Artificial intelligence (AI) is still Wall Street's favorite water-cooler talk. It's also serious business. Finding the right AI strategy can make or break a company's future. That's true even outside the traditional tech sector, and digital entertainment specialist Netflix (NFLX +0.11%) is taking it very seriously.
In last week's first-quarter earnings call, co-CEO Ted Sarandos explained how Netflix is thinking about AI nowadays. Let's dig in and see whether his AI comments make sense or not.
Making movies 10% better beats making them 50% cheaper
Near the end of the earnings call, Morgan Stanley analyst Ben Swinburne asked Netflix's management for an update on the company's AI strategy. To summarize Swinburne's question: Leading directors have started to embrace generative AI technology, so how is Netflix planning to leverage this powerful tool?
Sarandos highlighted Avatar and Titanic director James Cameron's view that generative AI could cut movie production costs in half, and turned in a different direction.
"I remain convinced that there's an even bigger opportunity if you can make movies 10% better," he said. "Traditionally, only big budget projects would have access to things like advanced visual effects (VFX) such as de-aging. So today, you can use these AI-powered tools so to enable smaller budget projects to have access to big VFX on screen."
As an example, the big-budget Scorsese movie The Irishman in 2019 used "very expensive" technologies to make actors look younger, said Sarandos. Five years later, that movie's cinematographer, Rodrigo Prieto, directed another sprawling epic; based on the classic Juan Rulfo book of the same name, Pedro Páramo shows several characters in several time periods, several decades apart. Generative AI is a cost-effective method for achieving the right looks in each period.
"Using AI-powered tools he was able to deliver this de-aging VFX to the screen for a fraction of what it cost on The Irishman," Sarandos said. "In fact, the entire budget of the film was about the VFX cost on The Irishman."
In other words, generative AI tools helped Prieto get this long-suffering project off the ground. Making it without generative AI would have been too expensive, not good enough, or perhaps both.
This is how Sarandos wants to use generative AI in the future -- enabling creative talents to run with ideas that always seemed out of reach without AI assistance.
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AI in filmmaking isn't exactly new
So Sarandos added a twist of human talents to the generative AI discussion. Just a couple of days later, the Academy of Motion Picture Arts and Sciences updated its Academy Awards rule book. In the Academy's updated view, the decision to include AI tools will "neither help nor harm the chances of achieving a nomination." Instead, each film will be judged by the human creativity instead of which methods it used.
And this analysis could have been made many years ago. Peter Jackson's digital effects crew put thousands of orcs and elves on the Lord of the Rings battlefields 20 years ago, and they didn't control each animated figure by hand. All three films won the Academy Award for best visual effects, despite their heavy use of automated animation. The Walking Dead added lots of digital zombies to many scenes, as early as 2010. Sure, these lurchers were based on motion-capture filming, but their behavior on the screen was as computer-controlled as any generative AI avatar.
Netflix wants to make premium content with an AI assist
Taken together, Netflix and the Academy are making generative AI look more like an ordinary movie-making instrument than a dangerous replacement of human creativity. Will this message stick? I don't know, but the discussion has been started.
The long-term effects of this generative AI revolution might follow Ted Sarandos' planned path, delivering more and better content to viewers without taking away the human quality of creative work. Critics might argue that this is the wrong idea, and that the entertainment market is about to be drowned in tons of cheap but low-quality shows and movies.
I'm sure you'll see solid examples of both strategies. There's a place for inexpensive mass-market versions of anything and everything, but truly creative efforts will also always find an audience. It looks like Netflix wants to play on the high-end side of this divider, which aligns with the company's stated goals: "Netflix is a focused passion brand, not a do-everything brand: Starbucks, not 7-Eleven; Southwest, not United ; HBO, not Dish."
As a longtime Netflix user and investor, I applaud Sarandos' focus on production quality over cost-cutting. I'd rather see more award-winning nuggets of creative gold than rushed bargain-bin entertainment -- no matter how the content was created.
