Corrects to remove extraneous words at the end of paragraph 5

By Dawn Chmielewski and Lisa Richwine

LOS ANGELES, July 17 (Reuters) - Netflix NFLX.O said on Thursday that it used generative artificial intelligence to produce visual effects that appeared for the first time on screen in one of its original series, employing a technology that has been a source of anxiety throughout Hollywood.

Co-CEO Ted Sarandos hailed AI as "an incredible opportunity to help creators make films and series better, not just cheaper."

Sarandos offered the example of Argentine science-fiction series "El Eternauta (The Eternaut)," where the creators wanted to show a building collapsing in Buenos Aires - a visual effect that would have been beyond the project's budget. The creative team partnered with Eyeline Studios, a production innovation group within Netflix, to make the dramatic scene with the aid of AI.

"That VFX sequence was completed 10 times faster than it could have been completed with visual traditional VFX tools and workflows," Sarandos said during the company's second-quarter investor call. "And also the cost of it would just wouldn't have been feasible for a show in that budget."

Sarandos said the sequence is the first GenAI final footage to appear on screen in a Netflix original series or film.

AI has become a flashpoint in Hollywood since the labor unrest of 2023, which resulted in new guidelines for the use of the technology. The main concern is that AI could replace the work of humans.

Co-CEO Greg Peters said Netflix may find other ways to leverage generative AI to improve the user experience - including offering viewers the ability to use spoken words to find something to watch.

"Saying 'I want to watch a film from the '80s that's a dark psychological thriller,' (and getting) some results back ... you just couldn't have done in our previous experiences," said Peters. "So that's super-exciting."

Advertising represents another opportunity for generative AI, Peters said, as brands and marketers seek to create compelling content.

"We think these generative techniques can decrease that hurdle iteratively over time and enable us to do that in more and more spots," said Peters.

(Reporting by Dawn Chmielewski in Los Angeles; Additional reporting by Lisa Richwine in Los Angeles; Editing by Matthew Lewis)

((dawn.chmielewski@thomsonreuters.com))