Netflix (NFLX) Q2 2025 Earnings Call Transcript

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DATE

Thursday, July 17, 2025 at 4:45 p.m. ET

CALL PARTICIPANTS

Co‑Chief Executive Officer — Ted Sarandos

Co‑Chief Executive Officer — Greg Peters

Chief Financial Officer — Spencer Neumann

Vice President, Finance, IR, and Corporate Development — Spencer Wang

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TAKEAWAYS

Full-Year Revenue Guidance: raised guidance from the prior range of $43.5 billion to $44.5 billion, primarily due to foreign exchange tailwinds and stronger member growth.

Operating Margin: Reported margin target increased to 30%, up from 29%. FX-neutral margin up 50 basis points on membership and ads revenue lift, with operating expenses unchanged from the prior forecast.

Advertising Revenue: Ad-supported business is expected to approximately double revenue, tracking slightly ahead of beginning-of-year expectations and supported by the global ad tech stack rollout and strong upfront results.

Member Metrics: Retention rates remain stable and industry-leading; no major changes observed in plan mix or plan take rate; engagement remains healthy according to management metrics.

Engagement Growth: Per-owner-household engagement has remained stable for two and a half years through the rollout of paid sharing and increased competition.

Content Investment: Content amortization is projected at more than $16 billion for 2025. Content amortization has grown more than 50% since 2020, designed to support both new and returning global titles.

Regional Partnerships: TF1 partnership in France initiated to accelerate highly localized content offerings, leveraging new capabilities including live and advertising integration.

Live Content Milestone: Successfully delivered concurrent global live events using internally developed infrastructure, with plans to expand live offering and maintain partnership-based production model.

Generative AI Adoption: Achieved a tenfold speed improvement in VFX delivery for “El Atonata” using GenAI-powered production tools in 2025, marking first GenAI final footage in original content.

Gaming Strategy: Monetization approach remains focused on driving acquisition, retention, and willingness to pay; management describes game-related investment as disciplined and incremental relative to overall content spend.

User Interface Overhaul: The newly launched UI is delivering better performance than prelaunch testing across the initial rollout to the first large wave of TV devices, with improvements observed in a variety of metrics tracked by management.

M&A Discipline: Management reaffirmed focus on organic growth and disciplined evaluation of potential acquisitions, reiterating no interest in owning legacy linear TV networks.

SUMMARY

Management upgraded full-year revenue and reported margin guidance for 2025, as increasing FX benefits and stronger member growth flowed directly to profitability while operating expenses remained flat in forecasts. The global rollout of Netflix, Inc.'s ad tech stack fueled rapid expansion in advertising sales and simplified inventory access for marketers worldwide. Recent product launches—such as the enhanced user interface and generative AI-powered production—have delivered demonstrable performance gains. Management outlined a disciplined strategy for live and sports content, emphasizing scalable infrastructure, partner models, and a global roadmap to expand the live offering within economic constraints.

CFO Neumann explained, "we expect operating margins to be up year over year in each quarter, including Q4, and as just noted, we expect to deliver strong full-year margins, as we just raised our guidance to 29.5% FX-neutral and 30% reported for full-year 2025."

The company completed the global implementation of its proprietary ad technology, enabling programmatic sales and the introduction of additional demand sources, including Yahoo, to broaden advertiser reach.

Co-CEO Peters said, "we are in this phase of learning and improving quickly based on the fact that being live everywhere means that you get a bunch of feedback about what we can do better, which is great."

With the new TF1 partnership, Netflix, Inc. is testing a model for scaling local content through collaborations with leading linear broadcasters; consumer response will guide potential expansion of this approach.

Co-CEO Sarandos noted ongoing commitment to reinvestment: "It is our objective to sustain healthy revenue growth, reinvest in the business to improve on all aspects of the service, and that includes growing content spend, strengthening and expanding the entertainment offering, and to drive that positive flywheel of growth by adding value to our members"

INDUSTRY GLOSSARY

TF1: France’s leading broadcast television network and Netflix, Inc.'s inaugural traditional broadcaster partner for localized content expansion.

Paid Sharing: A Netflix, Inc. policy restricting account use to a single household, aiming to convert password-sharing users into paying subscribers.

Ad Tech Stack: Proprietary technology platform enabling programmatic advertising, advanced targeting, and self-serve tools for Netflix, Inc.'s ad-supported streaming plans.

GenAI: Generative artificial intelligence technologies used to accelerate content production, personalization, and advertising at Netflix, Inc.

iLine: Netflix, Inc.’s in-house production innovation group within its Scanline VFX division, specializing in advanced visual effects using AI-powered tools.

Full Conference Call Transcript

Spencer Wang: Good afternoon, and welcome to the Netflix, Inc. Q2 2025 earnings interview. I am Spencer Wang, VP of Finance, IR, and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters, and CFO, Spencer Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We will take questions submitted by the analyst community, and we will begin with our results and our forecast. The first question comes from Steve Cahall of Wells Fargo. The question is, since the revenue increase in your forecast is primarily FX driven, we are curious about the components of the constant currency increase.

Is this due to a better underlying revenue growth, or are there specific expenses that are coming in better, like content amortization? I will take that one. Thanks, Steve. So I

Spencer Neumann: As you saw on the letter, we increased our full-year revenue guidance to $44.8 to $45.2 billion. That is up from the prior guide of $43.5 to $44.5 billion. So up about a billion at the midpoint of the range and a tighter range. As you noted, primarily reflects the FX impact from the weakening dollar relative to most other currencies. But the good news is we are also seeing strength in our underlying business. We have got healthy member growth, and that even picked up nicely at the '2 a bit more than we expected. We think that will carry through with our strong back half slate. So we are reflecting that in our latest forecast.

We are also seeing nice momentum in ad sales, still off a pretty small base, but good growth and it is on pace to roughly double our revenue in the year. And it is a bit ahead of beginning of year expectations. So when we carry all that through to operating margin, our operating expenses are essentially unchanged, which is part of your question. So they are basically unchanged forecast to forecast. So we are largely flowing through the expected higher revenues to profit margins.

So that is why our updated target full-year reported margin is up a point from 29% to 30% and that 50 basis point increase in FX neutral margin is really just that revenue lift from stronger membership growth and ads relative to prior forecast flowing through the margin.

Spencer Wang: Thank you, Spence. We will take our next question from Barton Crockett of Rosenblatt Securities. Why is operating margin guidance for the full year only 30% after the upside in February and a forecast 31.5% for the third quarter? Is there a timing issue, FX issue, or is there a new level of spending that will continue beyond the fourth quarter of 2025?

Spencer Neumann: Well, this is really mostly timing. So thanks, Barton. We primarily, as a reminder, manage to full-year margins. And we expect our content expenses will ramp in Q3 and Q4. We have got many of our biggest new and returning titles and live events in the back half of the year. We have also, you know, Q4 is typically a and generally almost always is a heavier film slate. Sure. We will talk about our expect we will talk about more of this on the call. Also be marketing to support that heavier slate, and we are continuing to aggressively build out our ad sales infrastructure and capabilities through the year. So all of that is to be expected.

We can manage to it. We manage to those margins. And even with that back half ramp in expenses, we expect operating margins to be up year over year in each quarter, including Q4, and as just noted, we do expect to deliver strong full-year margins as we just took up our guide to, you know, 29.5% FX neutral, 30% reported.

Spencer Wang: Great. Thanks, Spence. The next question comes from Tom Champion of Piper Sandler. How has your view of the consumer and the macro economy changed over the last ninety days?

Greg Peters: Similar to last quarter, we are carefully watching consumer sentiment in the broader economy. But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the business. Those are retention that remains stable and industry-leading. There have been no significant shifts in plan mix or plan take rate. And the price changes we have done since the last quarter have been in line with expectations. Engagement also remains healthy. So things all look stable from those indicators and big picture entertainment in general and Netflix, Inc. specific have been historically pretty resilient in tougher economic times.

We also think that we are an incredible entertainment value not only compared to traditional entertainment, but if you think about streaming competitors, when we start at $7.99 in The United States, you think about all the entertainment you get we have a belief and expectation that demand for not only entertainment but for us specifically will remain strong.

Spencer Wang: Thanks, Greg. I think a nice follow-up to this question will be on advertising. So from Ben Swinburne of Morgan Stanley, can you share any data points around your upfront negotiations?

Greg Peters: Yep. As we noted in the letter, our US upfront is nearly complete. We have closed a large majority of deals with the major agencies. Those results have generally been in line or slightly better than our targets and consistent with our goal to roughly double the ads business this year. And what are advertisers excited about? Growing scale is something we definitely hear. Also, a highly engaged audience. So bigger audience, but also an audience that is more engaged relative to our peers. The rollout of our own ad tech stack, which helps deliver a bunch of features, and then our slate, which is generally amazing and includes a growing number of live events that advertisers are excited about.

Spencer Wang: Great. Follow-up question on advertising from Vikram of Baird. How have advertisers in The US responded to the Netflix, Inc. ads suite rollout since the April launch? What features and capabilities are attracting the most interest, and how is the initial feedback in other regions outside of The US?

Greg Peters: We have completed the rollout of our own ad tech stack and the Netflix, Inc. ad suite to all of our ad markets now. So we are fully on our own stack around the world at this point. That rollout was generally smooth across all countries. We see good performance metrics across all countries, and the early results are in line with our expectations. Now we are in this phase of learning and improving quickly based on the fact that being live everywhere means that you get a bunch of feedback about what we can do better, which is great.

As we mentioned before, the most immediate benefit from this rollout is just making it easier for advertisers to buy on Netflix, Inc. We hear that benefit, that ease, from direct feedback talking to advertisers. They tell us that it is easier. See it in our overall sales performance. We have seen an increased programmatic buying. So all of these are consistent, you know, with what we were expecting both qualitatively and from a metrics perspective. We are also, I guess, worth noting that we are going to roll out additional demand sources like Yahoo that will further open up the market for us.

Long term, being on our own stack, that improves the speed of our execution to deliver this, you know, pretty significant roadmap of features that we have in front of us. It is things like improved targeting and measurement. There is also leveraging advertiser and third-party data which we definitely hear demand for as well. And it will ultimately allow us to improve the ad experience for our members. Which is critically important. So that means better ads personalization. So the ads that I see are increasingly different from the ads that, let us say, Ted would see.

And they are more relevant for each of us, which is good for us as users, and it is good for the brands. Also going to be introducing interactivity in the second half of the year, so that is exciting. So that is all to say this is, you know, a pretty significant milestone for us, one we are super excited to get behind us because now we can shift into this steady release cycle where we are dropping new features all the time, both for advertisers and for members. And that is the development and release that we have in other parts of the business. So it is fun to be able to get to that point.

Spencer Wang: Thanks, Greg. I will move this along now to a set of questions around content as engagement. This one comes from Ben Swinburne of Morgan Stanley. 1% engagement growth year over year suggests engagement is down year over year on an average per member basis. How do we reconcile that with engagement growing on a per member household basis if that is still accurate?

Greg Peters: So total view hours did grow a bit in the first half of 2025, and that is despite a particularly back half-weighted slate. But to your point on engagement on a per member basis, we have mostly been focused for the last few years on measuring engagement on what we call an owner household basis. So this takes out the borrower effect, and we obviously think this is the best way to assess our engagement per member because it removes the tricky comparison impacts from paid sharing.

So that metric per owner household engagement has been relatively steady over the past two and a half years throughout the rollout of paid sharing, and amidst increasing competition for TV time as more viewing moves to streaming and gets this on-demand benefit. So we are glad to have held that normalized engagement level, but we clearly also want to increase it. And to that end, we are optimistic and expect that our engagement growth in the second half of this year will be better than in the first half given our strong second half slate.

Spencer Wang: Thanks, Greg. Great segue to Doug Inmuth's question from JPMorgan. The content in the back half of the year looks strong with Squid Game 3 already the third most popular non-English series ever, and Wednesday and Stranger Things releasing in the coming months. You often say that no single title drives more than 1% of total viewing. So how do you think about the business currently as being quote, hit boosted or hit driven, and are you confident that both original and licensed content momentum can continue in 2026?

Ted Sarandos: Yeah. I will take that. And thank you, Doug. On the first part of your question, we are definitely riding this long-term trend of linear to streaming. And that has a natural adoption curve. But we can accelerate our growth with big hits. But as you said, each one of them, even in success, is going to drive about 1% of total viewing. So you need a lot more than just a big hit every once in a while. So to your point, it is not about the single hit. So what it is about a steady drumbeat of shows and films and soon enough games that our members really love and continue to expect from us.

So, like, by way of example, we had 44 individual shows nominated for Emmys this year. So that is what quality at scale looks like. We ended the quarter with a huge return to Squid Game. Thanks for acknowledging. I will go into the second half with the return of Wednesday and Stranger Things. And a really strong slate of supporting titles and favorites, like and new shows. Like next week or this week, we have Eric Bonnett's Untamed. Next week, we have Leanne Morgan's new comedy show Leanne. Both look really great. And that is just to name a few.

And the back half of the year also has this perhaps the most anticipated slate of new movies that we have ever had. That starts on the 25th with Happy Gilmore 2, followed by we have a new Knives Out film. We have new films from Noah Baumbach, from Guillermo del Toro, from Catherine Bigelow. And it does not stop there. It does roll right into 2026, and that is the second part of your question. And we are looking forward to movies like the rip from Ben Affleck and Matt Damon. Shirley starred on a new movie called Apex, which is a phenomenal action movie. Millie Bobby Brown is back in Enola Holmes 3.

Recall that in 2023, Enola Holmes was our biggest two was our biggest movie. So we are looking forward to that new sequel.

Spencer Wang: And Greta Gerwig's Narnia is going to be phenomenal.

Ted Sarandos: And then on top of that, we talk about Return of Bridgerton, One Piece, Avatar: The Last Airbender, all three huge successes around the world. The Gentleman, Four Seasons, Point Break I am sorry, Running Points. Sorry. Beef, which as you recall in 2023, won just about every award imaginable and was a gigantic success for us. It is back for a new season in '26. Three Body Problem, Love is Blind, Outer Banks, and not just from The US, from France, we have LuPan. From Spain, we have Berlin. We have a new season of a hundred years of from Colombia. So big hit returning shows and new series. From each of our regions around the world.

And the new stuff we have got coming up like man on fire, reimagining of little house on the prairie, The Duffer brothers from Stranger Things have a brand new show. The Burrows. We have got the Human Vapor from Japan. Operation Safred Cigar from India, can this love be translated from Korea? So again, popular programming, new and returning from all over the world in 2026. Unscripted shows like the reboot of star of Star Search, we have got into the doll universe. With Wonka's golden ticket, which we are really excited about.

In our live, we have got a few surprises for you next year, but of course, we have our NFL Christmas Day doubleheader that we are really thrilled about too. So we are really incredibly excited about the back half of this year and confident that it keeps rolling in 26.

Spencer Wang: Thank you, Ted. We will take the next question from Rich Greenfield of LightShed Partners. Who asks, are you concerned by the stagnation in your viewing share domestically?

Spencer Neumann: Think Rich is probably referring to the Nielsen gauge data. Do you need to spend more on programming or spend differently to materially move your viewing share higher?

Ted Sarandos: Yeah. Thanks, Rich. Look, our goal continues to be to continue to grow our share over the long term. And over the past few years, you are right, we have been able to maintain our share even as we work through a growing number of TV-based streaming services, some free, some paid. And the impact of paid sharing that Greg mentioned earlier as well as this, you know, 2025 slate that was more back half-weighted than we typically have in previous years. But over the long term, we tend to keep growing as the other 50% of TV viewing migrates from linear to streaming. And we will do that by doing what we have always done, continuously improve the service.

So in mind, since 2020, our content amort has grown more than 50%. You know, from under $11 billion to more than $16 billion. That we expect to do this year. And over that same time period, we definitely had we saw a big increased spending, but also increased engagement. In increased revenue, increased profit, and increased profit margin. So that is our model in action.

It is our objective to sustain healthy revenue growth, reinvest in the business to improve on all aspects of the service, and that includes growing content spend, strengthening expanding the entertainment offering, and to drive that positive flywheel of growth by adding value to our members and all the while growing engagement revenue and profit around the world.

Spencer Wang: Great. Thank you, Ted. I will move to Alan Gould from Loop Capital next. Can you provide more information on the TF1 partnership? Why did you choose to add TF1 in France as opposed to other broadcasters as your first partner, why is now the right time to create such a partner? Should we anticipate similar partnerships in other countries?

Greg Peters: Yeah. Perhaps to start with the rationale for the partnership. You would think with that long list of amazing titles that Ted just rattled off, we would have enough to satisfy every person on the planet. But it turns out we actually consistently hear from our members that they want more. They want more variety, more breadth of content. So the fundamental purpose for this TF1 partnership is all about that goal. Of expanding our entertainment offering. How do we enhance the value we deliver to members? Want to provide more content, more variety, more quality. So just as you have seen us do with licensing and production, this is just another mechanism to expand that offering.

And in this case, it is specifically about highly relevant local for local content in a country that has strong demand for that local content. This is an accelerated way to satisfy that need. Why now? Why was this time the right time? Well, we have invested a lot in a bunch of enabling capabilities that are either required or highly leveraged by this deal. You can think live, ads, the new UI, among other things. And then why TF1 versus some other partner? Well, we know each other really well. We wanted our first partner to be in a big territory. We wanted to pick the leading local programmer.

We wanted to be highly aligned in terms of the deal and the shape of the partnership and the values that we thought we could generate mutually by working together for our customers. And we both look at this as an opportunity to learn, to figure out how do we scale the local content that TF1 is producing to more customers in France. So we are looking forward to seeing what consumers think. You never really know until you get out there and get the real reactions. And then, obviously, we will factor that into our plans going forward.

Ted Sarandos: Thanks, Greg.

Spencer Wang: From Robert Fishman of MoffettNathanson, with reports suggesting Apple is now in the driver's seat for F1 rights. Uh-huh. Unintended, I guess. Plus UFC and MLB still looking for new deals and the NFL may be looking to come to market a year earlier. Can you share updated thoughts on how you are approaching sports rights for Netflix, Inc. and where you draw the line on something that can move the needle?

Ted Sarandos: Wow. Thanks for that, Robert. Remember, sports are a subcomponent of our live strategy. But our live strategy goes beyond sports alone. Our live strategy and our sports strategy are unchanged. You know, we remain focused on ownable big breakthrough events that because our audiences really love them. Anything we chase in the event space or in the sports space has got to make economic sense as well. You know, we bring a lot to the table, the deals that we make have to reflect that. So live is a relatively small part of the total content spend. And we have got about 200 billion view hours.

So it is a pretty small part of view hours as well right now. That being said, not all view hours are equal. And what we have seen with live is it has outsized positive impacts around conversation, around acquisition, and we suspect around retention. And but so right now, we are very excited where we sit. Very excited with the existing strategy. We are excited about the Canela Crawford fight and September and the SAG Awards and our weekly WWE matches. And the NFL, of course, which is a great property, and we are happy to have Christmas Day doubleheader, which includes Dallas versus Washington. And Detroit versus Minnesota.

So today, our live events have all primarily been in The US, keep in mind. So over time, we are going to continue to invest and grow our live capabilities for events around the world in the years ahead. So we are excited, but the strategy is unchanged.

Spencer Wang: Thanks, Ted. Good follow-up question on that one from Steve Cahall of Wells Fargo. What investments have you made to increase your capabilities in producing live events? What have you been able to do in house in 2025 that you could not do last year? And how long will it take before you have the capability to produce large-scale events like NFL games?

Ted Sarandos: Yeah. Thanks, Steve. I would say remember, when we started original scripted programming, we had zero production capability. House of Cards was in fact thinking about our first three years of original programming, all of those shows were produced by others. Have to go three years later, we have produced Stranger Things in house. Today, we still have shows that are produced by others. Universal, Twentieth Television, which is Disney, Paramount, Lionsgate, Warner Television, there is lots of available infrastructure to produce TV. And that is true of live events and sports as well. If we when we do more and more, we may choose to bring some of that in house.

We have already produced a few, and we are just as likely to continue to use partners with existing production infrastructure and work to make sure that those productions are bespoke and they feel like they could only be on Netflix, Inc. So you should not think about the mix of partnerships and self-producing as a we think about it as a scaling tool. Not backfilling some, like, lack of ability in some area of the company. So and I should note by example, CBS is a phenomenal partner producing NFL games with us, and we are thrilled to work with them again this year on Christmas Day.

Greg Peters: Maybe take this opportunity just to some commentary on the general capability we have been building with live. Know, when we start something new, we pretty much expect that we are not going to be brilliant at it at the beginning. What? But we yeah. That is true. And we do not have any real reason to believe that. But we do not let that stop us from kicking off initiatives that we believe have a strong strategic rationale even though we know we need to develop that capability. Of course, our job is to get out there and learn by doing and get world-class as quickly as we possibly can.

And if you look at our current capabilities around live, we are in just a completely different place today compared to when we first started. As a good example that just happened last Friday, we had our first concurrent pair of live events. We had Taylor versus Serrano globally delivered alongside WWE SmackDown, was delivered ex US. Both events at scale and delivered with extremely high quality. So it is great progress we have seen, and we have got a great roadmap ahead of us to continue to enhance those experiences. For folks.

Spencer Wang: Thank you both. Last question on the content side or the topic of content comes from Ben Swinburne of Morgan Stanley. What are the learnings from the success of K-Pop Demon Hunters? More animated musicals with fictional bands, question mark. That is a question from a man who probably has that movie playing on repeat in their home if I am guessing correctly. K-Pop Demon Hunters is a phenomenal success out of the gate. One of the things that I am really proud of the team over

Ted Sarandos: is original animation, not sequel, not live-action remake. Original animation feature is very tough and has been struggling for years. And I think the fact that our biggest hits now, Leo, Seabeast, and now K-Pop Demon Hunters, are original animation. So we are super thrilled about that. The mix of music and pop culture, getting it right matters. Good storytelling matters. The innovation in animation itself matters. And the fact that people are in love with this film and in love with the music from this film that will keep it going for a long time. So we are really thrilled. And now the next beat is where does it go from here?

So know, we put in the letter how just how successful the music has been. And continues to be, and we think that will drive fandom for this fictional K-Pop band that we have. But more importantly, for the song Golden and for the song Soda Pop, these are enormous hits, and they all came from a film that is available only on Netflix, Inc. So we are really excited that we can pierce the culture with original animated features considering that folks have been poking us on it.

Spencer Neumann: Let us do it again later in the year within your dreams. Right, Ted? Absolutely. In your dreams, another very

Ted Sarandos: funny one and also completely original. So Yeah.

Spencer Wang: Great. I will move us on now to a few questions on plans as well as product. So from Michael Morris of Guggenheim, he asks, Netflix, Inc. continues to broaden content genres notably with live sports and the recently announced TF1 partnership. Is there a path to additional tiers of service based on types of content available, or will Netflix, Inc. always make all content available at the ad-free/ad-supported price points?

Greg Peters: I have learned to never say never, so I would say we remain open to evolving our consumer-facing model. Think we have got a few principles, important principles that we are carrying with us that I do not see changing significantly. One is we want to provide members choice. Right? So how do we have a different set of plans, a different price points, different features that allows folks to opt in to what their is the right Netflix, Inc. for them. Also, how do we provide good accessibility to new members around the world? We want to grow, and that means making that we have got accessible price points.

And then finally, the plans we offer, they have to know, ensure that we are having reasonable returns to the business based on the entertainment value that we deliver, and we are hoping to grow those and so those returns would grow as well. Now obviously, the reason to do that is we can continue to reinvest in adding more entertainment and building a better experience. And maybe one other thought too is there is a component of complex in ChoiceDax that we have to consider in how we think about our offering. It is structured. So having said all that, though, I think we believe that the bundle is a great value for members.

It allows members around the world to access a wide range of entertainment in a very easy way at a very reasonable price. So I would expect that will remain an important feature of our offering for the foreseeable future.

Ted Sarandos: A lot of value and simplicity.

Spencer Neumann: Yeah.

Spencer Wang: Great. From Rich Greenfield of LightShed Partners, help us understand why your new UI/UX is so important as you expand live content. Beyond live, can you provide some color on what metrics have improved since the launch of the new UI, such as speed of users finding a title and change in failed sessions.

Greg Peters: As we said previously, it is really hard for a new UI to immediately compete, be better than the UI that we have had for the past ten years that has been iteratively evolved and improved. But now that we have actually rolled out this new UI to the first large wave of TV devices, we are actually seeing performance that is better than what we saw in our prelaunch testing. To some degree, that is expected because we made some improvements based on the results of that testing phase. So it is exciting to see that those delivered actual better results.

But the rate of that change actually gives us increased confidence that this new experience will drive better performance, by the variety of metrics we look at some of which include the ones that Rich is mentioning in relatively short order. And then maybe just a point on why are why do we build this and launch this new experience the first place? Why was this so important? Bluntly, the previous experience was designed for the Netflix, Inc. of ten years ago, and the business has involved considerably since then. We got a wider breadth of entertainment options. We got TV and film, more of those, of course, from around the world, but now also games and live events.

If you think about the discovery experience that is best suited for these new content types, it is inherently different. Helping our members understand that there is a really good reason for them to launch Netflix, Inc. and tune in at 7PM on a Friday night versus just showing up whenever they were free and wanted to be entertained. That is a totally different job, and we really need a different user interface to do that job well. Add to that, we saw the opportunity to leverage newer technologies, like real-time recommendations that respond dynamically to what you need from us in that specific moment.

So the Netflix, Inc. you get on a Tuesday night is different from the Netflix, Inc. you get on a Sunday afternoon. But all of those rationales together and what we are seeing in terms of the performance so far, we are very confident that we have got a much better platform in this new user experience to build from to continue to improve, and that will help us meet the needs of the business over the years to come.

Spencer Wang: Thanks, Greg. The next question comes from Steve Cahall of Wells Fargo. YouTube is the only streamer that exceeds Netflix, Inc. in terms of US share of TV time. Do you see an opportunity to bring notable YouTube creators and their content exclusively to Netflix, Inc.? How big could this opportunity be?

Ted Sarandos: Thanks, Steve. Look. We want to be in business with the best creatives on the planet. Regardless of where they come from. Some of them are here in Hollywood. Others are Korea, some are in India. And some are creators that distribute only on social media platforms, and most of them have not yet been discovered. So, for those creators doing great work, we have phenomenal distribution. Desirable monetization, brilliant discovery in our UI, and a hungry audience waiting to be entertained. So Steve, you recently I think I listened to you on a podcast where you talked about our business model and on this I believe on this very topic.

And we largely agree with you and believe that working with a wide set of content creators makes a lot of sense for us. And as you said, if I am remembering it right, not everything on YouTube will fit on Netflix, Inc. We could not agree with that more. But there are some creators on YouTube like Miss Rachel that are a great fit. If you could saw on the engagement report, she said 53 million views in 2025 on Netflix, Inc. So she clearly works on Netflix, Inc. And we are really excited about the Sidemen and pop the balloon and a wide variety of and video podcasters that might be a good fit for us.

And particularly if they are doing great work and looking for different ways to connect with audiences.

Greg Peters: And maybe broadening this out for a second, and taking that question to look at sort of all of the competitors. That we face for our share of TV time. We have always said that the market for entertainment is very large. And we face competition from all kinds of directions. So whether it is linear, or streamers or video games or social media, it is also a very dynamic, competitive market as we and all of our competitors seek to provide better and better options for consumers.

And one of those changes, one of those vectors of dynamicism has been that sort of steady inevitable shift to streaming and on-demand as more services move deliver their content in a way that we all know consumers want. That creates increasing competitive pressure for us that we have got to respond to. We also see free services as a form of strong competition. Free is very powerful from a consumer perspective. So it is not surprising that some free services are growing in engagement. But I think Ted said it well earlier in the call, not all hours are created equal. And we have a different profit model from other services, a strong profit model.

So we are going to compete to win more moments of truth for sure. But especially compete to win those most profitable moments. And back to your specific question, it is worth remembering there is about 80% of total TV view share that neither Netflix, Inc. or YouTube are winning right now. We think that represents a huge opportunity for which we are competing aggressively and we aim to grow our share.

Ted Sarandos: The vast majority of our money and attention is focused on that 80%.

Spencer Wang: Thank you. Next question from Justin Patterson of KeyBanc. Could you please talk about your generative AI initiatives? Where do you think GenAI will be most impactful over time, revenue or expense efficiency?

Spencer Neumann: Well, I may take start with the with GenAI.

Ted Sarandos: We remain convinced that AI represents an incredible opportunity to help creators make films and series better, not just cheaper. There are AI-powered creator tools. So this is real people doing real work with better tools. Our creators are already seeing the benefits in production through previsualization and shot planning work and certainly visual effects. It used to be that only big-budget projects would have access to advanced visual effects like de-aging. Remember last quarter, we talked about Pedro Paramo. Well, that is just no longer the case. And, you know, this year, we had El Atonata. It is a very big hit show for us. From Argentina.

In that production, we leveraged virtual production and AI-powered VFX there was a shot in the show that the creators wanted to show a building collapsing in Buenos Aires. So our iLIGHT team iLIGHT team partnered with their creative team using AI-powered tools they were able to achieve an amazing result with remarkable speed. And in fact, that VFX sequence was completed 10 times faster than it could have been completed with visual, traditional VFX tools and workflows. And, also, the cost of it would just not have been feasible for a show in that budget. So that sequence actually is the very first GenAI final footage to appear on screen in a Netflix, Inc. original series or film.

So the creators were thrilled with the result. We were thrilled with the And more importantly, the audience was thrilled with the result. So I think these tools are helping creators expand the possibilities of storytelling on screen, and that is endlessly exciting.

Greg Peters: And maybe to cover a few of the other areas. You know, the member experience is a place where we feel like there is tons of opportunity to leverage these new generative technologies to improve the experience. You know, we have been in the personalization and recommendation business for, you know, two decades. But yet we see a tremendous room and opportunity to make it even better by leveraging some of the more newer generative techniques.

We are also rolling out have piloted right now a conversational experience that uses allows our members to basically have a natural language discussion with our user interface saying, you know, I want to watch a film from the eighties that is, you know, a dark psychological thriller, get some results back, maybe iterate through those in a way that you just could not have done in our previous experiences. So that is super exciting and, you know, we see that all of the work that we do there essentially is a force multiplier to that large content investment we are making.

If we do a better job there, that means every dollar that we spend means more value back to our members by connecting them with the titles that they are truly going to love. Advertising is another really great area. You know, we have seen it is a high hurdle to create a brand forward spot in a creative universe of one of the titles that we are currently carrying. But it is very compelling for both watch and for those brands, and we think these generative techniques can decrease that hurdle iteratively over time and enable us to do that in more and more spots.

So there is a bunch of places where we think we have got an advantage in terms of data and scale where we can leverage these new generative techniques to deliver just more benefits for our members and for our creative community.

Spencer Neumann: Yeah.

Ted Sarandos: If you do not mind me coming back for one second, I just rolled off iLine as if everyone knows what iLine is. I probably should clarify that iLine is our production innovation group inside of our VFX house at Scanline, and they are doing a lot of this work with our creators. So I just realized that I just threw that out there as everyone knew.

Spencer Wang: Thanks for clarifying, Ted. Let us see. Our next question comes from Brian Pitts of BMO Capital Markets. With your evolving gaming ambitions, including partnerships with Grand Theft Auto and the recently announced Roblox agreement, can you talk to near-term monetization opportunities within gaming?

Greg Peters: Sure. We look at the near-term monetization opportunity with games very similar to how we have looked at other new content categories can think unscripted or film or on and on. And that is essentially if we deliver more value in our offering, we get increased user acquisition, we get increased retention, we get increased willingness to pay. So it drives all of the sort of core fundamentals of our business. We have seen those positive effects, albeit in a small way relative to the size of our overall business. When it comes to members playing games on the service. We already have those positive proof points.

And we are going to ramp our investment in this area, which is currently quite small compared to our overall content investment. As we ramp the size of those positive effects. So we want to remain disciplined not investing too far ahead of demonstrating that we know how to translate that investment into value for our members. We have seen good progress, as you note, with licensed games like GTA. We have seen good progress with games we developed like Squid Game Unleashed, so you will see more from us in both of those categories. As well as a whole new set of interactive experiences that we think that we are either in a unique or differential position to deliver.

So we are super excited to roll those out over the next year. And then we remain open to the core question. We remain open to evolving our monetization model, but we have got to get to a lot more scale before that becomes a really materially relevant question. So we are going to do that work first. It is probably worth restating, the TAM for this market is very, very large. We remain convicted about our strategic opportunity and excited to make more progress.

Spencer Wang: Thanks, Greg. We will take our last question. From Jessica Reif Ehrlich of Bank of America Securities. Given your healthy balance sheet and what appears to be a coming wave of M&A and media globally, are there certain types of assets that would strengthen your moat i.e., what is your view of owning successful IP or studio assets as they come to market?

Spencer Neumann: I will take that one, Spencer. Thanks, Jessica. Well, we agree. Continued consolidation of studio and network assets is likely. But at least with respect to consolidation, within legacy media, we do not think it materially changes the competitive landscape. As you also know, we have historically been more builders than buyers, and we continue to see big runway for growth without fundamentally changing that playbook. You heard a lot of that today. So we look at a lot of things. We apply a framework or lens to those opportunities when we look at, you know, is it a big opportunity? Does it strengthen our entertainment offering? Does it strengthen our capabilities? Does it accelerate our strategy?

And we look at all of that relative to the opportunity cost of distraction or other alternatives. We have been pretty clear in the past that we also have no interest in owning legacy media networks so that also kind of reduces the funnel for us. But you know, in general, we believe we can and will be choosy. We have got a great business. We are predominantly focused on growing that organically, investing aggressively in responsibly into that growth. And returning excess cash to shareholders through share repurchase and you will see us continue on that path.

Spencer Wang: Great. Thanks, Spence. And that will wrap up our Q2 earnings call. So we thank you all for taking the time to join us, and we look forward to seeing you all next quarter. Thank you.

Ted Sarandos: Conditioning. Yeah. And much like France and France, they have three hot

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