Netflix Adds Generative AI To Competitive Risk Factors In Its Annual Report

Netflix has become the latest major tech company to highlight the risk of generative AI.

In its annual report, filed with the U.S. Securities and Exchange Commission (SEC) on Friday, Netflix added generative AI to its list of risk factors, a section required under SEC rules.

Under the sub-heading of video competition, the report reads: "[N]ew technological developments, including the development and use of generative artificial intelligence, are rapidly evolving. If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted."

Generative AI is defined as applications typically built using foundation models.

These models contain expansive artificial neural networks inspired by the billions of neurons connected in the human brain.

Foundation models are part of what is called deep learning, a term that alludes to the many deep layers within neural networks.

According to a new analysis conducted by the International Monetary Fund, the development of generative AI is set to affect almost 40 per cent of all jobs across the globe.

But major tech companies continue to invest billions into the technology, as they attempt to integrate it into their products.

In February last year, Microsoft integrated ChatGPT's capabilities into Bing, its own search engine, in a direct challenge to Google.

Earlier this month, Amazon announced a trio of generative AI tools for Alexa, enabling users to chat with historical figures, create music and take quizzes.

Google recently revealed that it would bring generative AI in search to more than 120 new countries and territories.

In its annual report, Netflix also addressed the threat of copyright claims over AI-generated content: "In addition, the use or adoption of new and emerging technologies may increase our exposure to intellectual property claims, and the availability of copyright and other intellectual property protection for AI-generated material is uncertain."

The use of AI by studios flared into a hot-button issue for the two Hollywood unions that went on strike in 2023, WGA and SAG-AFTRA, who were concerned about the technology hurting their livelihoods.

The WGA's current deal includes guardrails around the use of generative AI in the creative process, including a provision that gives the union itself the power to challenge the use of writers' existing work to train AI software programs.

The SAG-AFTRA agreement with the studios includes some, but not all, of the union's demands on AI; for example, the deal allows AI models to "train" on actors' performances to create synthetic characters which actors will be able to prevent only if the final output includes the actors' recognizable facial features.

The issue of copyright is becoming a major battleground for the much-hyped generative AI sector, with publishers, musicians and artists increasingly lawyering up to get paid for technology that is being built with their content.

The New York Times sued ChatGPT-maker OpenAI and Microsoft in a US court last month, alleging that the companies' powerful AI models used millions of articles for training without permission.

Through their AI chatbots, the companies "seek to free-ride on The Times' massive investment in its journalism by using it to build substitutive products without permission or payment", the lawsuit said.

Meanwhile, ​​a US judge ruled last year that an artwork created without human interaction by an AI could not be copyrighted under US law as human authorship was a "bedrock requirement of copyright".

Despite suggestions that its decade of streaming dominance may be over, Netflix added 13 million subscribers in the final three months of last year, the company said, despite price hikes at the leading streaming service.

Netflix finished 2023 with slightly more than 260 million subscribers worldwide, with a profit of $938 million in the final quarter versus just $55 million in the same period a year earlier.

"We believe there is plenty of room for growth ahead as streaming expands," the US company said in an earnings letter.

Consequently, Netflix shares were up more than eight per cent to $532.75 in after-market trades that followed the release of the earnings figures.