Netflix (NFLX.US) Q3 Conference Call: Adhere to original and exclusive content as the core, and still aim for double-digit revenue growth in 2027

The Zhitong Finance App learned that streaming giant Netflix (NFLX.US) announced financial results for the third quarter of 2026 after the US stock market closed on Tuesday and held a performance conference call.

Driven by the increase in subscribers, the increase in membership prices and the increase in advertising revenue, the company's revenue for the quarter increased by nearly 12% year on year, net profit surged 44% year on year, and the operating profit margin further expanded. However, due to the slower than expected launch of some advertising product features, Netflix lowered its annual advertising revenue forecast and slightly lowered its annual revenue forecast.

The company expects operating profit for the fourth quarter to be US$3.5 billion, with an operating profit margin of 26.0%, up from 24.5% in the same period last year, but significantly lower than 34.6% in the third quarter. For the full year, Netflix expects revenue in 2026 to be approximately $51.1 billion, up 13% year over year, and about 0.2% lower than the median revenue forecast range for the previous full year. The company expects an operating profit margin of 31.5% for the full year of 2026, up from 29.5% in 2025.

In the Q&A, management said that Netflix's core strategy has not changed; it is still anchored in original and exclusive content. About 95% of expenses and almost all revenue are focused on the core business. Live streaming events, third-party content, etc. are early explorations and additions. The company believes that global local content continues to drive engagement and growth, but US content execution still needs to be improved, and hopes to improve film list performance with Peter Rice, who will soon be the Chief Content Officer. The recent layoffs stemmed from the company's reprioritization of resource investment and operational efficiency. The fourth quarter guidance included about 120 basis points of costs associated with layoffs, but the company did not quantify the 2027 cost savings.

On the financial side, management said that the three revenue levers of membership growth, pricing, and advertising are all contributing. In 2027, they are still seeking double-digit revenue growth, increased profit margins, and increased free cash flow; the advertising business grew by more than 80% this year, but it was slightly below aggressive targets, and the integration of some new products and partners was delayed. In terms of cinemas, Netflix still insists on prioritizing streaming. This year, about 30 movies will be screened online, and a customized distribution model will be used; licensing deals such as Disney and Globo have been called a win-win by management, and original exclusive content is still the core of the service. The company also said that price changes in 2026 are progressing well, member responses are consistent with past cycles and expectations, and global and US churn rates have improved year over year.

Here are the details of the Netflix conference call:

Management statement

Spencer Wang (Vice President of Finance, Corporate Development and Investor Relations):

Good afternoon, and welcome to Netflix's third quarter 2026 earnings interview. I'm Spencer Wang, VP of Finance and Capital Markets. With me today are Co-CEOs Ted Sarandos and Greg Peters, and CFO Spence Neumann. Please be reminded that we are making forward-looking statements and actual results may vary. Now we'll answer questions submitted by the analyst community.

Q & A session

Spencer Wang:

Our first question came from David Joyce of Seaport Research Partners. His question is: Investors want Netflix to give more clarity on its generally industry-leading strategy. What role do live events, become a centralized streaming portal, or provide short videos, third-party content, or user-generated content in how Netflix regains competitive advantage that can help improve market sentiment?

Theodore Sarandos (Co-CEO, President and Director):

Let me answer that question. Thank you David, this question gave us an opportunity to clarify. Our strategy has not changed; it has always been and will continue to be to combine best-in-class entertainment content with industry-leading discovery, global distribution, and optimal monetization capabilities. We want to be an essential entertainment service, the first service members check out when looking for a great series or movie, and the service they least want to cancel.

The anchor for this strategy is Netflix Originals, which are differentiated, exclusive, ambitious, professionally produced series, movies, and live streaming events. We've made the market accustomed to having quality new content to watch every week, so we must always deliver in terms of quality and quantity.

As for live streaming events, in a world with so many choices, we have works such as KPop, Wednesday, Bridgerton, etc.; among all of these options, live streaming events such as the Canelo-Crawford boxing match or the event-based sports we have collaborated with the NFL and MLB can break through the noise and stand out. They drive new members, add fuel to advertising revenue, please existing members, and enhance Netflix's overall value.

That's why we use a holistic strategy. We have exclusive shows and a broad portfolio of third-party programs, including two rounds of content, as well as agreements we've just reached with Sony, Disney, Universal, etc. In addition to this, we are also looking for new ways to bring third-party content to the platform to complement original content, such as we just partnered with TF1 in France to introduce its full program network.

But that being said, it's important to note that about 95% of our spending and almost all of our revenue is focused on our core business, and we see that the core still has a long track for future growth. Other areas you mentioned are early-stage initiatives aimed at exploring future program expansion, and we have maintained a tight focus and investment in these areas because the core is the key growth engine.

Spencer Wang:

Very good. Thank you, Ted. Our next question comes from Goldman Sachs's Eric Sheridan. How do you describe the recent trend in US participation compared to other regions? How can variables such as content, seasonality, and competition cause differences in participation in different regions?

Gregory Peters (Co-CEO, President and Director):

Let me answer that question. Let's start with overall engagement, which we see as the sum of the actual value we deliver to our members—the quality, quantity, and variety of views. This metric remains healthy and drives our business model. The best proof that we're delivering value is the churn rate.

We have healthy survival in every region. Global and US attrition rates both improved year over year in the third quarter, which was better than forecast. It's already at the leading level in the industry. The final judgment on whether we deliver value depends on how members respond to price changes. Our recent price changes, including in the US, are progressing well. The results we saw were in line with past price changes and our expectations. Consistent with all of this performance, we do plan to deliver year-round guidance.

You mentioned specific engagement trends by region. As shown in our letter to shareholders, we have achieved good results in Asia Pacific, Latin America, and EMEA. Local headlines from these regions drive engagement and business growth. You can see how our business model works. In particular, we mentioned India. The Indian film list was strong, and several films performed very well. As a result, India's viewing time definitely increased by 24% in the third quarter, and the average viewing time per capita also increased. All of these led to an increase in membership. It led to membership growth and nearly 20% year-over-year revenue growth. This is a great example of how the core model works: we deliver membership value and get the business results we want.

Turn to America, another region. Our steady engagement will allow us to continue growing over the past few years, but we know we can do better. This “better” is our upside. Our goal is to go from “very good” to “great” in terms of American film list performance. But I'd like to point out that we're really excited about the upcoming content.

In terms of US fourth-quarter episodes, we have made a good start with the limited series East of Eden. My whole social circle talks about it. We have season 4 of The Diplomat, which is the best season of the show. Later this quarter, we have the final seasons of The Body, Murder of JonBenét Ramsey, and Emily in Paris.

On the film side, we have Further Mis-Adventures of Cliff Booth starring Brad Pitt, directed by David Fincher, and written by Quentin Tarantino. You won't find a more star-studded lineup than this. We have Bad Day starring Cameron Diaz; and Steps, our new animated film, dubbed by Ali Wong, Stephanie Hsu, and Amanda Seyfried.

In addition to that, we also have a Christmas NFL game, and now we have our first Thanksgiving Eve game, and we'll be using U2 as a halftime show to spice things up. U2 is legendary and one of my favorites.

Then until 2027. Our film list includes Narnia, Charlie and the Chocolate Factory, Here Comes the Flood, Grown Ups 3, Bridgerton season 5, Wednesday season 3, and Michael Fassbender's new series about the Kennedys, God of the Woods, Rabbit, Rabbit, just to name a few. We also have NFL games, an NFL game in the last week of the regular season, and this is our first time doing this; and of course the Women's World Cup in the US and Canada. So there's a lot to look forward to.

Spencer Wang:

Thanks, Greg. This is a fantastic overview of the fourth quarter and 2027 filmography. I think you made Ted proud. But maybe based on that, we have a set of questions that extend to some executive changes around the subject of engagement. The next question comes from Loop Capital's Rob Sanderson. Netflix is a large and global content production business. How can new senior perspectives influence the organization? What are some of Peter Rice's success factors during his time at Disney that you are most optimistic about being able to replicate at Netflix? Do you think the content or... is there a specific aspect that could perform better under the new leadership?

Theodore Sarandos:

That's a great question, Rob. First, let me take this opportunity to thank Bela Bajaria for all of her incredible contributions to Netflix. Bela has had an extraordinary ten-year history here. She has created many popular works. She led the team through the expansion of many new content types. She has also worked hard to build this amazing international team to produce local content for the world, which has become our key competitive differentiator over the past decade. So I'd like to take this opportunity to thank Bela.

Also, back to the list of highlights you just heard from Greg, there's plenty to be excited about. But I know we can do better, and we want to build on that. We saw an opportunity to take the film list to the next level, especially in the US, because the US market can have an extraordinary impact when we create blockbusters that our members love and are discussed globally.

I'm very excited to have Peter Rice join us as our new Chief Content Officer. Let me give you some background. I've known Peter for about 15 years. I'll tell you that the industry and creative community's response to him joining Netflix was overwhelming. He is a truly rare person in the industry who has led TV networks, movie studios, and streaming services. His creative instincts and commercial acumen are remarkable. He is a true large-scale operator of quality and quantity, covering every form of entertainment imaginable: TV networks, high-end cable, streaming, theatres, TV movies, and live sports.

But most importantly, Rob and Peter Rice understand talent relationships. In a competitive market, creatives can choose where to work, and we want Netflix to always be a place where they want to do their best work. Peter is the right person to lead these American and global jobs. This is a key aspect that I think Peter can improve in the future.

Spencer Wang:

Thanks, Ted. We have a follow-up question on the same topic. Matt Condon from Citizens Bank. With Peter Rice as Chief Content Officer, what do you think is the biggest opportunity for Netflix's content strategy to evolve under his leadership? Should we expect meaningful changes in the types of content you prioritize, how content spend is allocated, or how overall engagement is driven? Or is this more about improving execution within existing strategies?

Theodore Sarandos:

Yes. Thanks, Matthew. Look, our business and business flywheel are in operation. There is no need for a fundamental shift in strategy. We really need better implementation in the US. Our global content is generally working; you've heard a few examples from Greg, but we're seeing header-driven engagement, subscription growth, revenue, and profit in Latin America, EMEA, and Asia Pacific.

The US is also operating. It's just that growth isn't as fast as it could be, or as we would like. So we've had some pretty solid “second runs” and “third runs” this year, but other regions have relied on some of these titles to be “home runs” so they can spread globally. So we really must — we're focusing on execution.

India is a good example when we talk about success in the Asia-Pacific region, but success also happened in Korea and Japan. When you look at EMEA, we look at Northern Europe, which is a very mature market, and the content list performs very well there. It's proof that when we focus, make the right choices, and creatively deliver, we can drive extraordinary business impact around the world.

Now Peter brings expertise in art and business, television and film. It's just that balanced skill set that will help guide us to the next chapter. There's so much to be excited about our fourth-quarter film list and 2027. I believe Peter can actually influence those ongoing projects, even in the short term. So we're very excited for him to join.

Spencer Wang:

Thanks, Ted. The next question comes from Dan Kurnos from StoneX. The question is: I want to talk about your recent layoffs, which are the biggest since 2022. I realize you probably don't want to go into the details, but how should we understand the thinking behind it?

Gregory Peters:

I can provide some colors. Back we have a big and ambitious mission. We want to entertain the entire world in the literal sense of the word. Fulfilling this mission requires extreme discipline on our part, clarifying where we focus, where we invest, how our people work, and where our resources are going. When you've achieved significant top-line growth like we've had in the past few years, and are in a highly dynamic, ever-changing market, I think it's not unusual to find areas where we're building quickly, eventually overinvesting, or opportunities to adjust the way we operate to best drive the business into the next phase of growth.

We prefer to make these adjustments organically and iteratively. It's the best way we can do this. We think our mission is basically to constantly try to adjust. But sometimes teams need a driving mechanism. The company needed a mandate that required the entire organization to ask tough questions: where to be more efficient and where to make tough decisions to prune or redirect investments. We don't make these decisions lightly, but we also believe it's our responsibility to make tough trade-offs for our members, partners, employees, investors, and ultimately our long-term growth. That's the simple thought behind it, and the reason behind the recent changes.

Spencer Wang:

Thanks, Greg. Building on that, the next question comes from JPMorgan's Doug Anmuth. Can Netflix increase revenue growth at a double-digit rate in 2027? What is the key leverage? Is it sustainable?

Spencer Neumann (Chief Financial Officer):

Spencer, let me answer this. I have to contribute a little bit to this call. Doug, thanks for the question. We're delivering strong growth in 2026 because the three revenue levers we have are all operating and contributing: membership growth, pricing, and advertising. We expect 2027 to also deliver strong revenue growth through the same three levers.

We know the market has issues with increasing watch time. We've talked. Greg and Ted just talked. To be clear, we want watch time to grow even faster. We're not satisfied. We're working hard. But again, as Greg and Ted mentioned, this will be an accelerator for already healthy income growth. We saw it in India: I just mentioned that strong film listings led to a significant increase in viewing time, and revenue growth of nearly 20%. This is just one of the many regional success stories Ted also mentioned.

But even with a moderate increase in watch time, that is, the moderate increase in viewing time we are delivering, we are still delivering added value to members through the quality, quantity, and variety of views, and there is a steady pace of popularity in most regions. That's the benefit of our model. Its growth engine is stable. We don't rely too much on any single title or on the extraordinary performance of any single region to deliver healthy growth.

It is too early to issue guidance for the full year 2027. We'll post the next call, the fourth quarter call. But our financial goals remain the same. We seek continued double-digit revenue growth. We seek to increase profit margins and increase free cash flow.

Spencer Wang:

Thanks, Spence. The next question may also be up to you to answer. Michael Morris from Guggenheim. The fourth quarter guidance includes approximately 120 basis points of costs associated with layoffs. How much do you expect to save on an annualized basis? How much of this should assume reinvestment, and how much will support the expansion of operating margins in 2027?

Spencer Neumann:

Hmm, probably disappointing again in terms of specific guidelines. We won't specifically quantify the 2027 cost impact. But as we pointed out in our letter to shareholders, the hard work and prioritization that Greg talked about ensures we can continue to actively invest in the highest impact areas to improve services, drive innovation, and drive growth. So we're really focused on completing this year strongly. We'll be providing guidance for 2027 in January, including profit margin guidance, but our philosophy of investing in the business to drive growth and innovation while steadily increasing profit margins year after year remains the same.

Spencer Wang:

Thanks, Spence. We have two questions that are somewhat related, so I've put them together. First Vikram Kesavabhotla from Baird. How did France's TF1 perform in the first few months of integration? How did this experience influence your views on distributing other services through Netflix? What are the guiding principles for future evaluations of such cooperation?

Related question from Citizens Bank's Matthew Condon. As Netflix's supply evolves, how interested are you in third party content collaborations or additional services that can be integrated into the Netflix experience? Do you see an opportunity to broaden the value of the platform through aggregation without having to own or directly license all content?

Gregory Peters:

Yes. Maybe I'll answer this question and take a step back for a bit of context, because I know these may seem like new technology or new methods to us, but they actually serve a goal we've had since we started the streaming service. That is to continue to expand the supply of entertainment to provide more value to members. Our members keep telling us they want more. We see this in their preferences for using the service. So the desire to deliver has been the goal for years, and I would say it has been the main driver of our industry-leading subscription coverage and retention.

So we're totally focused on that. We are always looking for new ways to expand supply, provide more professionally produced movies, TV, live streaming events, and more core entertainment value. That means we do things like authorize. It also means we're looking for new creative collaborations, like the ones we did with TF1.

Maybe take a moment to talk about why our partners are interested in working with us. We have extensive distribution coverage. We have a top product experience and are a great home for all of their work and content creation. We have industry-leading monetization capabilities. All of this makes us a great partner for studios, TV networks, and creative talents. We can find new audiences. We can generate incremental revenue for them. That's why they want to work with us.

As for your question about TF1, we are very satisfied with the early performance of the integration. We are able to enhance our already attractive service for our French members and add more popular local French shows. We've seamlessly integrated the TF1 product experience to both support its brand and maintain its differentiation.

We think this approach is beneficial to them, supports their value proposition, and is beneficial to us. It's also good for customers because it shows what they're getting. TF1 views on our platform are growing monthly. That's why we're constantly improving the product experience. We've seen complete improvements to the runways and routes, and we know we can do it because we have a history of improving these things in the past.

Additionally, our early analysis and testing showed that TF1 participation was incremental to our platform. So basically, all aspects of the cooperation are in operation.

As for future expectations, we certainly believe similar positive results can be replicated in other partners, as long as the partner's needs are met in this way. We will rank and prioritize these opportunities along with other growth opportunities. We have a lot going on.

Then the second question, additional services, I believe Matthew is asking about additional subscriptions or hybrid ad subscription services that customers can choose to add to their services would be one more way to expand the entertainment supply. We believe the same core benefits — providing partners with incremental coverage and incremental monetization — also apply to this model. We also think that many of the product experiences we have built are also suitable for that kind of service integration. So there's nothing to announce today, but you should expect we'll continue to find new ways to bring more core entertainment value to our members.

Spencer Wang:

Thanks, Greg. I'll follow up with a few questions about content, Sean Diffley from Morgan Stanley. Please discuss how you can promote theatrical distribution in the future. I'm sure you have 30 movies coming out at the box office this year. Excited for Cliff Booth and iMAX and next year's Narnia. Do you see the potential to go to the cinema first to create more popularity? Or was it a very project-by-project decision? What is the proper length of the cinema window?

Theodore Sarandos:

That's a great question. I'd say it's a good set of questions. But just a reminder, we're a streaming-first business. It's at our core. But every time we have a new movie, we consider the film itself, the moviegoers, and the filmmakers to make a distribution plan. Yes, we are releasing around 30 movies in theaters this year, which is roughly the same as last year. Each edition has its own customized release model.

So let's first look at the project at hand and ask ourselves how we can best serve movie lovers. Many of them are our members. They want to watch that movie in theaters, and at the same time, how can we not damage Netflix's viewing value. Some are specialty theatrical presentations. We've been doing this for almost ten years.

At the other end are family movies, which are heavily rewatched and first streamed on Netflix. We watch these two types of movies and treat them completely differently. For specialty releases, we now use a 47-day platform theatrical release for La Bola Negra. This is a fantastic Spanish movie. Then we'll have Mosquito Bowl in theaters soon, and the window is slightly shorter. We're collaborating with IMAX to release the David Fincher film The Further Adventures—Mis-Adventures of Cliff Booth, and it's worth repeating over and over again because it's so exciting for us. On that movie, we reached an agreement with IMAX to put it on the biggest screen for a few weeks four weeks before Netflix went live.

Now for the big family movies I'm talking about, we've announced that Greta Gerwig's new film Narnia: The Magician's Nephew and our animated feature film Charlie Presents the Chocolate Factory will be screened in a 45-day window and in a wide range of theaters. Both movies have big global IPs and global fans. So we're very excited about next year's performance.

So our theatrical strategy has evolved. It has evolved to using the traditional 45-day window for a small number of films, but another thing that is important to everyone is that we now also report the total box office revenue of these theatres. So this is new, and it looks like we picked a good title to start with, La Bola Negra. We first reported its opening weekend box office this week. It started at an average of over $69,000 per movie, the second-highest average per theater in non-English language film history, second only to Parasite, which later won the Oscar for Best Picture. So we're very excited about where we are. Of course, we have a week of public box office reports in hand, and we're very happy. Check back in about 6 months.

Spencer Wang:

Thanks, Ted. Sean has a follow-up question. How would you describe the third-party licensing marketplace? Looks like Disney's deal for Ice Age and other content was a win-win situation, after renewing The Walking Dead and getting Power. How should we think about the combination of future customization and licensing content?

Theodore Sarandos:

Yes. Well, remember, original and exclusive content has always been the anchor of the service. We saw its value when we entered the original production business over a decade ago. That's why we're continuing to expand our investment in original content across all genres and all regions.

But we're more than happy to license a second round of titles to supplement our original exclusive supply. This is our wide distribution. Our best-in-class technology. This makes us an ideal partner for studios, TV networks, and creative talent. Because of this, we continue to have strong content acquisition capabilities around the world.

I want to tell you—those are great examples of The Walking Dead. It's the Evergreen series. It has many episodes and people love it. Power is a good drama that is under-distributed. On Netflix, it will introduce the Power universe to a new wave of viewers. So that's very exciting.

But I'd really like to focus on two recent deals we're very excited about. You mentioned the Disney deal we just launched in October. That deal brought all the Ice Age movies to Netflix, as well as a bunch of other Disney movies or Disney series and some future movies. As you said, this is a win-win deal. The reason it's a win-win situation is because of course we benefit by expanding the supply of entertainment. Disney benefits from revenue and exposes its content to our large global membership base.

Our members of course benefit because they get Disney content added. We've seen some of the benefits of Ice Age movies. All five are in our Top 10. That's very exciting. This is beneficial to Disney because when they prepare to launch their next Ice Age movie in theaters next February, the title is Ice Age: Boiling Point, and more people will become recent fans of the Ice Age series. Incidentally, yes, Netflix just promoted a Disney movie during an earnings call. You're welcome, Josh.

Another deal to talk about is actually in Brazil. Last week, we and Globo announced the largest content licensing agreement ever between the two parties. This is the most meaningful licensing agreement we've made in Brazil. We're excited to partner with Globo. They are the country's leading producers and distributors of series and films. They are also local companies that have been reluctant to license our content. We used to launch a lot of global content on Netflix in Latin America and around the world, but not in Brazil.

So we're excited to enter this new phase of our business. We believe this will benefit both parties and Brazilian members. It includes all types of local titles. Among them is the Oscar-winning film I'm Still Here; international Emmy Award-winning telenovela India - A Love Story. The deal covers a healthy mix of local, regional, and global copyright. So we're really excited. Moving forward with Globo in Brazil is a very exciting time of our shared existence.

There will always be some ups and downs when it comes to getting licensed content and which titles are available now. But we always look forward to the opportunity to work with all vendors for the best series and the best movies. It's a bit complicated because all of our vendors are also our competitors. But our deal brought in much-needed revenue. They certainly build cognition. The benefits of perception are also rewarded to them, as it helps increase the value of their IP.

So these deals are really a win-win situation. As of today, we don't really rely on any single vendor, but we're very happy to do business with almost every supplier in the world.

Spencer Wang:

Thank you, Ted. I now turn to the topic of advertising. Given the slight change in advertising outlook this year, we have a few questions about advertising. But let's answer Baird's Vikram Kesavabhotla's question first. He asked: How is the advertising business progressing this year compared to your expectations? What did you observe inventory requirements and the breadth of platform advertisers? How is the current stage of your recent technology investment affecting performance?

Gregory Peters:

Our advertising business has delivered impressive growth since launch, and we do see a long, continuous growth path ahead. Since its launch, we have been committed to building an innovative advertising platform, providing customers with differentiated products, combining the best of digital advertising with TV advertising, while respecting members' privacy and ensuring the preservation of first-party data advantages. Our integration model and partner integration model maintain this advantage while achieving optimal targeting.

We have set a goal of big growth for our advertising business this year. We have developed an aggressive product roadmap in line with our strategy. Note that I think the construction we've been working on is the fastest comparable ad tech stack in the industry. But we're currently slightly below this year's aggressive target. We're still growing. To provide context or perspective, our advertising business is still growing by over 80% this year, so I'm excited about the pace of growth.

I think it's important to note that if you're aggressive enough about the roadmap, you'll occasionally fall behind certain milestones. Specifically, in this case, we saw delays in the launch of some new ad products and partner integrations. Reaching the integration model we want sometimes requires more work with our partners, but we are convinced that mild short-term setbacks in exchange for a better long-term strategic position are a good final trade-off.

We also don't think this will affect long-term earnings. In fact, driving this barely attainable delivery model often maximizes our overall speed. It's a strategy we've used effectively many times in our history. As we continued to launch other products such as new ad formats, we saw benefits, which helped growth. So if you take a step back, the priorities of our advertising business remain the same. We want to advance a full funnel optimization solution. We want to deliver new ad formats and new ad products. We want to increase the availability of first-party measurements and reports.

As for the issue, overall demand is still strong. The breadth of advertisers continues to expand, and ultimately advertisers want our new products and features, which is an important mechanism for our growth. So we're very focused on getting these to them as soon as possible.

Spencer Wang:

Thanks, Greg. Another question about the advertising business. Robert Fishman from MoffettNathanson. Ad tiers will be launched in 15 new countries next year. Any updates on the average income gap between ad tiers and standard non-ad tiers in the US and other existing international markets per member?

Gregory Peters:

Yes. Very excited to expand advertising countries for the first time. But to answer the question, let's first point out that we manage our advertising business based on total revenue and growth. So we see ARM and fill rates as a means, not as a goal in itself. Having said that, there is still a gap between ad layer merging ARM and standard ad-free ARM. But the gap is narrowing, and this gap means that our recent revenue growth has not been fully realized. It means we can — this is an opportunity. We can improve our advertising capabilities. We can close that gap over time.

We have seen this process happen this past year. We have expanded our sources of demand. We continue to quickly execute our own ad tech stack. We're adding more features, more advertising products, and more measurements. We make it easier for advertisers to do business with us. All of this is driving demand. They drive competitiveness. Those that increase yield and increase fill rates. Those that push up advertising ARM.

Of course, at the same time, we are also signing up for more advertising package memberships. So this boosts inventory. This creates more room for us to grow. Therefore, this double growth phenomenon, that is, we increase inventory and increase inventory monetization, I expect it to continue for some time, probably as we see ARM gap gradually narrowing, as we will drive improvements in advertising technology products and marketing capabilities, all of which will drive better unit performance and monetization in the next few years.

Spencer Wang:

Thanks, Greg. We answer that last question. Sean Diffley from Morgan Stanley. After the recent round of price increases, what did you learn about churn rates and engagement compared to the previous pricing cycle? As mature market penetration increases, what do you think is the biggest source of remaining membership and revenue growth? Is it pricing, advertising, or international penetration?

Gregory Peters:

OK. Regarding the first part of Sean's question, 2026 price changes are progressing well. So in all markets and all the types of markets where we change prices, member responses—you mentioned churn rates and engagement, participation is generally less affected by these things—yet member responses are in line with previous price changes and our expectations. Again, we think this is a strong indicator of the value we deliver to our members, and it's healthy to measure quality, quantity, and diversity of views.

Maybe give me another external reference point. Take the US, for example. Netflix subscribers pay the least per hour for viewing compared to other SVOD services in the US. In some cases, competing services may cost more than twice as much as Netflix per hour of viewing. We think this is a good indicator of how much value is delivered per unit price.

Also note that we are seeing continued health retention in every region. Global and US attrition rates improved year over year, better than predicted. These also reinforce signs of value and make us more and more confident.

OK. Regarding the second part of your question, we operate in approximately 190 countries around the world. These countries vary greatly. They differ in the level of penetration. They differ in market maturity, that is, presence necessary or enabling market conditions, think smart TVs, good connectivity, payment methods, everything that enables customers and consumers to sign up for our services and have a good experience. These countries are also different depending on whether we currently have advertised products. We're looking to expand the number of countries we advertise in, but this is an important part of the mix.

As a result, drivers of business growth do weigh differently across all different countries and country types. So you can take our most mature markets. Think America, the United Kingdom, and Australia. We penetrate deeper. Therefore, revenue growth in these markets will be driven by ARM and advertising growth. Then in the new market, think about India, Indonesia, and Colombia, we have plenty of room for membership growth. So we'll continue to provide plans to get you started. We expect membership growth to be the most important driver of overall revenue growth in these countries.

Then we have lots of middle markets, and we believe we can get a really balanced mix of membership and ARM growth in these markets, including ad countries like Mexico and Japan. We still have many people in these countries who can sign contracts, and we can also deliver more value to these countries' supply, which drives ARM and advertising monetization; as well as in ad-free countries such as the Philippines and Turkey, we believe there are opportunities for membership growth and ARM growth.

Spencer Wang:

Thanks, Greg. I would like to thank everyone who participated in our third quarter earnings call. We look forward to speaking with you in the fourth quarter of January next year. Thank you.