Netflix has declared it is “very well positioned to effectively leverage ongoing advances in AI” and believes generative AI presents a significant opportunity to deliver benefits to members, creators and its business, setting a direction that contrasts with widespread caution across Hollywood.
The streaming company outlined its AI strategy in its quarterly earnings report, stating it will use the technology to enhance the member experience, empower creators and improve its advertising business, reports TechCrunch.
“It takes a great artist to make something great,” said Netflix CEO Ted Sarandos on Tuesday’s earnings call. “AI can give creatives better tools to enhance their overall TV/movie experience for our members, but it doesn’t automatically make you a great storyteller if you’re not.”
Netflix is leveraging generative AI to enhance member experience by improving the quality of recommendations and content discovery features. The company is beta testing a conversational search experience that allows members to use natural language to explore the catalogue and discover titles. Netflix is also using generative AI to localise promotional assets in multiple languages, allowing titles to more easily travel to audiences globally.
Empowering creators with AI tools
The company is empowering creators with a broad set of generative AI tools. In Happy Gilmore 2, filmmakers used generative AI coupled with machine learning and Eyeline’s proprietary volumetric capture technologies to de-age characters during the opening flashback scene. Producers of Billionaires’ Bunker used various generative AI tools during pre-production, including for pre-visualisation to explore wardrobe and set designs.
“We’re confident that AI is going to help us and help our creative partners tell stories better, faster, and in new ways,” Sarandos said. “We’re all in on that, but we’re not chasing novelty for novelty’s sake here.”
In its advertising business, Netflix is using AI to test new ad formats, generate the most relevant ad creative and placement for members, and enable faster development of media plans. With these advancements, the company will be able to test, iterate and innovate on dozens of ad formats by 2026.
Netflix rolled out its new TV UI to 85 per cent of TV devices, with results exceeding prelaunch expectations. For many years, machine learning and AI have been powering the company’s title recommendations as well as production and promotion technology.
AI has been a contentious topic in the entertainment industry, as artists worry that tools trained on their work without consent could negatively impact their jobs. The debates escalated when OpenAI unveiled its Sora 2 audio and video generation model without guardrails preventing users from generating videos of some actors and historical figures.
When asked about the impact of Sora on Netflix, Sarandos said it “starts to make sense” that content creators could be impacted, but he is less worried about the movie and TV business. “We’re not worried about AI replacing creativity,” he said.
Netflix’s quarterly revenue grew 17 per cent year over year to $11.5 billion in Q3, driven primarily by membership growth, pricing adjustments and increased ad revenue. Operating income totalled $3.2 billion, up 12 per cent year over year. Operating margin was 28 per cent versus 30 per cent in Q3 2024, below guidance due to a $619 million expense related to an ongoing dispute with Brazilian tax authorities.
The company expects 2025 free cash flow of approximately $9 billion, up from its prior forecast of $8 billion to $8.5 billion, reflecting the timing of cash payments and lower content spend.
