With the creative community trembling at the march of AI, Netflix co-CEO Ted Sarandos tried to soothe the waters, saying excellent storytelling is the basis of the entertainment business although artificial intelligence can be great tool for creators.

The impact is hard to predict, obviously, he said on a call after the giant streamer’s quarterly earnings. “I think that AI is going to generate a great set of creative tools, a great way for creators to tell better stories” But series and movies win by connecting with the audience. “It’s in the beauty of the writing, it’s in the chemistry of the actors. It’s in the plot, the surprise twist … I’m not saying that audiences don’t notice all these other [AI] things. But I think they largely care about connecting with the storytelling. And I’d say they probably don’t care much about budgets, and arguably maybe not even about the technology to deliver it.”

He used animation as an example.

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“If you look back over a hundred years of entertainment, you can see how great technology and great entertainment work hand in hand,” he said. “Animation didn’t get cheaper, it got better in the move from hand-drawn to CGI animation. And more people work in animation today than ever in history.

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“So, I’m pretty sure that there’s a better business and a bigger business in making content 10% better than it is making it 50% cheaper.”

“There are a lot of filmmakers, a lot of producers, experimenting with AI today. They’re super excited about how useful a tool it can be. And we’ve got to see how that develops before we can make any meaningful predictions of what it means for anybody.”

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Netflix reported its second-quarter earnings Thursday, adding 8 million subscribers and expanding its lead as subscription streaming TV’s dominant platform.

The company now has 277 million global subscribers. Netflix said last quarter that it will stop reporting subscriber numbers and average revenue per member beginning in the first quarter of 2025.

Netflix reported revenue of $9.56 billion and operating income of $2.6 billion, both up substantially from a year earlier. The company bested Wall Street expectations, but saw its share price slump after hours as it predicted slower growth moving forward, as its paid-sharing efforts begin to deliver diminishing returns.

In its forecast, the company says that it is estimating 14 percent revenue growth in Q3, with lower paid net additions compared to Q3 last year, “which had the first full quarter impact from paid sharing.”

The company also revealed in its shareholder letter that it was working on designing a new TV homepage, what they are calling “our biggest update in a decade.”

“This new interface provides more visible title information at a glance — including synopsis, genre and ratings,” the company wrote. “Title previews are also larger and more dynamic, with more immersive trailers and bigger box art to make browsing easier. We’ve also simplified the navigation bar and moved it to the top of the page to create quicker, easier short cuts. And this new design includes My Netflix, which has everything members have saved or watched and was previously only available on mobile.”

And as usual, Netflix executives had a few words about the competition. The company noted that, according to Nielsen’s Gauge, it and YouTube are really the only scaled players in streaming video, with each having more viewing minutes than Prime Video, Hulu and Disney+ combined.

“The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services and linear continues to decline,” the company notes. So going forward, “we believe our biggest opportunity is winning a larger share of the 80%+ of TV time (primarily linear and streaming) that neither Netflix nor YouTube has today.”

In other words, as co-CEO Ted Sarandos said on the earnings call, the company is focusing its efforts on other TV and streaming viewers that it can poach, rather than focusing on YouTube.

One thing that it will not be doing, however, is launching a streaming bundle directly with one of its video competitors. In a section titled “partnerships,” Netflix noted that while it is happy to partner with mobile providers, pay TV operators and device manufacturers on offerings and packages, “we haven’t bundled Netflix solely with other streamers like Disney+ or Max because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience.”

“This has driven industry leading penetration, engagement and retention for us, which limits the benefit to Netflix of bundling directly with other streamers,” it continued.

On the earnings call, advertising was one of the top questions, with co-CEO Greg Peters noting that the company will be testing its in-house ad tech in Canada this year, before rolling out globally next year. Netflix also revealed Thursday that Peter Naylor, one of its top ad sales execs, would depart the company.

On the call, Sarandos also addressed the use of generative artificial intelligence, and what role it would play at Netflix.

“I think that AI is going to generate a great set of creator tools, a great way for creators to tell better stories,” Sarandos said. “And one thing that’s sure, if you look back over 100 years of entertainment, you can see how great technology and great entertainment work hand in hand to build great big businesses.

“There’s a lot of filmmakers and a lot of producers experimenting with AI today,” he added. “They’re super excited about how useful a tool it can be, and we’ve got to see how that develops before we can make any meaningful predictions about what it means for anybody.”

What the long-term impact of generative AI will be on Hollywood is “hard to predict,” Netflix co-CEO Ted Sarandos said — but he took a shot at addressing it anyway.

Sarandos, speaking on the streamer’s Q2 earnings interview, said, “I think that AI is going to generate a great set of creator tools, a great way for creators to tell better stories.” And, he said, the business case for generative AI isn’t to reduce costs but to improve the quality of storytelling.

“There’s a lot of filmmakers and a lot producers experimenting with AI today,” he said. “They’re super excited about how useful a tool it can be. We’ve got to see how that develops before we make any meaningful predictions about what it means for anybody. But our goal remains unchanged, which is telling great stories.”

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His response was prompted by a question from an analyst who cited Variety‘s “Strictly Business” podcast this week with CTO Elizabeth Stone. In the interview, she said that the current gen-AI wave is “a step function in that technology” and said Netflix is exploring how to integrate it into the product to improve the member experience or how it could “enable creators and bring their visions to life in an even better way.” Stone shared that the company is working on a generative-AI project she described as an “interactive discovery experience.”

During the Q2 interview, Sarandos said, “One thing that’s sure, if you look back over 100 years of entertainment, you can see how great technology and great entertainment work hand-in-hand to build great big businesses.”

Sarandos said you don’t need to look further than animation. “Animation didn’t get cheaper, it got better in the move from hand-drawn to CG animation,” he said. “And more people work in animation today than ever in history. So I’m pretty sure that there’s a better business — and a bigger business — in making content 10% better [using technology] than [there is in] making it 50% cheaper.”

“I think shows and movies, they win with the audience when they connect,” Sarandos continued. “It’s in the beauty of the writing. It’s in the chemistry of the actors. It’s in the surprise of the plot twist.” Audiences “probably don’t care much about budgets and arguably maybe not even even the technology to deliver it,” he added.

Sarandos had recently commented on AI in a recent interview with the New York Times, in which said expressed doubts AI platforms will replace Hollywood professions such as screenwriters.

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“I have more faith in humans than that. I really do. I don’t believe that an AI program is going to write a better screenplay than a great writer, or is going to replace a great performance, or that we won’t be able to tell the difference,” Sarandos said. “AI is not going to take your job. The person who uses AI well might take your job.”

Also on the Q2 interview, co-CEO Greg Peters said Netflix has been using AI and machine-learning for years in its content recommendations, echoing Stone’s comments. “We think that generative AI has tremendous potential to improve our recommendations and discovery systems even further,” he said.

But Peters also noted that “the key to our success stacks — it’s quality at all levels,” starting with great TV shows and movies together with “a great and constantly improving recommendation system that helps unlock all of that value for all of those stories.”