Jessica Reif Ehrlich: Right. Of course. You announced some price changes today in premium and basic in several countries and more to come. Can you provide a current view of price increase or timeframe for the standards here?
Gregory Peters: Yes. So as you know, our focus on planned evolution over the last 18 months has largely been about paid sharing. And now that we’ve rolled that out, we broadly see the benefits, as I outlined in the letter, that’s become a normal part of our business, which then allows us to return to our core approach to pricing. And that approach, that philosophy has not changed. We look to wisely invest the money that members pay us, deliver back to them more amazing stories, more entertainment value. And then when we think we’re doing that, we’ll occasionally ask them to pay a bit more to keep that virtuous circle spinning. So hence, the changes that you noted that we’ve announced in the letter. I think it’s also worth noting that we seek to have a wide and even wider over time range of price points with the corresponding set of features, of course, that allows entertainment fans from around the world that have different needs to be able to access the great storytelling that our creative partners are doing at a price point that works for them at a feature set that works for them.
Part of that widespread is the low entry price point. And that’s why we’re keeping that low entry price point static as it is. So we think that this $699 in the U.S., £499 in the UK, EUR 599 in France. It’s just an incredible entertainment value. And if you think about the breadth and the variety of storytelling that we’re offering, whether that’s compared to our streaming competitors compared to traditional pay TV, certainly, even the price of a movie ticket, we think that’s just an amazing offer. And our goal and plan; is to continue to be a great entertainment value. And beyond that, we’re not going to comment on other price changes or other changes on tiers. We’ll sort of find our way based on that philosophy and see when the right time to ask customers to pay a little bit more would be.
Jessica Reif Ehrlich: One more question on the pricing, though. Would you – given the price increase for just premium and basic not standard, do you expect any – or advertising tier? Do you expect any movement between the tiers as a result of these price increases?
Gregory Peters: I think pricing always results in a bit of movement between the tiers. More of that movement is how people are signing up. So we see that as more what it influences. But also, it will influence plan changes as well. But generally, plan changes tend to be – our plans tend to be relatively sticky. So I would imagine that there is a – that momentum will continue.
Jessica Reif Ehrlich: So your letter today says that you stated that you will spend $17 billion in 2024 on content spend, up from $13 billion in 2023. Obviously, that was somewhat strike impacted. That is how should we – how can you help us think through how content spend will grow beyond 2024? What is normalized growth?
Theodore Sarandos: Well, you see that we’ve done is we want to grow the content spend. Just about half a step ahead of the – ahead of revenue to create the value proposition for our members. So the more we put into it, and a lot of it is tied to the ability to create hits out of that pool. And I would say one thing, if I could, if you don’t – this past quarter, we had this really remarkable story about something that we could do, but Spence talked a little bit about the kind of scale of the content spend, but this show one piece. One piece is something that is a very unique property to create 26 years ago by Eiichiro Oda, it is over 1,000 episodes of the animated series based on the Japanese Manga. It’s nearly sacred IP.
And we were able to – with our Japanese creative teams and our American teams getting together, working with our partners at Tomorrow Studios and the showrunner, Steven Maeda to adapt this into a show that the world fell in love with. And what I say to that is we’ve got – this show is number one in 84 countries around the world, which is something that Stranger Things didn’t do, that Wednesday didn’t do. And it’s so rare for an English show to be that popular in Japan and Korea, Brazil and in the U.S. at the same time. And the other fun part of it is Iñaki Godoy, who stars in the show, it was one of the most difficult casting challenges in the history of our original programming was who’s going to play Monkey Luffy and he was right under our nose, right in our talent family.
We discovered him a couple of years ago, and had him in this great show at our Mexican series called Who Killed Sara and then we were able to cast him in this and now he’s a global superstar. So this is that kind of thing you could do well, thing that’s hard to copy and gives us kind of competitive running room from our competitors being able to do that more and more. I don’t mean – when I say that, I don’t mean making things more global, I think making things that really resonate for the core audience. And usually, local audiences want very local content. And in this case, the local audience is the fan of one piece, which was very discriminating, and we had to please them first, just like our original shows in Spain, I have to really please the Spanish customer first.
So we can do this. We spend the money well. We have impact with the spend, and we grow it as we grow revenue.
Spencer Neumann: Maybe – sorry, Jessica. I was just going to build it a little bit on Ted’s point on the kind of trajectory of content spend. So – and we talked about this a little bit in the past. So first, in the letter, we talk about the 2024, we hope to get cash content spend back up to at or near that $17 billion level. The biggest swing factor is going to be when the SAG-AFTRA strike resolves. And so that will get us to a cash to P&L ratio kind of closer to 1:1.1x. And so we’re not putting a specific number out there for free cash flow in 2024. What that gets us to, when you think about the combination of our revenue growth outlook, our margin guidance and target cash content spend, we’ll deliver substantial free cash flow in 2024.
And then going beyond that, we do expect to tick up our content investment over time as we also prove at sustained healthy revenue growth. So assuming – we talked about, I think, in the last call, assuming no big expansions, we’d expect our cash to P&L ratio of content spend cash to content amort in the P&L to be roughly 1.1x. So that’s kind of one way folks are thinking about how to model our growth in content spend. If we – as we grow our revenue, as we improve our profitability, we should see both increasing content spend but also free cash flow growing nicely over time.
Jessica Reif Ehrlich: And then just one last, just a follow-up for Ted though. There’s so much going on in content right now. Can you maybe talk about investment priorities? Like how do you think about whether it’s local language film, TV, you’ve made a lot of deals with some third-party film companies, television companies. Could you give us some color on how you think about content spend?
Theodore Sarandos: Yes. We always have a lot of plate spinning because our members have got such different tastes and different desires. And we’re trying to please them all – and like I say, trying to find that person who really fell in love with us for prestige TV and then discovered Love is blind. That’s a pretty common household to be honest with you. So we’ve got to be able to be good at so many different things. And our partnerships, I’m assuming you’re talking about Skydance in this case, really helps us find and keep up that scale as we grow. So we’re really thrilled with our success in animated features. It’s a very long cycle of development and production. Sometimes it could take a decade to deliver a really great animated feature film.
