizes consistency in pricing strategy, aiming for continued added value that drives engagement, acquisition, and ultimately retention. Finally, Spencer Wang discusses future capital allocation, reiterating Netflix's focus on reinvesting in growth and maintaining flexibility rather than pursuing leverage-driven share buybacks or dividends.

The session closes with a question from Michael Morris of Guggenheim regarding potential bundling with less scaled streamers. Ted Sarandos asserts Netflix's strategy is focused on enriching the consumer experience by investing in a diverse, high-quality content slate, alongside burgeoning investments in live events, ads, and games. In conclusion, Netflix remains committed to enhancing member experience through an expansive content portfolio while strategically pivoting to leverage ad revenue and emerging digital technologies.