But again, we’re committed to grow margin each year. And we see a lot of runway to continue to grow profit and profit margin over the long term.
Spencer Wang: Thank you, Spence. Our next question comes from Alan Gould of Loop Capital. Which inning are we in with respect to enforcing paid sharing? Two years ago, you said 100 million subscribers were sharing passwords with 30 million in UCAN. How many do you estimate still borrow passwords? And I’ll turn the floor over to Greg to answer that question.
Greg Peters: Yes. As we mentioned last quarter, we’re at the point where we’ve operationalized the pay sharing work. So this is just now part of that standard mechanism that we’ve been building and iterating on over time to translate more entertainment value and great film, series, games, live events into revenue. And like we do with all of the significant parts of our product experience, we’re iterating on that, testing it, improving it continually. So rather than thinking beyond sort of specific cohorts or specific numbers, we really think about this more as developing more mechanisms, more effective ways to convert folks who are interacting with us, whether they be borrowers or folks that were members before that are coming back, we call them rejoiners or folks that have never been a Netflix member.
So we want to find the right call to action, the right offer, the right nudge at the right time to get them to convert. And just to be clear, we still see opportunities to improve this process. We’ve got line of sight on several improvements to this value translation mechanism that we expect will deliver and contribute to business growth for the next several quarters to come. But I also very much believe that just like for the last 15 years, we’re going to – we’ve always found something to improve in this process. And even beyond those, for years and decades to come, we’ll be working on this and making it better and better and better. So all of those improvements could allow us to effectively get more of that 500 million plus smart TV households to sign up and become members.
Spence mentioned hundreds of millions yet to come. This is a way to effectively get at more of those folks and make them part of our membership base. And as we mentioned earlier on the call too, I think worth noting that while we’re fully anticipating continue to grow subs, the overall business growth now has extra levers and extra drivers like plan optimization, including things like extra members, ads revenue, pricing into more value, which is important. So those levers are also an increasingly important part of our growth model as well.
Spencer Wang: Great. I’ll move us on now to a series of questions around advertising. The first of which comes from Doug Anmuth of JPMorgan. What are the most important drivers of scaling your ad tier when you think about adjustments you could make to pricing and plans, partner bundles and marketing? How do you get people over the hump for a – that a few minutes of ads an hour can still be a very good experience at the right price. Greg, why don’t you take that one?
Greg Peters: Yes, all the things mentioned in the question matter. And I would say we’re generally taking our entire playbook, everything that we’ve learned about how do you grow members and we’re applying it to our ads tier now. So clearly, that means partner channels, it means device integrations, bundles, integrated payments. Those are all important tools for growth just as they are and will continue to be in our non-ads offering, increasing awareness of the quality of our ads experience, especially relative to the linear TV ads experience, which in many countries is really quite poor. That’s an important and iterative tool when we talk about sort of marketing and awareness building that’s, that’s going to be part of our growth mechanism.
Low price, that’s important to consumers. 699 is an example in the United States for multiple streams, full HD downloads. We think that’s a great entertainment value, especially at the industry-leading low ad load that we’ve got. So that’s critical as well. So I think you can see the results of leveraging all of these mechanisms and more and how our ads tier has been scaling over the last couple of quarters. So we’re 65% up quarter-to-quarter this last quarter. That’s after two quarters of about 70% quarter-over-quarter growth. For me, it’s exciting to see that growth rate stay high even as we’ve grown the base so much because obviously, the numbers indicate. That means that there’s more absolute additions each quarter. So we’re making good progress there.
But look, we’ve got much, much more to do in terms of scaling. We’ve got more to do in terms of effective go-to-market, more technical features, more ads products. There’s plenty of work ahead for us on ads.
Spencer Wang: Great, Greg. Our next question on advertising comes from Rich Greenfield of LightShed. He has a three-part question. Part one, can you update us on your thinking around the optimal spread between the ad tier and the ad-free tier? Secondly, is your advertising ARPU, excluding the subscription fee, up meaningfully versus your original comments that it was in the $8 to $9 range last year? And then lastly, can you give us a sense of what ARPU would look like if supply was not outstripping demand?
Greg Peters: Yes. I’ll take the first one and then maybe hand the ARPU/ARM points to Spence. We don’t have a fixed operator position on sort of the optimal pricing spread. And much like we’ve done with price changes in general, we really use signals from our customers, things like plan take rate, conversion rates churn to guide us along an iterative path to get to that right pricing. And I think it’s also probably worth noting that sort of right pricing is not really a static position. As we continue to evolve and improve our offering, that’s going to change as well. But I think a good general guideline for us in the long term is that it would be healthy for us to land overall monetization between our ads and non-ads offerings in roughly an equivalent position. So it really comes down to what works best for any given member. And it’s really a member choice about which plan they think serves them the best. And then I’ll hand it over to Spence on ARM questions.
