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Netflix Q1 FY2026 earnings conference call

Key Takeaways (AI-Generated)

Financial Performance

- Revenue growth guidance maintained at 12-14% for 2026 with operating margin at 31.5%

- Advertising business expected to roughly double to approximately $3 billion USD

- Ended 2025 with more than 325 million paid members, entertaining an audience approaching 1 billion people

- Advertiser base grew over 70% year-over-year in 2025 to more than 4,000 advertisers

Business Highlights

- World Baseball Classic became most watched program ever in Japan with 31.4 million viewers

- Japan led Q1 member growth globally and had highest quarter of paid net adds

- Launched Netflix Playground gaming app for kids with curated, age-appropriate content

- Acquired Interpositive to accelerate generative AI capabilities for filmmaking

Financial Guidance

- Maintaining 2026 revenue growth guidance of 12–14% and operating margin of 31.5%

- Advertising revenue target of $3 billion for 2026 unchanged

- Warner Brothers deal costs factored into guidance with no material impact

- Initial forecast included $275 million for M&A-related activity including Interpositive acquisition

Opportunities

- Market penetration still under 45% in addressable households with smart TVs globally

- Product innovation expanding into podcasts, live sports events, and gaming experiences

- Strategic partnerships through multi-year sports deals and content licensing agreements

- Operational efficiency improvements through AI implementation across content production and advertising

Full Transcript (AI-Generated)

Operator

Good afternoon and welcome to the Netflix Q1 2026 earnings interview. I'm Spencer Wong, VP of Finance and Capital Markets. Joining me today are Co-CEOs Ted Sarandos and Greg Peters and CFO Spence Newman. As a reminder, we'll be making forward-looking statements and actual results may vary. We'll now take questions submitted by the analyst community and we'll begin on the topic of our results and outlook.

Spencer Wong

The first question comes from Robert Fishman of Moffett Nathanson. This question is, can you speak to your full year margin guidance and how it compares to prior guidance with the Warner Brothers deal costs? And beyond content spending, where else are you accelerating investment in 2026?

Greg Peters

Perhaps I can kick this one off and just sort of step back and do a little bit of high level framing. Of course it's early in the year, there's still plenty of time to go, plenty of work left to go do, but we've seen really good progress so far in this first quarter that builds on the solid momentum and results from 2025. Given that we are maintaining our guidance are strong outlook for organic growth that we established for 2026. That's revenue growth of 12 to 14%, operating margin at 31.5%. That includes roughly doubling the advertising business to about 3 billion U.S. dollars.

Now we ended last year with more than 325 million paid members and as that number continues to grow, we are entertaining an audience that is approaching a billion people, which is an exciting milestone that to strive for and it'll be an exciting milestone to achieve. But even given that number, we still have plenty of room to grow into our addressable market. So if you look at it from addressable household perspectives, you know that have good data that have a smart TV, all those things that we think are enabling, we're still under 45% penetrated in terms of that number.

We think that number is roughly 800 million and it grows every year. Obviously we've captured about 7% of addressable revenue. This is countries and categories that we currently directly participate in. We now estimate that 670 billion U.S. dollars as a 2026 and that number grows of course year over year as well. And we estimate that we account for only 5% of TV view share globally. So you can pretty much use any measure and say we've got tons of room for growth still ahead of us.

Ted Sarandos

And I just had Greg looking ahead. You know, we're focused on three big priorities. Number one: to deliver even more entertainment value for our members. And we do that by continuing to strengthen our core offering—series and films, originals and licensed content. But we’re also pushing into new categories that are really exciting, like our further expansion into podcasts. We announced a few exciting new ones just today. We're adding more regional live sports events, such as the incredible event we just did in Japan with the World Baseball Classic. And we're growing our games offering, including the brand-new kids gaming app.

Number two: we're leveraging technology to improve the service—from how it's delivered, to how you find great things to watch, and now even how content is created and produced. And number three: we're improving monetization. We're doing this through a combination of broad distribution—mostly organic, but also supplemented with some great partners—we have increasingly sophisticated pricing and pricing plans, and we have a strong and growing ad business.

As Greg just said, these features help position us to deliver multi-year growth. We think beyond the 12% to 14% that we expect to deliver this year. At Netflix, we embrace change. We thrive on competition. We stay focused on constant and consistent improvements—all the things that make us faster and better than the competition, in whatever form that competition takes. So we really feel great about the business, about the organic growth opportunity ahead, and we are just as energized as ever to achieve our mission to entertain the world.

Spencer Wong

Spence, maybe you could talk a bit about the WB deal cost in the guidance?

Spence Newman

Oh, yeah, sure. Thanks, Ted. So with respect to the Warner Brothers deal and those costs and how they impact the guidance—you’ll recall that back in January, our initial forecast for annual guidance included approximately $275 million in costs related to M&A activity. But that wasn’t just Warner Brothers, actually. One item embedded in that figure was the Interpositive acquisition. It hadn’t been announced yet, but it was already reflected in our guidance, and it’s also flowing through our OpEx, which is affecting our operating margin.

And specifically regarding Warner Brothers—even though we obviously walked away from the deal and some of the initially planned deal-related costs won’t fully materialize, certain expenses we had planned to incur in 2027 were pulled forward into 2026. So when you put all of that together, we’re still roughly in the same ballpark as our original projection for total M&A-related expenses for the year. There’s no material impact on our operating margin outlook, and as a result, there’s no indication of an increase or acceleration in other expenses for the year.

Spencer Wong

Thanks, Spence. Thanks, Ted. Thanks, Greg. Well, following up on that question we have from Sean Difley of Morgan Stanley. His question is what have been your biggest learnings from the Warner Brothers experience and does it in any way change your appetite for M&A or capital structure going forward?

Ted Sarandos

So at the risk of being a broken record here, I just want to remind you that we said this from the beginning—that the WB deal was a nice-to-have, not a need-to-have. We are very confident in the core business. So we really looked at this going into it: our biggest risk was losing focus on our core business while we were working on the transaction. So as you can see from our Q1 results, we did not lose focus. We're very encouraged by the team's ability to stay focused on our core business while, as you know, also exploring this opportunity.

Historically, we've been builders and not buyers. So there were certainly questions internally and externally about our ability to do a deal of this size. What we did learn, though, was that our teams were more than up to the task. We've learned so much about deal execution and early integration. We're really proud of the teams that did all that work. We are—we are proud to have won the bid. We are confident in our ability to reach the finish line with regulators to secure the approvals we needed. And, most importantly, we really built our M&A muscle.

And the most important benefit of this entire exercise, though, was that we tested our investment discipline. And when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. And doing so at this level, I think, sets an expectation for our teams that this is how they should operate day-to-day. I would like to add, though, that we met a bunch of great people at WBD during this process. So if there’s any emotion in all of this, it was disappointment—not getting to work with those folks. And we were really looking forward to that. We truly were.

But we do come through this with no change in our capital allocation philosophy. You know, we invest in the business both organically and opportunistically through M&A, as you just saw with Interpositive. And we do that while maintaining strong liquidity and returning excess cash to shareholders through share repurchases. So M&A for us remains a tool to help us achieve our goals. And as you can see with the WB deal, we’ll remain very disciplined in how—and how aggressively—we approach it.

Spencer Wong

Thank you, Ted. All right, I'll move this along now to the next topic, which is on engagement. And the question here comes from Vikram Kesava Bola of Baird. The question is: last quarter you shared that your primary quality metric for engagement achieved an all-time high in 2025. How is this metric performing so far in 2026? What are some examples of the data points that inform your measurement of quality?

Greg Peters

Sure. I’ll take this one first—just to note that volume of engagement is still relevant. We still track it. We still seek to grow it. And actually, in Q1, view hours were up at a similar rate of growth to what we saw in the second half of 2025. And that’s actually despite having the Winter Olympics and 17 days of robust streaming competition landing in Q1 as well. But as we’ve said—and as you alluded to here—while view hours are important, they’re actually just one of several metrics that we look at, and we’re increasingly trying to develop a more sophisticated view.

Member quality is an important part of that increasing sophistication and measuring our performance, and it's got several associated signals. And in Q1, that primary member quality metric that you referenced hit another all-time high. So we're making good progress there. We're excited about that. I am not going to detail how we compose our metrics because they often take quite a bit of time and effort to actually build and validate. I'm sure our competitors would love to get that cheat sheet, but we're not going to give it to them.

But I will say this: we build confidence in our metrics—and specifically this member quality metric—and assess how we evolve and improve those metrics over time by evaluating their predictive and explanatory power against really important primary metrics like retention. That's why we are clear that improving that number improves the business. And expanding on this, I would say that as we invest in new forms of content, we also have to learn how the new programming provides different kinds of value. I think Live is a really great example of this. It often drives significant viewing value for members, albeit with fewer view hours than perhaps a scripted series. It also has different acquisition characteristics. So these are all things we have to continually understand better. We need to build models for how that programming matters to our members, figure out how it supports the business, and then, of course, we can bid appropriately based on that.

Spencer Wong

Thanks, Greg. Our next question on engagement comes from Rich Greenfield of Light Shed Partners. Nielsen adjusted their methodology. The end result was lower streaming viewership and higher broadcast and cable viewership, albeit with similar trend lines. Nielsen has delayed implementing these changes into its monthly Gauge report until 2026. Netflix’s viewership base will be lower but will also have more room to gain share. I’m curious how you think about the upcoming impact, especially on your advertising revenue.

Greg Peters

So Nielsen's methodology change in the Gauge reporting is a change in how they calculate the national TV universe. It’s not a change in how people actually watch TV. It changes Nielsen’s numbers, and those are purely a methodological adjustment—they don’t reflect any actual shift in viewing behavior. It’s simply a change in how they weigh relative viewing methodologies. Specifically, the new approach reduces the weight of streaming-only households and increases the weight of linear households, which makes streaming appear smaller and broadcast/cable larger on a relative basis in their measurement and reporting.

Now, of course, we have the actual data on how much members stream. We include that in our engagement report. I think that methodology is very straightforward. Other streamers have started measuring views in the same way. Turning to the question—how does this impact our advertising? The Nielsen Gauge is not the currency for the video marketplace. And given that there’s no change in consumer behavior or amount of viewing tied to this shift, none of these changes affect our effectiveness or our ambitions in the ad space. We continue to expect to deliver $3 billion in advertising revenue this year. We haven’t adjusted that target.

Regarding your point about growth potential—independent of this shift—we still see tremendous upside in the business and the ability to win more moments of truth, especially the most valuable ones. Given our current position of capturing less than 5% of global TV time—or any other credible measurement out there, which doesn’t change that figure significantly—we have enormous room to grow in this space.

Spencer Wong

Thanks, Greg. We’ve received several questions about our content and content strategy. First, I’ll start with John Hulick of UBS. Can you share any details about World Baseball Classic viewership? Are there other similar sports and live event opportunities that could appeal to a global audience and drive engagement?

Ted Sarandos

Well, thanks for asking John about the World Baseball Classic because it was a hit. It was amazing. In fact, it was the most-watched program we've ever had in Japan. It is the biggest global baseball streaming event of all time, with 31.4 million viewers. It was really exciting to see how this played out, and events like this are super important because, as Greg was just saying, they really drive outsized business impact and serve as proof that not all engagement is created equal.

For those few days, it was truly an incredible time for our members in Japan. The WBC drove our largest single sign-up day ever in Japan, and Japan led our Q1 member growth globally. Japan also recorded its highest quarter of paid net additions in our history. It also marked our first major regional live event outside the U.S., which was great. We really got to flex our new muscles here—streaming multiple games concurrently—which represented a significant expansion of our capabilities. It’s very, very exciting.

So we were excited, the fans were thrilled, and the leagues were super excited. So yes, much more to come. I also think it’s a great example of how we were firing on all cylinders cross-functionally—whether it was our marketing teams or our partnership teams working to ensure we brought this to Japanese consumers in a locally resonant way. It was really impressive to see everyone rally around that effort, and it gave a great shot in the arm to our ad sales group in Japan.

Greg Peters

Totally. One other thing on this—not to diminish the WBC—but also keep in mind that, as great as it was (and it was great), you may have noticed that APAC was our strongest FX-neutral revenue growth market for the quarter. And it wasn’t just because of the WBC. In fact, we delivered strong performance across multiple areas in APAC. We had a great quarter in India, a really strong quarter in Korea, and Southeast Asia also showed strength. So I just want to emphasize that across the board in APAC, we executed well—it wasn’t just one title or one country driving results.

And I’d also say it was exciting to see people engage with our recent original series—the viewing went up. You saw some of those shows pop back into the top ten, particularly the success of 'One Piece' following right on the heels of the WBC. So it was a really great moment for our content overall, and everything just came together under that massive halo effect from the WBC.

Spencer Wong

All right, I’ll take the next question from Robert Fishman of MoffettNathanson. His question is: With the NFL currently in the market for new media packages, do you evaluate ROI on live event content spending the same way as scripted content, or does adding NFL games give you the ability to command higher CPMs and drive growth that one-off scripted shows wouldn’t be able to deliver?

Ted Sarandos

That's a great question, Robert. I mean, I'll take a step up, which is first of all, our, our, our sports strategy is pretty much unchanged. We're most interested in those big breakthrough events, less so in the regular season packages. Everything we pursue has to make economic sense in the ways that you just talked through. And when we consider this, we have to consider all the benefits you derive for both from the viewing and from the ads business. So the reminder sports is a an important piece of our live strategy, but that strategy also includes other big live events.

We had Skyscraper live, the Star Search reboot with live voting, which was really exciting, the BTS comeback concert. But sports is an important component of that live business. And we've had a number of successes there, including our opening night MLB baseball game with the Yankees and the Giants, our Christmas Day NFL games, some big fights. The WBC we just talked about in Japan and the, and the NFL is a great property and it delivers value as part of our total offering. And we are in discussions right now because we think there's an opportunity to expand the relationship.

But overall it did within the same strategy focused on creating big events for them. We've learned a lot about how what works and how to value the NFL and live generally over the last couple of years. And this is going to inform how we had those discussions and help us be much even more disciplined about it. I'd point out, you know, the event strategy is working. We've announced Tuesday we have a multi year deal with Konkakov for rights in Mexico and that's in addition to like Women's World Cup in US and Canada, our first big global M&A event with Ronda Rousey and Carano.

So this is we're ramping up our sports events globally and local for local both in terms of volume and profile. But we really do this because I think we bring a lot of value. We receive a lot of value, but most importantly our members receive a lot of value.

Spencer Wong

Thanks, Ted. Our next question comes from Peter Supino of Wolf Research. Help us better understand your business model in podcasting.

Greg Peters

I think he means probably business strategy and podcast. Yeah, look, I, I think we, we talked a bit about it in the letter, but I think what's most exciting about it, even though it's very early days, what we're seeing is some data that would indicate that we're gaining incremental engagement to the platform. And how do we know it's incremental? Well, two things really jump out. One is the daytime viewing. So podcast consumption indexes to daytime hours on Netflix. Which allows us to capture a time where we historically have less engagement during the day.

The other one is that IT Index is much more mobile. So podcasting being more mobile than professional TV and professional TV and film historically makes up a pretty small percentage of mobile viewing. So it's great that we get to meet our members where they are, even when they're enjoying other forms of entertainment. So that's really a thrilling early sign. And we've been building out a great line of a podcast, both licensed and owned shows like the the Bill Simmons podcast, The Breakfast Club, therapist from Jake Shane, which I've been waiting to say all day, pardon my take. All these are doing great.

And we have our own podcast as well, like the White House with Michael Irvin and the Pete Davidson Show. Our companion podcast have been great for super fans like the Bridgerton Official podcast and a few others. And then just today we announced new podcast from Brian Williams, from Evan, Evan Ross Katz, from Steven Sue, Ellison Barber, David Kwong. So the list keeps growing and it's a it's a very promising great.

Spencer Wong

We'll now shift over to the topic of advertising. And this question comes from Dan Salmon of New Street Research. Can you share more on the growth of your total advertiser base? What proportion of advertisers are being serviced directly by the Netflix sales team and what proportion are buying on Netflix through third-party DSP partners? Are you still largely focused on the top 500 brands or is a mid-market strategy beginning to emerge?

Greg Peters

So about five questions in one there. We'll do our best to handle them all. Maybe just start with, as we've mentioned before, the biggest benefit we got from moving to our own ad tech stack is simply making it easier for advertisers to buy on our service. Additionally, we've added more and more DSPs, which of course provide additional ways to buy, and we're seeing through that a pretty significant growth in programmatic, which is on its way to becoming more than 50% of our non-live ads business.

As a result of those moves—as well as improvements such as enhanced go-to-market capabilities, a larger sales force, continued development of our ad products, and increased attractiveness of those products—our advertiser base grew by over 70% year-over-year in 2025 to exceed 4,000 advertisers. We've seen a solid expansion of that advertiser base, which is, of course, a key indicator of the health of that business today. We’re still currently concentrating on those top advertising accounts—the largest buyers—who are primarily serviced by the Netflix sales teams. That could be directly through our stack or essentially a sales team driving purchasing behavior via DSPs. In either case, these aren't really separate paths.

Over time, we expect continued growth in the number of advertisers. We’re clearly pushing in that direction. We anticipate that the percentage of advertisers buying programmatically will increase, and therefore the programmatic share of ad revenue will rise as well. As we scale programmatic and our advertiser base broadens further, we’ll naturally follow a fairly standard, modern, time-tested model of iteratively expanding into increasingly larger pools of advertisers.

Spencer Wong

Thanks, Greg. Let’s see. I’ll move on to a question around plans and pricing, and this one comes from Vikram Kessel of Evercore Baird. What informed your decision to raise subscription prices in the US recently? What are your early observations regarding the impact on customer acquisition and churn in the region?

Greg Peters

This change was part of our plan for some time. We continually monitor signals from our members—things like quality-weighted engagement, plan selection trends, plan migration activity, and retention, which remains industry-leading. So we observe clear improvements in the value delivered to our members well in advance of making any price adjustment, and those same signals inform this—and frankly all—of our price changes. As a reminder, our initial full-year guidance already factors in the pricing adjustments we expect to make throughout the year. Those almost always encompass all of our planned pricing changes—it’s very rare that we implement an unexpected or so-called 'surprise' pricing change. So that guidance incorporates everything we’re planning to do.

As for the most recent changes, the early signals we're seeing are in line with our expectations. They're similar to the performance that we've observed historically with price changes in the United States. So this is, you know, based on early data—the rollout is still ongoing, so a caveat there—but I would say all the indications that we see are consistent with what we've seen before. And it's worth noting that our pricing philosophy remains consistent as well. We haven't changed that in quite some time. We aim to provide more and more value to our members and have successfully and effectively managed the revenue we’ve generated. Occasionally, when we've added more value, we ask our members to contribute more so that we can invest that back into delivering them even greater entertainment value.

And we believe we are delivering one of the best entertainment values that has ever existed. As a point of comparison supporting that statement, Netflix subscribers in the U.S. currently pay the lowest cost per hour of viewing compared to other streaming offerings. In some cases, you’d have to pay twice as much per hour for a comparable service. And our ad-supported plan at $6.99 in the United States, we believe, is a great entry point—highly accessible and offering incredible value. So, we’re excited about maintaining all of those elements.

Spence Newman

Yeah, maybe just to add to that, Greg—just to elaborate a bit on the value we’re delivering and how we’re seeing it reflected in the metrics. Consider the retention we’re observing across the business, which inversely relates to churn. This quarter, we saw improvements across the board—every region performed better year-over-year. That’s really encouraging in terms of the value we’re providing, and it also ties back to what you mentioned earlier regarding our primary engagement-value metric. We set a record in Q4 of last year and achieved another record in Q1 of this year, which is clearly showing up in the numbers.

Spencer Wong

Thanks, Vince. A couple of questions on gaming—the first comes from Eric Sheridan of Goldman Sachs. You’re now in your fifth year of executing your gaming strategy. What have been the key learnings over that period? How do platform games change user consumption habits? And what do you see as the most promising areas to invest in within gaming in the coming years?

Greg Peters

Yeah, I think by 'platform games' we just mean games available on our platform. But let me start by stepping back and explaining why we’re pursuing this at the highest level. We truly see this as a significant market opportunity. Consumer spending in this space amounts to roughly $150 billion, excluding China and Russia—and that figure doesn’t even include ad revenues. Under our current operating model, that number continues to grow, indicating substantial expansion potential. A significant portion of this market faces challenges such as player acquisition or low-friction game discovery and play—areas where we believe we’re well positioned to drive meaningful improvement.

So we’ve been laying foundational capabilities—essentially, the ability to develop games, bring them onto our service, connect those games with players, and deliver high-quality experiences. Just as we’ve seen with films and series—and as we originally hypothesized (and you might say it’s somewhat obvious)—we’ve learned that gameplay can positively impact member retention and also contribute to acquisition. That said, the observed effect on acquisition has been quite small to date, which aligns with consumer perceptions of us as a gaming platform at this stage.

One key user behavior we’ve consistently observed is that offering fans of a film or series an interactive experience within the same universe not only extends audience engagement but also creates synergy that enhances both mediums—the interactive and non-interactive sides perform better together. This further drives engagement and delivers greater value. Regarding the most interesting investment areas you asked about: we’re focusing on games that leverage our beloved intellectual properties or major events, giving fans interactive experiences that expand those universes. Another key focus is TV-based gaming—a new canvas for both players and developers, offering exciting potential to broaden the market opportunity—as well as creating dedicated gaming experiences for kids.

So given all that, though, I think, you know, it's, it's worth noting that while it's, you know, we've been a couple years in building this, we're still really just scratching the surface today in terms of what we can ultimately do in this space. You know, we've been building a bunch of infrastructure, a bunch of core capabilities, but now we're increasingly able to deliver more and more the kinds of experiences that, you know, we're, we were originally thinking about the move us toward our vision and our aspirations. So there's tons more work to do for sure, but it's fun to get to the stage and we're excited about the potential we see.

And I believe you'll see some, some interesting, increasingly interesting releases from us in the year to come. But having said all that, we're going to continue to ramp our investment, which is still currently small relative to our overall spend on content based on demonstrated performance and growing returns to the business.

Spencer Wong

Great. And Greg, a follow up question on games from Brian Pitts of BMO Capital. The recent announcement of Netflix Playground is seemingly one of your biggest moves into the video game space to date. Would you help us understand how you will measure success with Playground and the incremental value you expect it will drive for your broader subscriber base?

Greg Peters

Maybe start with just explaining for folks what Netflix Playground is. Yeah, grabs going to go there as well. Thanks. But it's Playground is essentially a separate app for games for kids and kids really represents one of our four key focus areas for games. We've got kids, we have narrative as well, and then we've got party slash puzzle games and then mainstream games. And our goal here is to become a destination where kids favorite worlds come to life through games and through interactive experience.

Now this represents the sort of extension of a long history we've had. We've always viewed kids as a special audience. They deserve special care. We provide kids with a dedicated experience. We provide parents with tools and ensure they have control and can determine appropriate for their kids. These include tools like ratings, like parental controls, pin controls, etcetera. So Playground, the separate app, extends that core philosophy into games. It includes things like a growing collection of kids games in one app so they can navigate knows it's fully curated, age appropriate titles based on beloved shows and movies. You know, I think Pepper, Peppa Pig, Doctor Seuss, bad dinosaurs, no ads, no in app purchases. It fits also with kids natural viewing habits. So a significant portion of kids viewing already happens on mobile and tablets. So this, you know, happens in the same place. And this is all as added value included in your membership already.

Now we're seeing some encouraging signals with kids games. We've as we've added more kids games, we've seen strong growth and engagement through both new titles as well as improved discovery on titles that we had before. So that's exciting to see. And then ultimately, you know, we see an important long term opportunity to deliver more entertainment to kids in ways that parents feel good about, not just across games, but across TV and film as well.

Spencer Wong

Thanks, Craig. Let's see next question from Eric Sheridan of Goldman Sachs. Entering 2026, how would you characterize the current competitive landscape? For content, are you seeing any differences in competitive intensity by geography, language and or format?

Ted Sarandos

Well, first of all, you know competition is not new for Netflix. Consumers have always had an incredible amount of choices when it comes to entertainment, and we've continued to grow—as Greg mentioned earlier—by offering enormous value to our members, even as we compete against other services launching around the world. Great projects are immensely competitive, and they remain so—and those are exactly the projects we want. We’ve been pleased that Bela and the content team have recently secured some of the most competitive projects, such as 'Strangers,' with Gwyneth Paltrow attached to star, based on that incredible New York Times bestselling book everyone was chasing for adaptation rights; and 'Rabbit Rabbit' with Adam Driver, which will be directed by Philip Barantini, who previously directed 'Adolescence' for us—an incredibly competitive project that we were able to land.

And I’d say I’m really proud of the team, but it’s also not just about paying the most. Relationships truly matter, especially when creators have many competitive options. Providing a great experience for creators and delivering a massive audience for their work—that’s hard work, and they want people to actually see it. Generating significant buzz is something we constantly do through our work, and we’re seeing a lot of repeat business, which is the ultimate sign that we’re doing our job well.

So this week—actually today—'Beef' Season 2 premieres. If you look at that project, the show’s creator, Lee Sung Jin (Sunny Lee), delivered the first season, which became the most honored limited series of the year when it launched two years ago, winning 45 individual awards and becoming a massive global hit for us. We’ve just signed an overall deal with Lee, who will be creating for Netflix for years to come. And that cast—Oscar Isaac just starred in 'Frankenstein,' earning a Golden Globe nomination for his performance. He has another film coming out this year and another project we’ve just greenlit with him for the Oscars. So we’re thrilled about that.

Carey Mulligan, who has done multiple projects for Netflix—including her Oscar-nominated performance in 'Maestro'—is starring in 'Narnia,' coming later this year. She was also in 'Mudbound' and is now in 'Dig.' We love working with Carey; she’s a genius. Charles Melton, a Golden Globe nominee for 'May December,' delivers an incredible performance in the new season of 'Beef.' Even Kali Reis, who was just in 'Wake Up Dead Man'—the entire cast feels like part of the Netflix family. I think that’s a really strong sign we’re doing something right.

'Running Point' launches next week—it’s another new hit series with Mindy Kaling, whom we’ve worked with consistently and whose partnership we deeply value (and we hope she feels the same). And this isn’t just happening in the U.S. By the way, Álex Pina, the creator of 'La Casa de Papel,' has developed numerous projects since that show, including one he’s currently working on. So if repeat business is a sign of success, I’m genuinely excited about what we’re doing.

But you know what? I also think about competition in terms of not just those competing with us for projects or for members—we’re also a customer to most of these companies. For example, 'Running Point' is produced by Warner Bros. for us. We license shows like 'Watson' and 'Mayor of Kingstown' from Paramount. We have a pay-one deal with Sony and another with NBCUniversal that includes DreamWorks Animation and Illumination. Our investments in those films—through co-productions and licensing—actually support the entire global movie ecosystem. So while it might seem unusual to be both a customer and a competitor, it’s actually quite common in the entertainment business, and we manage those relationships pretty effectively.

Spencer Wong

Thanks, Ted. Eric Sheridan from Goldman Sachs also has another question, this time on AI. How has the company’s approach to the role AI can play in the creative process continued to evolve following the announced acquisition of Interpositive? Can you discuss the rationale behind that deal in the context of your broader strategy?

Ted Sarandos

Well, in, in general, we expect Jen AI to help make content better and better, better tools, better processes. And I think Netflix is going to remain at the forefront in the exploration and the innovation of, of AI in, in, in the creative process. You know, given our technology DNA, we have a significant and unique data, data assets here. We have tremendous scale. So we see that as all, you know, great opportunities to leverage new technical capabilities across every aspect of the business. So I think, you know, AI is going to deliver benefits for our members, for creators and, and for our employees.

So on the content side, specifically to your question, you know, it, it takes a great artist to make great art and AI won't change that, but AI will give those artists better tools to bring those visions to life in ways that we're just scratching the surface on. So you know, today our talent leverages these tools for things like set references, pre visualization, visual effects, a sequence prep, a shot planning. All of these things, by the way, also improve onset safety, which is something that's not talked about enough. And this is all just the beginning.

You know, with our acquisition of Interpositive, we think it accelerates our Gen. AI capabilities because it's a proprietary technology that was created specifically for film makers and specifically for filmmaking and thus, you know different than than other Gen. AI video applications. So while the our ownership of Interpositive is very new, we have generated a bunch of interest with our creators who spent time with the tools and we're seeing real momentum build around adoption.

Greg Peters

Maybe just to pick it up from there. I would say, you know, Ted mentioned these, you know where the factors that inform where we think we should be developing technology, where we have a differential or unique capability to invest in generative AI deliver returns to the business and you know data, the uniqueness and scale of data is a critical one. The other one is. Where are their products or business processes that are also at scale that we can essentially attach this technology to and get good leverage off of it? So content production, which said went through is a big one. Member experience is another big one.

Now we've been in personalization and recommendation for, you know, 2 decades, but we still see tremendous room and opportunity to make it even better by leveraging some of these newer technologies. We see that recommendation systems based on these new model architectures not only improve the current personalization, but it also allows us to iterate and improve more quickly to improve that velocity. Things like adding support for different content types going forward. That's much more, much more quick, much more efficient. And as we noted in the letter, we already saw in, in this last quarter, these new capabilities driving increased engagement with the service. That's super exciting to see and the better we execute here, the more our product experience acts as a force multiplier to the large content investments we make. So there's sort of a multiplier effect.

And the last area I'll mention is advertising, which again we're, you know, we're growing scale in and we really see an opportunity to leverage AI within our Netflix ad suite, make it easier to design new creative formats, Custom ads improve that, improve contextual relevance. And the technology stack just allows us to roll them out more quickly, more effectively and allow partners to leverage those things in an easier manner.

Spencer Wong

Great. We have time for one last question, which comes from Rich Greenfield of Light Shed Partners. He's asking about Reed's decision to not stand for re election at our upcoming annual meeting. The question is, you've talked publicly that Reed Hastings prefer to build versus buy. Was Netflix's decision to pursue Warner Brothers a key factor in his timing of leaving the Netflix board this year?

Ted Sarandos

Sorry, if anyone was looking for some palace intrigue here—not, not, not. So Reed was a big champion for that deal. He championed it with the board. The board unanimously supported the deal. So we had perfect alignment between management and the board on the Warner Brothers deal. So that was absolutely had nothing to do with it.

Spencer Wong

And Ted, do you want to close this out then with some words on the decision?

Ted Sarandos

Absolutely. Look, Reed Hastings, our founder and our board chair, let us know that he's decided not to run for re-election to our board at the next shareholder meeting. It's very unusual for a founder to step away from the board of the company after succession. But Reed is no ordinary founder. The first time I met Reed in 1999, he said that he was building a company that would be around long after him—and that requires succession. Now imagine talking about succession while you're just starting to build. When Reed took the first steps in all of this more than a decade ago, he said he would hang around for about another 10 years, and it's only been 6. But this is Reed's style: make decisions and move fast. We have a long history of going from brainstorm to scale at breakneck speed in almost everything we do.

Reed will remain chairman and a member of our board through his current term. The board and the Nominating and Governance Committee are going to take the next steps in reshaping the board in the months to come. But I want to say on a personal note: I've been very fortunate in my life to have had great bosses—people who inspired me, coached me, and gave me opportunities. Reed did these things at levels unimaginable. You know, Reed is an economist and an engineer in his head, but he's a teacher in his heart. And Reed not only shared the spotlight—a real rarity in Hollywood, by the way—he pushed me into the spotlight, celebrated the wins, coached through the misses, and, in short, made me the executive that I am today. I'm forever grateful he built a company of risk-takers and a culture where character matters and nobody rests in the pursuit of excellence.

I have loved working with and for Reed through amazing twists and turns in our business, and he has modeled what it is to be a leader and a friend. You know, in reflecting on Reed's leadership here at Netflix, I was reminded of a quote from Max DePree: 'The first responsibility of a leader is to define reality, and the last is to say thank you. And in between the two, the leader must become a servant and a debtor.' That sums up the journey of an artful leader. Reed Hastings is the ultimate artful leader, and he leaves me and Greg enormous shoes to fill. Now, in the spirit of an artful leader—a work in progress—I say to Reed: thank you. But I'll just... I'll join you.

Greg Peters

I would just say that from the very beginning, Reed essentially established the standard for what leadership and what culture look like at Netflix. His vision, his willingness to take risks, to embrace change, to motivate change, and really to be transparent—even when it's hard to be—his total commitment to our values, always putting our members and the company first, have shaped every part of what Netflix is today. And the innovations that Reed championed didn't just build Netflix—they helped move an entire industry forward. They expanded what is possible for storytellers around the world and for audiences. We now bring stories from around the world to audiences in ways that weren't possible, weren't even imaginable before.

And we got to this point because Reed has a way of pushing you to think bigger, to be more honest—not only with others, but with yourself—to own your decisions, but always in a way that made you feel supported and trusted. He would debate his perspective with tremendous passion to try and get us to the best, most informed answer, but then would support you and your decision with equal passion—even when he personally disagreed. And even better, he would celebrate you with even greater passion if you ended up being right. I think those are actually some of his favorite moments.

And that style of interaction has quite literally shaped who I and many others across Netflix are today. And a lesson among many that I learned from Reed. And perhaps the most meaningful and certainly I think the most apropos to this moment is a realization that while many of us can spend most of our lives tremendous effort into building something we believe in, something we're proud of, how we hand that work off to someone else is of equal importance to all that time building. And we should put an equal effort, thoughtfulness, planning into that transition as we did into all that came before it.

So when my time to transition comes, I aspire to be as selfless, disciplined, and graceful as Reid has been. So Reid, thank you for the trust you placed in us, the example you set. We're going to carry those principles with us every day.

Ted Sarandos

Thank you, Reid, I echo that as well. Same same. I couldn't—you couldn't say it better. It's weird. It just gives me chills even now, thinking about it oddly. It sparks so many memories. But one thing standing out for me right now, in real time, is that big singular red 'End' of the Netflix logo—because it seems so appropriate. Reid, you're literally an end-of-one-forever DNA of this place. So thanks for everything.

Spencer Wong

Great. And with that, we'll conclude the call on that note. So I just want to thank everybody for joining us again and we will see you next quarter.

Details at Netflix IR

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