Netflix, Inc. (NFLX) Earnings Call Transcript & Summary

This is Ben Swinburne. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the registration desk. And we're really excited to welcome back to the conference Netflix and welcome for the first time, the man to my left, Spence Neumann, CFO. Spence, thanks for being here.

Thanks for having me.

Obviously, a lot going on this week.

I -- yes, a lot going on. I feel like hopefully I'm a leg up because I showed up in person relative to our Board member who just is the voice of God. But hey, so I think we have, hopefully, before we get going, just a video for folks who are maybe a little less familiar with Netflix, about what we've been up to and where we're headed.

Okay, roll tape. [Presentation]

All right. That always gets me fired up, not the least of which is because I'm a Jersey kid and [ Bruce ] is playing the voiceover there but also just for kind of where we are and where we're headed, hopefully, it gives you a sense where it's about telling the stories of -- from anywhere in the world. The greatest stories come from anywhere and can be enjoyed anywhere, and that's a lot of what that's about, is that storytelling. So anyway...

That's great. Yes. And if you just learned what Netflix is from that video, you need to step outside, some people need to talk to you. Thank you for that, Spence.

I wanted to ask you, it's been, I guess, what, a little over a year now since you've been at the company. How has your role and your focus evolved over that period of time? What are your priorities in your seat looking out over 2020?

Well, it's definitely evolved a lot. I mean we try to get folks up the learning curve quickly at the company, but I think it was day 8 when I was on my first earnings call so my head is hopefully spinning a little bit less. And what I'm focused on is a lot of what you saw on that screen and how do we -- how do I -- and I, in my role, help support the company in terms of where we're going. So one, in terms of we're trying to get better with content every day. And not just the creative executives, but how do we as a finance and operations team support those initiatives, whether it's the metrics we look at to gauge the effectiveness and impact of our content to how we support our creative teams and product teams around the world and scaling our production capabilities globally. So that's one. Two is just how do we support just scaling our business globally. So you see in our business, 90% plus of our subscriber growth recently has been coming from outside of the U.S., in EMEA, APAC and Lat Am regions. And so what are the implications for how do we successfully scale our organization, not just our finance team but our company? And then with all of that, how do we deliver on continuing to grow and build on a -- what's a healthy business today, but making it healthier and stronger over time. So delivering on our business objectives of growing our memberships, growing our revenues, scaling our profit margins and overall profitability and now moving to improve our cash flow trajectory over time. So spending a lot of time focusing on those business deliverables.

Great. Well, I'm sure we'll dive into all of those topics in this conversation. But before we do, I wanted to ask you something that, I don't know, I don't get to ask a lot on these stages, which is about the culture of the company, in particular the freedom and responsibility sort of manifest that Netflix has, which I interpret as you delegate a lot and let people make their own decisions and sort of run on their own, but obviously, correct me if I'm wrong. And the question is, given how much bigger the company is today than it was when it was obviously founded, how does that -- how is that a successful operating strategy when you're producing the amount of content the company is producing? I mean it just seems like it gets more and more challenging the bigger and bigger you guys get globally, particularly on the content production side.

Yes, it's fair. So I'd say it's actually less about the overall -- the challenge of -- to our culture from overall size as much as how the company is evolving in terms of the number of new people and growth of our headcount. So we're still relatively small. We're only about 8,000 employees, but we've been growing a lot over the past few years, so as new employees are coming on board and also the changing complexion and mix of our employee base as we are more and more global and local and that global growth. So as we -- as that -- as we change in that regard, how do we ensure that our culture remains healthy, that those new employees understand what freedom and responsibility and judgment is all about. And so for us, the good news is, one, it is not just a culture memo that's online or on the hallway message board. It is something we live and breathe every day. We are very focused on continuing to communicate and learn from it. And it's also not static. It is something that evolves. And purposefully, we're trying to get better all the time to evolve for that changing mix of our employee base and the changing nature of our company over time. So it is something that we focus on a lot. We're trying to get better all the time. And the other thing is a lot about that -- what makes that work is we try to lead across the company with radical transparency and context. And when we do that, it helps our freedom and responsibility and judgment culture scale because if we provide that information, we provide that context, we provide that transparency, then we give us the best -- and we're not so kind of restricted by our past, but that just informs our future and we continue to build on it, then I think it kind of lends itself to a healthy, growing culture.

Got it. That's helpful. I wanted to step back and ask you a little bit about the subscriber opportunity ahead of the business. Certainly, those who are maybe more bearish on the stock would argue that the business is maturing. Your net adds obviously are still healthy, but they were down a tick last year versus the prior year. We also can look at some of your regional numbers like EMEA and APAC and see penetration is still quite low in those regions. How do you, from where you sit, articulate the global opportunity for Netflix sort of sitting here right now in early 2020?

Sure. I mean we look at it as we're, in many ways, just getting started. Our long-term opportunity is kind of big and unchanged. We talked about that a bit on the last earnings call. The good news is that around the world, people love film and television entertainment. That's pretty universal. There's -- depending on how you look at addressable market, whether it's -- we're not in China, but outside China, about 800 million broadband households, about 800 million pay-TV households. We're at about 167 million paying members at the end of last quarter ranging from a little over 50% penetrated in the U.S. to less than 10% penetrated in the APAC region. So we still think we've got just a long way to go to build a company a multiple of our current size so long as we keep getting better. So we're trying to get better at -- better content, better product and every day. If we get a little bit better every day, we think there's a long way to go.

Are the things the company has to get better at and execute on different today than they were 2, 3 years ago? Has -- is the world changing rapidly enough that the keys to success are constantly changing?

Well, there are subtleties by market, but the model is pretty similar in that it starts with a great content experience, that content market fit, and a great product experience and then, obviously, being able to reach those consumers through great marketing and powerful conversations. So we're trying to get better on the content and product side every day. It's -- hopefully, you see that we're probably most mature in English language scripted television. We've been doing that on -- really in terms of Netflix originals for over 6 years now. There's other categories of content where we're much newer in terms of our local non-English originals around the world or animated film, where we're just kind of starting to scale that business, and you saw some of that in the fourth quarter of last year. So I think we're getting -- and then certain parts of the world are just more [ attuned ] to local and regional content. So I think we're getting better and better at that content market fit. We're getting better and better, hopefully, at reducing the friction and providing that consumer empowerment that's so important in terms of the product experience, even little -- seemingly little things like the top 10 list that we rolled out at late February to nearly 100 countries around the world. It's just one more way for our consumers to get a sense of what folks are watching, which is important to some as they're making their content choices and decisions. So that similarity runs through all of these regions and countries, but we're at a different place in each market.

Yes. I want to keep going on the market front. But since you brought up the top 10 list, do we assume something like that has been tested all over the place by you guys? And so if you're actually rolling it out globally, it means it likely has a positive impact on the business?

Well, yes, we're a test-and-learn culture for sure. And so you can assume with this also, we were doing testing. I don't know if it's all around the world. But certainly, we'll pick some markets. And it's not always an obvious, clear answer, but you see signals and then we build on those signals. So again, this -- I don't think there's anything that is a silver bullet, but this is just one of -- people have a lot of different ways to discover content. We're trying to satisfy a lot of consumer tastes, both within the family, across points in time in their life cycle, even just points in time in the day of the week and the night and where their head space is. So this is just one more way to do that. Is it helping you?

Yes. I still haven't started Love is Blind even though it's sitting there at number 3, I think. I can't remember the exact ranking but...

Yes. I was watching it this weekend. I'm about 4 episodes in.

Don't spoil or they'll kill you.

Guilty pleasure, yes.

In the U.S., your new regional disclosure, I think, has helped people think about the global opportunity more, so thank you for that. But the U.S. is still a focus area. What do you see in this market? You mentioned English language as your most mature in general, content-wise, but is there still room to grow in the U.S. when you look out over the next several years? And is North America a good leading indicator for us to think about the long term in other regions?

Well, look, I guess, starting with your last point, if it is a leading indicator, that's kind of a good thing, right, because we're 55% penetrated roughly in the U.S. and if we take that out to the rest of the world and you kind of do the math on that and what I would -- what we talked about is the addressable market and you're at a 400 million to 500 million-plus paying member business, which is a pretty good place to be. But we're not -- we're also not conceding that we've hit some sort of a ceiling in the U.S. I mean even if we look at Q4 of this past year, we grew in the U.S. One, we grew the top line considerably, right? So we accelerated revenue growth for our company overall and in the U.S. Our member growth, we had our -- first, we had quite a bit of pricing growth in the U.S. last year. We also had some new competition that launched that you all are aware of. And even with that, in Q4, we grew our members. Now we didn't grow as much as we did in the prior year, but we had member growth and we had 17% year-over-year ARPU growth. So there's not many businesses that can grow their member single digits and grow pricing in the quarter year-over-year nearly 20%. So it's not surprising that there's some level of price elasticity that we saw in the fourth quarter. But if you also think about an indicator of the overall health of our business, ultimately, we grow when we satisfy our members and -- we provide more member satisfaction, and a good indication for that is member viewing. And what we talked about in Q4 is that even in the U.S., in Q4, with all that noise in the system, that member engagement grew year-over-year at similar levels to the prior year. So I mean, it's a good sign for us that it's encouraging that we still have runway to grow in the U.S., and that's what we're going after.

Great. When investors ask me what I think where to look for proof points that you guys can scale over the world, I often point to Latin America, and your new disclosure, again, is helpful there. The sub base essentially tripled from '15 to '18. What -- and I know you're relatively new to the company, but what can you take from that region that helps you inform your opportunities in other sort of maybe emerging markets? What's similar and maybe what's different about Latin America versus other places that you guys are earlier in today?

Yes. I mean it sort of comes back to what we said before that it's a combination of content, market fit, product experience, enabling our consumers through the product and reducing that friction in the marketplace and then being able to kind of reach those audiences. And we've had some more time to work on it in Latin America because it was our -- one of the earliest markets we went into after the U.S. So we've had some more time to figure it out. It also -- it happens to be a market where content travels into the market in a pretty healthy way. So that accelerated some of that content market fit. But the general approach is the same. It's just that we're earlier days in some markets. In some markets, there is a bit more learnings in terms of getting the content right and scaling over time. But it's kind of more of the same. It's just somewhat localized to each region.

Okay. So Western content travels where -- well in that region?

Yes, yes.

Okay. The other thing you guys have done in a lot of areas, I think to some extent, Latin America has leveraged third-party partnerships, distribution, and that goes back all the way to the gaming consoles. You're constantly doing more. I think you've got a robust relationship with Comcast, one with Sky that has even become more significant recently. How do you look at the value of those partnerships in terms of the trade-offs between ARPU and churn and SAC and all the good things that drive the model?

Yes. We're -- I mean partnerships are a meaningful part of our business. They always have been, even from the -- kind of the earliest days of device partnerships and kind of the Netflix button on the remote control, and they've continued to evolve over time with now more kind of bundled -- cable bundle partnerships and even mobile partnerships. And at the end of the day, what we're looking for is, is this an effective means to accelerate our growth in a market in a healthy way? So we look at the ability to drive growth and then the impact on the trade-off, whether it's cannibalizing other means of access to our consumer. And then also, is it a healthy growth in -- and particularly if it's bundled into an offering, we want to make sure that there's healthy engagement with our consumer and it's not bundled in a way that kind of miss -- folks may be getting the product without being cognizant of it, if you will, because we want it to be healthy growth. So those are the trade-offs. We obviously are doing it in a way where we maintain the Netflix kind of branding and connection. So we think that's important to us in terms of the delivery of the service, and we'll continue to build on it. I mean I think these partnerships will continue to grow. You've probably seen some of those partnership launches more recently in Latin America. Last quarter, continue to build on our Samsung mobile partnership with some of the announcements recently in terms of some of the content that can be accessed and messaged to consumers that is a bonus content that helps, again, market and message and reach the consumer. So we'll continue to evaluate, but it's another -- it's a helpful kind of complementary way to reach more of our members.

Does the fact we're seeing a lot of the newer streaming launches follow your lead -- Disney+ is going to be on Canal+ in France, and I think there's some commentary about Deutsche Telekom today. Does the fact that everyone is sort of starting to kind of partner up change how you think about both the opportunities and the risks or whether you're in more of a rush to get these things set up?

The partnerships?

Yes.

Not really. I mean the media has always been a competitive space, one. And two, it's -- the one thing that is, I guess, maybe sometimes overlooked a little bit is that our -- we're in the originals business. So these -- our future is Netflix originals. And hopefully, you see that in the service. So to access our content, you have to subscribe to Netflix somehow, whether it's directly or through a partnership. And so as long as we provide that value and we create value to our partners, that's a good business for us and for them and so that's what we're focused on. So yes, there's others that may be distributed on platforms. But we think, again, there's very complementary deals to be done. And as I said, we'll continue to build on our existing partnerships, whether it be in Sky -- with Sky or with Samsung or others around the world.

Yes. Okay, great. Let's shift gears a bit to pricing, which is, in many ways, I felt like sort of the dominant discussion of last year, at least other than competition. You guys have talked about elevated churn in the U.S. post your price increase. But at the same time, you also just highlighted that revenue growth accelerated? So I think I know the answer, but when you look back at last year, anything you would have done differently around the price increase and any takeaways as you guys move forward?

Yes. I don't think we would have done anything differently. I mean we obviously debated a lot. But overall, the pricing moves were great -- were very healthy for our business. I mean we've talked -- you've seen our numbers we -- our streaming revenue globally grew, I think, 34% year-over-year, which was accelerated revenue growth. Now we did see some price elasticity. But our pricing philosophy hasn't changed, which is we start with the consumer, start with delivering that member satisfaction and increasing value to the consumer over time. And if we do that and we do that right, then we think, occasionally, we can increase our prices and then drive that -- what we think is a great virtuous cycle where the bulk of that increased revenue we're reinvesting into the business. So you can see in our financials, roughly half of our revenue is reinvested into content and then also, obviously, marketing and product. But we're trying to create good, amazing experiences for our members and spend their subscriber dollars responsibly, and that's what you're seeing. And so we'll continue to do that where there's kind of gradual pricing over time. It doesn't change our philosophy. We're trying to revenue maximize for the long term. But first and foremost, we're trying to deliver more and more value for our members and then, as I say, kind of price into it to build a healthy business.

I don't know how much you're going to share with us for competitive reasons. But I'd be curious, at least at a high level, how you guys decide when to implement a price increase in a certain market at a certain time. Is it driven by content strength? You mentioned it starts with the consumer, but that could be analyzed in a lot of different ways.

Yes. Well, we are -- one, we have some level -- we have price changes pretty continuously throughout the system because we are engaging. So around the world, we obviously are in so many different countries, so it's not like all of a sudden we take a look at it and now it's time to kind of turn the pricing on across the world. And then, again, it really does start with that consumer satisfaction. And you're right, there's a number of ways to gauge that. But one is just as we're looking, again, at our key metrics in terms of what's happening with member growth, what's happening with acquisition, retention and member engagement. And if those are on a healthy track, then we'll think about what's the right time to adjust pricing in the market. And so it's part science, it's part judgment based on the field, the quality of the offering and how that's continuing to scale. And you can see it's not purely scientific. So when we look at markets anywhere from 12-, 18-, 24-month cycles, it's not like there's a specific timing cycle. So we're trying to gauge when it both looks right in the metrics and feels right based on where the product is.

You guys also have some mobile-only plans in the market -- in some markets. What are you guys trying to accomplish there?

Again, it's -- what we're trying to do across the board is provide access to the Netflix service in a way that appeals to various consumer tastes and needs. And so we try to differentiate while also keeping our choices simple. And so there are some folks who -- you've seen we went from a single price model to basically 3 different tiers a few years back. And now this is one more way to kind of increase that accessibility to the Netflix product but do it in a way where, one, first and foremost, we're trying to build a healthy business and one that maximizes revenue for the long term. So if we're introducing a mobile offering, it's because we believe that it's revenue accretive to us, meaning that there's a trade-off there where there's more volume in terms of subscriber acquisition, maybe better for retention, but overall, net-net, relative to not launching that offering, we believe it's good for us in the medium and long term, for sure, in terms of the revenue opportunity in the market. And if we can do that in a way that accelerates growth, has more people experiencing our product and our service and talking about it in a positive way, that's a good thing.

Got you. I want to shift gears to content spending and sort of how you think about efficiency on content. You spent I don't know how many years at Disney, but a lot.

Almost 17 years. A while, yes.

So at Disney, at least back then, monetizing a piece of IP was a little bit more clear. There was specific revenues. At Netflix, it's less. You've got a whole platform. So I've asked Ted this many times, but how do you guys figure out how much to spend on content in a given year, 5-year period? How do you think about content efficiency? And is that changing at all as you guys, let's say, grow up, but get bigger?

Yes, sure. I've been curious of Ted's answer. I have to go back to those to see if we're on point. First, as I said to a number of you in the audience, it is -- it sounds simple, but we do -- part of this is we come at it based on what can we -- so long as we can spend in a healthy way, how much can we afford to spend? So I guess, the step back -- the starting point is we believe we've got a lot of opportunity to continue to grow our content spend. We are -- even in our most mature market, we're less than 10% of share of television time. And we -- as we talked about also, we're in very early days. Even in our most mature area like English language scripted television series, we're only about 6 years or so into it. In some of these categories of programming and certainly parts of the world, even earlier. So then we look at what's our -- as we're growing a healthy business, our revenue is relatively predictable because it's a subscription model. We're looking at what does it take to support that revenue in terms of streaming costs and technology and R&D and support costs? And then there's leftover. We want to build a profitable business over time. You've seen that we're growing our profit margins. But then as we've been at least ticking up the last few years about 300 basis points a year, this year, we've committed to 16% operating margins for the business. So when you do that math, there's leftover to spend on content and marketing, right? And so that is -- it sounds simple. But in a world where we then look at, okay, are we getting the right impact for that spend, we've -- you've seen we grew a bunch in our marketing dollars in 2018. We became -- we found some efficiencies where it's grown a little bit slower in 2019. And so the mix has been a little heavier into content. And then it's about, really, the tough question is, how do we allocate that content spend? And for every piece of content, we're looking at how impactful we think that can be in terms of growing our business, in terms of member acquisition, retention and engagement. And then relative to another piece of content, that relative efficiency. And so that's really how we're measuring it, and we learn as we go.

Yes. And the relative efficiency point being largely tied to sort of engagement, are you getting kind of the viewership for your dollar? Is that how you guys typically...

Yes, relative in terms of cost. So how much impact are we getting in terms of acquisition and retention and engagement, and then for every dollar that -- relative to another form of content or piece of content in terms of the cost of driving that interaction. And by the way, there's still judgment. I mean there's art and science in here. So we try to blend. We're still -- we are an entertainment company, right? So we have a point of view based on the metrics and the science, and then folks like Ted, obviously, then have to kind of judge that overlay with their kind of creative instincts.

So continuing on the content conversation, you guys, I think, are planning over 130 local language original series this year, foreign language original series. Where, regionally, if we look around the world, are you guys really leaning in from a content perspective?

Yes. We're definitely expanding our local language originals around the world. It's roughly a doubling order of magnitude from where we were this year -- this past year. And it's across the board. So there are some areas like EMEA region where we've been at it longer. So still growth but -- for sure, but it's off of a larger base. And then there's areas like in certain parts of the APAC regions, whether it be Japan, Korea, India, where we haven't been at it as long, so it's probably a little higher growth off of a smaller base. But it's really across the board. I mean this is an area that is super important to us. When you go back to that video, we are about telling the world stories from anywhere in the world to anywhere in the world. We believe that's a fundamental part of our value proposition as we grow our global service. And so I think, again, it's frankly quite early days in these non-U.S. regions in terms of continuing to build that content market for that.

Right. But Adam Sandler doesn't actually speak Italian.

No. But we're getting better at localizing the product around the world, too, between subs and dubs.

I want to ask you on the movie side, which is probably -- if you look back over the last 2 to 3 years, it's got to be at least, from a genre perspective, where you guys have really ramped up production. You had a big push last year in the fourth quarter. From a finance and ROI perspective, how do you look at the benefits and cost of these films, particularly these enormous films from a budget perspective like The Irishman? And sort of what's next on the film front for you guys in terms of just scaling that further?

Yes. Well, we're super excited about the film category. So as you say, we haven't been at it as long. It's been about 4 years. And I'd say we've come a long way. We've got a long way to go, but we're -- if there's measures for success, we were -- it's nice coming out of this last Academy Awards. We were the most nominated network with 24 nominations. And you can see our film slate in Q4 was pretty broad from everything that was from The Two Popes and a Marriage Story to The Irishman to 6 Underground, so some -- and Dolemite. So pretty -- from eclectic or to -- and to just fun action packed. And I think, as I say, we're pleased with where it's headed. Films are -- it's a great consumer offering, both because it's a known value for consumers. People have a pretty good understanding of what they're spending to enjoy a film, whether it's in a theater or on demand. So there's kind of a value proposition to it. And it's also just a great experience. Sometimes you want to really dig into a 10-episode television series, and sometimes you just want a 1.5-hour movie and then move on to the next. And so it's just a very complementary part of our service. As I say, we're pleased with how that is scaling for us. We're very focused on creative excellence at scale. I think you've seen that in other categories of programming for us and you're starting to see it in film. And I think what you'll see in 2020 is we'll continue to build on that with a very kind of both artistic excellence and commercial -- increasing commercial kind of sensibility to our films. And this weekend, we've got Spenser Confidential. No -- spelled differently. It's not with a C. No relation to me. But with...

Or [ sparkle ].

Yes, exactly. Neither one of us. But yes, you'll see more and more of that as we go. So I think, hopefully, it's going to be a growing and increasingly important piece of the puzzle for us.

How important is third-party content for you guys? Looking forward, obviously, we always get the questions about Friends and The Office, but what gives you confidence you guys can let that stuff go and keep on growing at the levels that people expect?

Well, I'd say there's third-party second-run content and there's third-party original content. So just to be clear, we are -- our future is originals for sure. We've been moving more and more to Netflix originals, which can be licensed from other studios or our own self-produced originals. And we, as a business strategy, have to some degree certainly moved more to self-produced originals because you can't necessarily count on accessing that product from third-party studios. But if folks are willing to license originals to us, we are always open for business. The licensed second-run content like Friends, it's -- again, it's not the kind of future driver of our business, if you will, but it is something that we're still -- we still do licensed second-run content when it works for us. But again, we have the benefit of being pretty selective, and our business continues to grow through it. I mean we went from, was it 2011, 2012 when we were purely licensed second-run content, and our business in terms of members has grown globally about 7x and, in the U.S., about 3x the size of where we were then. And this is a business that now is predominantly Netflix originals without access to the content. So we feel pretty good about being able to grow through it. But there's always going to be some titles that we'd love to have. And if it's available to us, we'll go after it.

Let me ask you on the -- as we continue sort of down the P&L and talk a little bit more about numbers. You guys have been getting some nice leverage in marketing. And I also think you brought in a new CMO maybe mid last year, something like that. What's allowing you to leverage the marketing line? And what's the sort of strategy, philosophy on marketing spend going forward?

Sure. Well, yes. So Jackie joined as our new CMO last year. We -- yes, we get leverage, but we're still growing marketing. I mean we grew marketing a lot in 2018. Our marketing spend grew by almost 70% in 2019. Last year, it still grew 12% year-over-year off of a much larger base. So it's not as if it hasn't been growing. There's been a lot of learnings along the way. It's just now growing slower than revenue so it's helping to contribute to our operating margin expansion. I'd say, just generally, one, we have ability to get leverage there because -- one, because of those learnings; two, because of the scale of the platform. I mean the more the platform can work for us, I mean, we have regular contact with our members and we want the service to enable that discovery. And then, I think, three, we're trying to be forward-looking. If you just kind of do the math on the traditional marketing platforms, those audiences are declining over time. So in a matter of a handful of years, they could be -- you guys do the math, they could be half the size they are today. So we don't want to be overly dependent on those traditional linear channels for marketing to and reaching our consumers. So I think you'll see us continue to get, hopefully, better and smarter at those nontraditional channels of social and owned and earned publishing platforms, whether it be the obvious end point, but also our own channels.

Yes. In the minutes we have left, I want to spend time on content amortization, sort of the margin story and then also the free cash flow, debate that's out there. So how -- you've been there now for a little while. Obviously, you're comfortable with the amortization approach. But how do you believe -- why do you believe that viewership is sort of the best way to size up the life of a piece of content on the platform? And as you guys move more and more towards originals, which you own longer, does the average life extend, which would actually further help the margin trajectory of the business?

Yes. I mean I guess to the last point, I guess in theory, it could extend because now we own more and more of our intellectual property. But we amortize at the kind of shorter of the kind of available period of the content or the useful life and 10 years. And so we're -- right now, we're amortizing inside that window and applying our, as you say, our viewership curves to inform that amortization. So I guess, the short of it is we really do tie it to viewership because the viewership -- as we talked about before, that viewership and engagement is the driver of the business, right? So that's what we're matching to. And obviously, we focus on this. Especially as the new CFO, I kind of -- I obsessed over it early on because I wanted to understand our viewership curves and our amortization curves because it's so critical.

I'm happy to hear that.

Yes, yes, yes. So -- hopefully. And so we -- as I say, we spend a lot of time on it. We revisit it constantly. I think you all will be comfortable with the conversations we have internally and with our auditors in terms of ensuring that we are very much on this in terms of the fidelity of our financials.

And then in terms of actually scaling to free cash flow positive, what are the things between now -- we've actually seen the free cash flow burn come down, expected to come down this year. What gets -- what helps get the model of free cash flow positive at some point over time?

Yes, sure. Yes, and we've talked about it. We're not rushing to get there. It's kind of a gradual ramp to free cash flow positive. And then -- and hopefully, that's just the beginning of a highly cash-generative business for us that we can continue to reinvest in more great stuff for our members. And the way we get there is you're seeing it within our financials. First is just scaling the business. So we've been growing recently top line at that roughly kind of $4 billion-ish sort of revenue figure, plus or minus. And then we've been scaling profitability. Our operating income grew, I think, 62% year-over-year last year, with both percentage margin and absolute margin. So it gives us more profit to convert into and fund that cash investment. And then we're kind of moving meaningfully up the curve in terms of our business model. So what you've been seeing in a lot of that negative free cash flow in the last few years is as we were transitioning from that licensed second-run content business, where essentially, we're paying for that content sort of over the term. So if we license content for 5 or 10 years, we were sort of paying on a cash basis roughly pro rata with the term of that license. To then licensed originals, Netflix originals, where we pay a bunch of that cash upfront on delivery, and then the bulk of the rest of it over inside of a year to 2-year period. And then to self-produced or content that -- where we own the IP, where we're typically investing anywhere from a year to, with an animated film, 4-plus years before it comes in our service. So that was a pretty meaningful pull forward of cash spend for similar content on the service. We're now at the point where the vast majority of our cash content spend is for Netflix originals and increasingly for self-produced originals. So we're a long way through that business transition. And we're a larger business, which is why you're starting to see the benefit in the cash flow, where we were maximum negative cash flow for us in 2019 at about negative $3.3 billion. We guided to about negative $2.5 billion for 2020, and we'll kind of gradually ramp from there.

Okay. Don't want to be any more specific on timing than that, I assume?

No, because it's -- I mean, it's not -- our primary objective isn't to hit a certain time. It's more to grow in a healthy way while we continue to pursue our strategy. So whether it takes X years or X plus 1 or 2 years, as long as we're going in the right direction, I'm not sure why we should rush versus going after the much larger strategic opportunity that's out there.

Right. Anything else besides Love is Blind you'd recommend for the audience on their trip back home?

There's a lot of stuff. I mean, gosh, it depends on what your tastes are. That's the good thing about Netflix. I tapped into Queen Sono last night. So that was our first African original, I think, which is pretty cool. That kind of action adventure, CIA-ish kind of a thing. So that was fun. I had been watching a lot of like Cheer if there are others in the -- on Cheer. I think that's kind of fun. I watched Messiah recently. So there's some good stuff out there. Hopefully, you guys are...

There's a lot of Cheer fans in the audience. They just don't want to admit it.

Yes. Come on. Come on. All right.

Well, we're out of time.

All right. Thanks, Ben.

Thanks, everybody. Appreciate it.