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MEMO FROM THE FUTURE: NETFLIX

CEO Edition

BOARD STRATEGY MEMO June 2030

TO: Board of Directors, Executive Leadership

FROM: Ted Sarandos, Co-CEO

DATE: June 2030

SUBJECT: AI Content As Core Strategy — Moving From Niche to Mainstream

THE OPPORTUNITY

When the writers' and actors' strikes concluded in late 2023, we faced a choice: accept higher labor costs for traditional scripted content or reimagine how we produce content.

We chose to reimagine.

By 2030, that reimagination has paid off dramatically. AI-generated content now represents 15-20% of our releases. Production costs for these shows are 40-50% lower than traditional production. And—most importantly—viewers are accepting this content.

Some of our AI-generated shows are developing cult followings. Our margins have expanded from 24% to 32% while subscriber growth has stalled. This is the inverse of what we predicted.

We're standing at the threshold of something genuinely transformative: using AI to produce more content with the same budget.

THE STRATEGY

Netflix is pivoting from "premium scripted content company" to "technology-enabled content company."

This means:

1. Scale AI Content to 50% of Releases by 2035

Today: 15-20% of Netflix releases include significant AI-generated components By 2035: 50% of releases will be primarily AI-generated, with human oversight and creative direction

This doesn't mean "low-quality AI slop." It means: - Human writers conceptualize shows and stories - AI generates scripts, visuals, and scenes - Human creatives refine and direct the process - AI and humans collaborate to produce content at scale

Result: 3-4x more content volume with the same budget.

2. Invest in AI Content Generation Technology

Netflix should own the technology stack for content generation, not rely on external tools.

3. Preserve "Premium Human Content" for Differentiator

Not all Netflix content will be AI-generated. Differentiation will come from "prestige" human-created content: - Limited series with big-name talent - Live sports and events - High-budget films with A-list creators

These remain 50% of Netflix's content spend, but they're cherry-picked for cultural impact rather than volume.

4. Vertical Scaling Strategy

Produce niche, AI-generated content for specific audiences: - K-pop anime and animation (AI generation is exceptionally cost-effective) - Reality shows (AI can produce unlimited variants of the same concept) - Interactive content (choose-your-own-adventure with AI-generated variations)

This allows Netflix to be "all things to all people" in a way traditional production couldn't support.

THE FINANCIAL IMPACT

Today (2030): - Revenue: $43B - Content spend: $16B (37% of revenue) - Operating income: $13.8B (32% margin)

By 2035: - Revenue: $65B (4% annual growth from pricing and content expansion) - Content spend: $18-20B (28-30% of revenue) - Operating income: $26-28B (40%+ margin) - FCF: $20-22B

This is a $10B+ annual free cash flow business by 2035. We can sustain price increases, expand in emerging markets, and return capital to shareholders.

THE LABOR QUESTION

This is the uncomfortable question: what happens to the film and television labor force when 50% of content is AI-generated?

I'm going to be direct: the traditional model of large, hierarchical film production crews is going to contract. Writers, directors, cinematographers—these professions will shrink in volume if AI can handle 50% of the work.

But—and this is critical—we're not eliminating creative work. We're shifting creative work from "execution" to "direction." A writer's job evolves from "write the entire script" to "conceptualize the story, direct the AI in generating scenes, refine the output."

Netflix will continue to employ thousands of creatives. But they'll be doing different work—higher-level creative direction rather than execution.

We have a responsibility to communicate this honestly to the industry and help creatives transition to AI-augmented roles. But we also have a responsibility to shareholders to evolve the business model.

WHAT DOESN'T CHANGE

EXECUTION PLAN

Phase 1 (2030-2031): Demonstrate AI Content Viability

Phase 2 (2032-2033): Scale AI Content Production

Phase 3 (2034-2035): AI as Core Capability

CLOSING THOUGHT

The television and film industry has been fundamentally the same for 70 years: humans write, direct, and perform. Technology has improved production quality, but the core model hasn't changed.

AI is the first technology that changes the fundamental model. It allows creators to produce more with less, and to scale creative vision in ways that weren't possible before.

Netflix is positioned uniquely to lead this transition because we're a technology company that happens to make entertainment, rather than an entertainment company that uses technology.

Let's execute on this vision.

Ted

Confidential — Board and Executive Committee Only