Netflix doubles down on AI innovation to enhance storytelling and advertising efficiency

Netflix is placing artificial intelligence at the heart of its next growth phase- spanning content creation, user experience, and advertising- as it posted a 17% year-over-year revenue increase to $11.51 billion in the third quarter of 2025. Despite the strong topline growth, a hefty tax expense in Brazil dented earnings, sending shares lower in after-hours trading.

Read more: Faster, Cheaper, Smarter: AI transforms streaming game for OTT platforms

The streaming giant’s CEO, Ted Sarandos, said AI is being used not as a replacement for creativity but as a tool to empower it. “It takes a great artist to make something great,” he said during 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.”

Music is a leading indicator of AI’s impact, in Sarandos’ view. “AI generated music has been around for a long time, and there’s a lot of it,” he said. “And it’s a pretty small part of total listening, and established artists like Taylor Swift continue to be more popular than ever. So even in a world filled with AI music, AI seems to be mostly a tool for musicians to take their sound in new directions.”

Netflix has already rolled out its new AI-powered TV interface to 85% of devices, reporting results that exceeded prelaunch expectations. The company said its long-standing use of machine learning and AI in recommendations and content discovery has expanded into generative AI (GenAI) applications that are reshaping how users find, watch, and experience entertainment.

Among its new experiments is a beta conversational search tool that allows members to use natural language to explore the catalogue and find the perfect title for any mood. Netflix is also leveraging GenAI to localize promotional assets across languages, enabling global reach for titles that might otherwise remain regionally bound.

Read more: Netflix issues strict guidelines for use of generative AI in productions

"Given our significant data assets and at-scale products and business processes, we are very well positioned to effectively leverage ongoing advances in AI. We believe Generative AI presents a significant opportunity for us to deliver benefits to our members, creators, and business," it said.

For creators, the company has deployed AI-powered production tools to streamline filmmaking. In Happy Gilmore 2, GenAI and machine learning helped de-age characters during the film’s opening flashback sequence, while Billionaires’ Bunker producers used AI tools during pre-production for pre-visualization and set design. Earlier this year, Netflix’s Argentine series The Eternaut became the first to use generative AI in final footage, depicting a building collapse sequence.

“We’re confident that AI is going to help us and our creative partners tell stories better, faster, and in new ways,” said Sarandos. “We’re all in on that, but we’re not chasing novelty for novelty’s sake.”

Co-CEO Greg Peters also weighed in on the topic during the earnings call. “Our thinking about AI hasn’t really changed over a decade and a half or more,” he reportedly said.

“We’ve had a long history of developing machine learning and AI solutions. We’ve got a deep technology DNA. We’ve got significant data assets, scaled consumer products, scaled business processes – all of that, we think, enables us to have the opportunity to leverage new technical capabilities as they come online. And that’s our job. We are engaging proactively to do so.”

"Test, iterate, and innovate on dozens of ad formats by 2026"

Netflix is also extending AI into its advertising business, using machine learning to test new ad formats, optimize creative placement, and accelerate media planning.

The company said it will be able to “test, iterate, and innovate on dozens of ad formats by 2026.”

Just three years after launching its ad-supported tier, Netflix now has sufficient scale in all 12 ad markets and expects to more than double its ad revenue in 2025. Its first-party ad tech platform, Netflix Ads Suite, is fully deployed and will soon integrate Amazon’s DSP globally and AJA’s DSP in Japan to enhance targeting and programmatic capabilities.

Read more: Campaign turnaround down 70%, production costs cut by 85%: How Indian brands are letting AI take over creative wheel

Despite macro headwinds, Netflix’s operating income rose 12% to $3.25 billion, while net income climbed 8% to $2.55 billion, or $5.87 per diluted share, below its forecast of $6.87. The company expects Q4 revenue of $11.96 billion, up 17% year-over-year, with an operating margin of 23.9%.

For full-year 2025, Netflix projects $45.1 billion in revenue (16% growth) and an operating margin of 29%, slightly reduced from 30% due to the Brazilian tax charge. Free cash flow is expected to remain strong at around $9 billion.