Netflix and others will probably work pretty much like they do now with the notch. There is a “safe area” under the notch and apps draw their content in that area by default. They can chose to expect their content into the notch area if they are prepared to deal with the presence of it. The island will certainly be treated the same with default content in the safe area. Currently Netflix and most photo or video apps display their images in the safe area and the system fill in the notch area with black. You have to choose to zoom in to get them to extend the image into the notch area.…
I'm keen to see how Netflix or other apps will look when choosing to "shrink" the image so it is not impeded by the pill shape. Presumably the video playback area will be smaller than it is now, given the pill shape seems to be lower than where the previous notch ended.….
It is true that the dynamic island sits a little lower from the top edge of the screen, but Apple also increased the height of the screens by about the same amount so the effect is the same amount of space in the safe area below the island as below the notch.