In terms of the margin guidance for 40%, it isn’t the first time we actually got to 30% right in terms of setting a margin target out there. What we wanted to give investors some guidance in terms of long-term margin growth and what it’s about for us is the steady march upward of about 200 — averaging about 200 basis points a year, we’re going to have some lumpiness with the content coming in terms of heavy quitters at content introduction, we had accelerated amortization on that original content which tends to pressure the P&O and those quarter where we launched a lot of content.
But I think for the 40% it’s the continued steady growth of the business and we think we have the flexibility and the model that doesn’t require an 80 million subscriber or 90 million subscriber business to get there. We can get there with the growth that we see later today.
Mark Mahaney, RBC Analyst
Alright David, can I ask about the pricing elasticity you talked about that a fair amount in the press release. Two quarters ago, it seemed like there was a lot of conviction in the pricing power last quarter, some questions now, it seems like there’s greater conviction. Do you think you really have enough data points — I know you mentioned Mexico, sounds like you did some additional research on some of the newer subs coming in, do you have other markets that you’ve looked at and you’ve results from there that give you the confidence that you actually — there is this pricing elasticity or pricing power? Do you think we could going forward seeing a dollar price increase every other other year, every two years and maybe with the year grandfather?
David Wells, CFO, Netflix, Inc. (NASDAQ:NFLX)
I don’t think we’re talking about a dollar to the consumer price increase every year. What we’re talking about is using our tiers to provide value and choice for the consumers to steadily grow our average subscription prices over time. That doesn’t necessarily require the frequency of any annual price increase. I think what you should expect from us is steady growth of our AsP and will disconnect pricing. I don’t think there’s any reason for us to have a global single event. We look at pricing in each market and we’ll grow it accordingly to what we think makes sense in each market.
In terms of evidence, sure, we have seen growth persists through pricing introduction, or raises to those markets, so I think besides Mexico we’ve got some other examples. Ultimately, it will rest upon when those grandfathering expire so we still have that to come but we think we have enough evidence today to look at it and say, the growth that we saw that slowed down in Q2 and Q3 wasn’t related to the pricing. We still scratch our heads a little bit in terms of explaining fully and as I’ve said before, it takes several quarters for you to get really comfortable or to answer it, to look at every piece of information. Right now, I think we got enough information to say, based on Mexico and other markets, that there is still plenty of pricing power for Netflix and not a reaction to the elasticity.
Richard Greenfield, BTIG
Just expanding on that, Reed, when you think about the way you price — you basically foreclosed on advertising as an incremental way to drive revenue. Are there forms of tiering that could actually be interesting to generate for more revenue for Netflix on a per subscriber basis?
