Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: As AI generated images ping pong around the Internet. The
Speaker 2: Walt Disney Company has mostly been playing defense. In June,
Speaker 2: the entertainment company sued the AI image generator mid Journey
Speaker 2: over copyright infringement after realizing the app could whip up
Speaker 2: visuals of Yoda and frozens elsa that looked eerily similar
Speaker 2: to Disney's own animations.
Speaker 3: Lawsuit against mid Journey by a major Hollywood studio following
Speaker 3: Disney and Universal's joint lawsuit.
Speaker 2: And on the evening of December tenth, Disney sent a
Speaker 2: cease and assist letter to Google, alleging the company was
Speaker 2: using the studio's IP to train its AI models. But
Speaker 2: just the next morning, Disney made a very different kind
Speaker 2: of announcement.
Speaker 4: Disney has decided, if you can't beat them, join them mad.
Speaker 2: Disney came to a landmark agree with open Ai to
Speaker 2: license more than two hundred Disney, Marvel, Pixar, and Star
Speaker 2: Wars characters for use in the AI company's video generation
Speaker 2: app Sora. As part of the three year licensing deal,
Speaker 2: Disney agreed to take a one billion dollar stake in
Speaker 2: open Ai, with the option to buy more shares in
Speaker 2: the company. According to Bloomberg reporting, the deal to use
Speaker 2: Disney's IP was done entirely in stock rather than a
Speaker 2: cash licensing fee.
Speaker 1: It was a big milestone for open Ai because the
Speaker 1: company has been trying to strike deals in Hollywood with
Speaker 1: major media companies for over a year and a half.
Speaker 2: That's Sharene Gafari, who covers Ai for Bloomberg.
Speaker 3: They've had some successes with publishers and not so much
Speaker 3: with others. But what we have not seen yet though,
Speaker 3: is them have a deal to actually use really valuable
Speaker 3: studio IP, especially that of a company as iconic as
Speaker 3: Disney with all of the characters that they own.
Speaker 2: Reactions to the Disney OpenAI partnership have been mixed.
Speaker 5: Everyone will be able to create Enatavii slop videos with
Speaker 5: Disney characters using sora Ai. Disney finally figured out that
Speaker 5: the thing people want to do most with their IP
Speaker 5: is participate with it.
Speaker 2: Bloomberg Entertainment reporter Thomas Buckley says some of the labor
Speaker 2: unions representing artists and creators who work with Disney were troubled.
Speaker 5: The right skilled came out very strongly against the deal,
Speaker 5: likening it to theft.
Speaker 2: Meanwhile, Disney's stock price has risen nearly five percent since
Speaker 2: the news.
Speaker 5: From a Disney perspective, it's really an evolution of the
Speaker 5: mantra that Bobigo adpted a long time ago, which is
Speaker 5: that you know, if you can't speed tech, then new
Speaker 5: joint tech can you seek to profit from tech.
Speaker 2: Here's Eiger, Disney's CEO, during an earnings call in November
Speaker 2: before this deal was announced.
Speaker 4: We've been in some interesting conversations with some of the
Speaker 4: AI companies, and I would characterize some of them as
Speaker 4: quite productive conversations as well, seeking to not only protect
Speaker 4: the value of our IP and of our of engines,
Speaker 4: but also to seek opportunities for us to use their
Speaker 4: technology to create more engagement with consumers.
Speaker 2: Sharene says besides being a big deal for the companies involved,
Speaker 2: it could also be paradigm shifting across the entertainment industry.
Speaker 1: Disney is viewed as sort of this gold standard in
Speaker 1: terms of the mass appeal of its IP, of its characters,
Speaker 1: in terms of protecting the brand right and making sure
Speaker 1: that it's kid friendly. Disney is so international, so I
Speaker 1: think it does sort of set this template of look
Speaker 1: if Disney made a deal, then should other companies not
Speaker 1: be so precious about their IP do something similar.
Speaker 2: I'm Sarah Holder, and this is the big take from
Speaker 2: Bloomberg News today. On the show Inside Disney and open
Speaker 2: AIS billion dollar deal, will Mickey Mouse, Simba and Princess
Speaker 2: Ariel Flounder or sore as the characters and company become
Speaker 2: part of the world of user generated artificial intelligence. Bloomberg
Speaker 2: Sharine Gafari says Disney and open AI's path to partnership
Speaker 2: was a long and winding one.
Speaker 1: As Thomas and I have reported about a year ago,
Speaker 1: a little bit less than that, open AI and Disney
Speaker 1: were not, you know, as far as we reported making
Speaker 1: significant progress in their deal making talks, wasn't clear at
Speaker 1: all they were going to be able to come to
Speaker 1: any kind of agreement. There was widespread skepticism in the
Speaker 1: media entertainment industry about if these kinds of deals would
Speaker 1: really benefit media companies or would put their own IP
Speaker 1: and their own talent at a steep disadvantage.
Speaker 2: Bloomberg's Thomas Buckley says Disney was wary of how AI
Speaker 2: could warp its material.
Speaker 5: Mickey Mouse spraying bullets from an AK forty seven and
Speaker 5: even worse. I think that that's especially what Disney took
Speaker 5: grave concern with iconic Disney characters in situations that you
Speaker 5: simply would never want to see a disas the character.
Speaker 2: In those grave concerns, we're part of what led Disney,
Speaker 2: alongside Comcast, the owner of Universal Pictures, to sue the
Speaker 2: AI company mid journey earlier this year.
Speaker 5: This is simply not how it wanted its ib to
Speaker 5: be represented on screens, right, and specifically not in terms
Speaker 5: of children either.
Speaker 2: And Scharene says, just because Disney has struck a deal
Speaker 2: with Open Ai, it doesn't mean the company is done fighting.
Speaker 1: Disney is still taking a litigious approach in some sense
Speaker 1: because they have sent a season to sister to Google,
Speaker 1: which offers similar video and image generation products, right, and so,
Speaker 1: on the one hand, while they're forging this deal with
Speaker 1: Opening Eye, they are still wielding a more sort of
Speaker 1: stick approach. If it's a carrot and stick strategy here
Speaker 1: with others who they have not made deals with yet.
Speaker 1: You know, it's sort of like, if you don't do
Speaker 1: a deal, then there's a good chance that you're going
Speaker 1: to get sued.
Speaker 2: Right, well, Sharene, you have been tracking how open AI
Speaker 2: has ramped up their efforts to woo movie studios this year.
Speaker 2: Can you walk me through that strategy and why that's
Speaker 2: been such a priority for the company.
Speaker 1: Opening I really started kind of its courtship with the
Speaker 1: media industry by talking to newsrooms, right. So you have
Speaker 1: one of the first major deals they did on this
Speaker 1: front to sort of be allowed to use IP being
Speaker 1: with Axel Springer, the German media conglomerate. Then they start
Speaker 1: to court Hollywood, right, and we have executives like Sam
Speaker 1: Altman and Opening IICEO Brad Lightcap who's really been the
Speaker 1: key deputy on these Hollywood and media deals. He has
Speaker 1: been trying to sort of make inroads with media leaders
Speaker 1: who are you know, I think rightfully skeptical about tech
Speaker 1: and feel that they have been burned in the past
Speaker 1: by going back to the advent of the Internet and
Speaker 1: seeing sort of the value of IP everything from news
Speaker 1: articles to movies that can be pirated sort of diminishing
Speaker 1: with technologies and not seeing enough of a return on
Speaker 1: it without a fierce legal battle. And I think it
Speaker 1: took a lot of convincing trips to LA and to
Speaker 1: New York to talk to the new rooms to talk
Speaker 1: to the media leaders like at Disney to get them
Speaker 1: on board with this, And it's still, I think, really
Speaker 1: unclear if this is really an industry consensus that AI
Speaker 1: is actually going to help the media industry, or if
Speaker 1: it will actually end up sort of niecapping it in
Speaker 1: an even more severe way than the streaming wars or
Speaker 1: than the early kind of Google search era did.
Speaker 2: What is open AI's argument here, What are they saying
Speaker 2: about how using this classic IP will actually help the
Speaker 2: media companies and how is that landing with these media companies, I.
Speaker 1: Know, specifically with newsrooms for example, there is this idea
Speaker 1: that it's sort of a win win because newspapers want
Speaker 1: distribution for their articles and open aye wants accurate information
Speaker 1: and its chatbot with entertainment something like Disney. It's a
Speaker 1: little different, right, It's not necessarily maybe so much about
Speaker 1: truth or accuracy, but about Hey, if people are going
Speaker 1: to be making a bunch of videos, are going to
Speaker 1: be engaging in a new form of entertainment in an
Speaker 1: app that take over sort of social media in the future,
Speaker 1: don't you want your characters on there in sort of
Speaker 1: a controlled way and get some real business upside out
Speaker 1: of it. I think that's the pitch.
Speaker 5: What's interesting in terms of timing, you know, open AI's
Speaker 5: overtures coalesced with the dual strike of actors and writers
Speaker 5: back in twenty twenty three. I think that there was
Speaker 5: a huge amount of concern as to how the likes
Speaker 5: of likeness and scripts were going to be used to
Speaker 5: train AI models without artists being compensated fairly. I think
Speaker 5: that in the earlier stages of open AI's outreach to Hollywood,
Speaker 5: there was no financial consideration beyond maybe open Ai paying
Speaker 5: the licensees a fee that they didn't feel was commensurate
Speaker 5: with the valuation of their IP. And so what that
Speaker 5: means is that now there's a bit more of an impetus,
Speaker 5: I suppose from a financial perspective for the media giants
Speaker 5: to play in that space, and we started to see
Speaker 5: more deals struck in the space. And think of example,
Speaker 5: about Mattel's partnership with open Ai. Mattel not only a
Speaker 5: toy makeup but also a producer of the film Barbie.
Speaker 5: So I do think that, you know, it signaled a
Speaker 5: turning point. For the beginning, it was very much minimal
Speaker 5: financial upside, maximum reputational downside, and I think that that's
Speaker 5: shifted a bit in recent months and weeks.
Speaker 1: I think, you know, the media industry and entertainment industry,
Speaker 1: like any industry, was watching to see, you know, how
Speaker 1: the AI boom evolves. And when apps like chatchbt first
Speaker 1: came out, it wasn't at all clear if this would
Speaker 1: even stick right or if they would be able to
Speaker 1: generate images or video at the incredible rate of progress
Speaker 1: that they have. On a second level, you know, I
Speaker 1: think really the news partnerships that open Ai did kind
Speaker 1: of laid a little bit of a templative least for
Speaker 1: this idea around licensing IP and as well as you know,
Speaker 1: product collaboration. So this idea that okay, not only is
Speaker 1: open ai going to be using Disney's assets, which is
Speaker 1: its IP, but Disney will be using open AI's assets,
Speaker 1: which is its technologies to further its own operation.
Speaker 2: In addition to the potential gains for both companies if
Speaker 2: things go well, there could also be a lot to lose.
Speaker 2: That's after the break. The Walt Disney Company is over
Speaker 2: one hundred years old and worth nearly two hundred billion dollars.
Speaker 2: Open Ai is only about a decade old. And was
Speaker 2: valued at five hundred billion dollars in October, so a
Speaker 2: much younger company, not yet profitable, but worth a lot more,
Speaker 2: and Disney now gets a billion dollar piece of it.
Speaker 1: Disney's ip is obviously really valuable. So I was curious
Speaker 1: about what was sort of in it for Disney and
Speaker 1: was there actual cash exchanged.
Speaker 2: That's Sharene Gifari who covers Ai for Bloomberg.
Speaker 1: And what I found was that actually we confirmed was
Speaker 1: no cash exchange is part of this deal, that it
Speaker 1: was all stock, and that came in two main forms.
Speaker 1: One is one billion dollars worth of equity that Disney's
Speaker 1: investing now into open Ai. And then also Disney will
Speaker 1: have the right in the future to have stock warrants
Speaker 1: in open Ai. Right, so the ability to buy open
Speaker 1: Ai stock at a future date for a set price.
Speaker 1: And the idea here is that if open Ai grows
Speaker 1: in value, Disney will benefit as well. So it's really
Speaker 1: Disney taking a bet on the growth of open Ai
Speaker 1: and particularly its video efforts.
Speaker 2: Yeah, I mean, I know there has been some concerns
Speaker 2: about overvaluation in the AI space. Is Disney's willingness to
Speaker 2: sign this deeal sort of an affirmation that the company
Speaker 2: thinks open AI stock still has a lot of growth
Speaker 2: ahead of it.
Speaker 1: I mean, you don't invest in a company if you
Speaker 1: don't think that it's going to have upside, right, So
Speaker 1: the facto, yes, now we're in the middle of what
Speaker 1: a lot of people are worried is a major bubble, right,
Speaker 1: a financial valuation bubble and even potentially technological bubble if
Speaker 1: this technology doesn't keep improving at the rate it has.
Speaker 1: So you know, this kind of ties Disney to this
Speaker 1: larger economic kind of conversation about are we in an
Speaker 1: AI bubble? Will these valuations go down? Is AI overhyped?
Speaker 1: Until now, Disney didn't have a real stake in that
Speaker 1: battle necessarily except for maybe companies ripping off of its IP.
Speaker 1: But now it has skin in the game to win
Speaker 1: or lose from AI more directly, I.
Speaker 5: Think also what you have to assume forgetting the financial
Speaker 5: implications is that the technology is only going to get
Speaker 5: better and better.
Speaker 2: That's Thomas Buckley, who covers entertainment for Bloomberg.
Speaker 5: And so I think that video generation is here to stay.
Speaker 5: User generation is certainly here to stay, and as a
Speaker 5: result of that, I think that Disney is seeking a
Speaker 5: way to play meaningfully in that space, in a way
Speaker 5: that's safe, in a way that's ring fenced, and in
Speaker 5: a way that might evolve its IP for the appeal
Speaker 5: of younger generations.
Speaker 2: I'm wondering how much control will they really get or
Speaker 2: how their IP is used, Like what kinds of guardrails
Speaker 2: are built into this agreement, if any.
Speaker 5: I would assume that Disney's eventual control and promotion of
Speaker 5: the output has to be paramount on the basis that
Speaker 5: Barbaika has said that he would be seeking to actually
Speaker 5: include some of the videos produced onto the Disney Plus
Speaker 5: streaming platform, and so those would obviously have to be
Speaker 5: very carefully vetted. They would have to be in keeping
Speaker 5: with the characteristics that all of Disney's characters stand for,
Speaker 5: with the belief system that Disney has sought to cultivate
Speaker 5: with its content. So I would think that it's absolutely
Speaker 5: paramount for Disney to retain some control over how its
Speaker 5: characters are used and.
Speaker 2: Displayed and sing the upside for open AI, as we've
Speaker 2: talked about, seems pretty clear. You know, Soraa gets to
Speaker 2: play with all these Disney characters. They get this huge
Speaker 2: vote of confidence from a major household brand name. But
Speaker 2: is there anything else that you can add about what
Speaker 2: kind of monetary value might this add to Sora.
Speaker 1: Yeah, I say that video generation is extremely expensive. It's
Speaker 1: considered probably more expensive than text just because of how
Speaker 1: rich images are to process and create. So if Sora
Speaker 1: is going to actually make financial sense for open ai
Speaker 1: as a product line, it needs to have users. It
Speaker 1: needs to generate revenue in the long term. And while
Speaker 1: Sora had this splashy launch it quickly rose to the
Speaker 1: top of some of the app charts, it's sort of
Speaker 1: come down in recent weeks and months, and I think
Speaker 1: that it needs to have this kind of sustained user
Speaker 1: growth if it is going to succeed, and Disney can
Speaker 1: help that growth, right. Obviously, Disney's Kingdom comes with a
Speaker 1: lot of fans who could be eager to riff on
Speaker 1: their characters and AI in a way that maybe before
Speaker 1: they wouldn't really care as much about using the Sora app.
Speaker 2: I'm curious about what all this means for the artists
Speaker 2: and the writers who originally created these characters for Disney Thomas.
Speaker 2: I know the Writer's Guild of America was really upset
Speaker 2: by this deal. I'm wondering if you could talk more
Speaker 2: about how labor unions who work with Disney have been responding.
Speaker 5: Absolutely so, a number of labor unions in Hollywood, and
Speaker 5: really those that work most closely with Disney, including the
Speaker 5: Animated Guild, the Writer's Guild of America, and SAG, the
Speaker 5: union representing actors, all expressed the hard work of the
Speaker 5: artists that they represent they would argue as being pilfered
Speaker 5: through user generation. It's interesting to note, however, that on
Speaker 5: the SAG side of things, the Screen Actors Guild likeness
Speaker 5: and voice is not included as part of this deal.
Speaker 5: So I think that it's more of a wait and
Speaker 5: see approach there.
Speaker 2: Right, because, of course, the Writer's Guild or the cartoonists
Speaker 2: are not party to the stock being exchanged here, right, Like,
Speaker 2: how are they able to be compensated for the work
Speaker 2: that they did? Is that their underlying concern here?
Speaker 5: I think that at certainly, at some point it will
Speaker 5: become that. I think that fundamentally, it's very difficult to
Speaker 5: trace the exact lineage of a user generated video to
Speaker 5: an original storyline. I mean, for example, you're in inter
Speaker 5: twining the likes of Cinderella with sleeping beauty as they
Speaker 5: work in concerts takedown darth data. Does that mean that
Speaker 5: absolutely every writer on the animation side of things and
Speaker 5: on the style wars side of things gets compentpated? I
Speaker 5: simply don't know how you would structure such a deal.
Speaker 2: I'm also wondering about how investors in Disney have reacted
Speaker 2: to this deal, Saran. What happens if Disney's investment in
Speaker 2: open Ai doesn't pan out? If open Ai stocks tank?
Speaker 2: If concerned about a bubble, you know, turn out to
Speaker 2: be real, are Disney investors concerned about that?
Speaker 1: Well, it certainly wouldn't be good for Disney if let's
Speaker 1: say the Ai bubble berth and Open Aeye's valuation drastically drops.
Speaker 1: I defer to Tomas on the exact specifics, but I
Speaker 1: know that Disney's cash flow is a lot higher than
Speaker 1: companies like open Ai, which are making money but losing
Speaker 1: a lot of money essentially because of their high cost.
Speaker 1: Disney is a highly profitable business.
Speaker 5: A billion dollars is a fraction of Disney's marketcap. It's
Speaker 5: even more of a fraction of Open Aey's valuation, so
Speaker 5: they might see it as a large bolt on cost
Speaker 5: but certainly nothing that might be transformational from a financial perspective.
Speaker 5: Although could have transformational results, it concerns the IP and
Speaker 5: I'm sure that Disney is hoping that it will have
Speaker 5: transformational implications financially. However, if open A's valiation continues to saw.
Speaker 2: You know, we started this conversation talking about the two
Speaker 2: approaches entertainment companies have been taking with AI companies. Try
Speaker 2: to beat them, try to hold on to your IP,
Speaker 2: try to sue them for copyright infringement, or join them
Speaker 2: strike a deal like Disney and open AI did. Does
Speaker 2: this Disney open Ai deal set any new precedent for
Speaker 2: how these relationships could work moving forward.
Speaker 5: I think what's really interesting is that you have the
Speaker 5: arguably the most iconic company in all of Hollywood, you know,
Speaker 5: uniting with arguably the most widely recognized company in the
Speaker 5: space of AI currently. So I think that the deal
Speaker 5: between the two of them certainly signals that there might
Speaker 5: be more to come. On the basis that Disney, I think,
Speaker 5: has always prided itself on being able to look around corners.
Speaker 5: You could argue they assembled this treasure trove of IP
Speaker 5: in order to launch Disney Plus. And I think that
Speaker 5: that showed an incredible amount of foresight. I would imagine
Speaker 5: that bob Bieker is hoping that it might be interpreted
Speaker 5: exactly the same way, in that it could be a
Speaker 5: step forward into Disney characters interacting with its fan base
Speaker 5: in a way that they never have before.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
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