Speaker 1: This is Wall Street Week. I'm David Weston bringing you
Speaker 1: stories of capitalism this week, the world of coffee and
Speaker 1: what global demand and a changing climate may mean for
Speaker 1: our daily habit and creativity from a machine, what jenn
Speaker 1: of Ai means for the world of art and entertainment.
Speaker 1: But we start with a story about popularity, the sort
Speaker 1: of overnight popularity that comes when market players burst onto
Speaker 1: the scene because of big calls they make or new
Speaker 1: products they create, only some of which stand the test
Speaker 1: of time.
Speaker 2: In a world of stayd predictors of the stock market,
Speaker 2: Lane Garzawelli stands out after a series of orn target
Speaker 2: forecasts made her arguably the most widely followed Wall Street guru.
Speaker 3: She was fired last year by Lehman Bros. Reportedly for
Speaker 3: a combination of being bullish indeed a bit too much
Speaker 3: so when the firm was being bearish way too much so,
Speaker 3: and for being too expensive.
Speaker 1: Wall Street analyst Elaine Garzarelli became a superstar in the
Speaker 1: world of finance in nineteen eighty seven when she correctly
Speaker 1: predicted an imminent collapse of the US stock market, took
Speaker 1: her fund to cash, and was proven right just one
Speaker 1: week later. On Black Monday, when the Dow Jones Industrial
Speaker 1: Average dropped twenty two point six percent in a single
Speaker 1: trading session.
Speaker 4: No question about it. She called it absolutely spot on.
Speaker 4: Her fund actually went up quite considerably in value on
Speaker 4: Black Monday because she put on all these puts as protection.
Speaker 1: Bloomberg Senior editor for Markets and Opinion columnists John Authurs
Speaker 1: has been reporting on the markets and forecasters for four decades.
Speaker 4: Did it work out that well? Not really, because the
Speaker 4: whole point of getting one really big call spectacularly right
Speaker 4: like that is the n equals one. If you get
Speaker 4: what I mean. There are only so many opportunities in
Speaker 4: a lifetime to get to call a freak event like
Speaker 4: Black Monday. Having done it once, there wasn't going to
Speaker 4: be another Black Monday.
Speaker 1: In the decades since Black Monday, other investors and fund
Speaker 1: managers have made spectacular calls that have brought fame and
Speaker 1: yes often fortune, at least for a time. One investor
Speaker 1: stole the spotlight in twenty twenty thanks to the gold
Speaker 1: rush into big tech, once again showing the benefits of
Speaker 1: being in the right place at the right time. We
Speaker 1: have some funds, like for example, our investment Yes, which
Speaker 1: did extremely well for a period of time.
Speaker 4: And made Kathy Wood, its manager, probably the most famous
Speaker 4: investor for a couple of years at least. Yes, I
Speaker 4: think one of the points that you begin to grasp
Speaker 4: more and more of the years covering finance is that
Speaker 4: if you really want to make it big, if you
Speaker 4: really want to make a big return, you have to
Speaker 4: take a big risk. That's basically an inescapable fact. If
Speaker 4: you want to be safe, you can be safe, but
Speaker 4: you're not going to be as rich as somebody else
Speaker 4: is who has taken a chance and it's come off.
Speaker 4: In the case of ARC Investment, it very preciently was
Speaker 4: in early on Tesla. It was heavily into bitcoin, bitcoin
Speaker 4: related stocks, heavily into a number of very small companies
Speaker 4: that grew very fast in the exciting conditions during the pandemic.
Speaker 4: So ARC at one point, I think quadruples during the
Speaker 4: pandemic year. Some such astronomically strong performance.
Speaker 1: In recent years, a broad market rally has been good
Speaker 1: news for most investors, but that can come at the
Speaker 1: cost of specific fund performance.
Speaker 4: It looks like a rocket or trajectory that is zoomed
Speaker 4: up and zoomed back down again. If you stand back
Speaker 4: and think about whether you should treat somebody like Cathywood
Speaker 4: as an expert who can call the market liably every time.
Speaker 4: If you're going to have a return like that, it
Speaker 4: implies that you're very good at what you do, which
Speaker 4: in her case is tech investing. This is a person
Speaker 4: whose talents aligned perfectly with capturing this one moment. That
Speaker 4: doesn't mean that we should assume that they can guide
Speaker 4: us further in the future.
Speaker 1: Big contrarian calls can be very popular because of the
Speaker 1: attention they attract and because of the money they make
Speaker 1: for those who take the leap of faith. But betting
Speaker 1: against the markets also comes at a price, certainly when
Speaker 1: it comes to calls that, unlike those of a Lane
Speaker 1: Garzarelli and Kathy Wood, don't come true, but also in
Speaker 1: trading off drama for slow, more quiet progress.
Speaker 4: The people who do best tend to be contrarians. They
Speaker 4: have to be, and most of the time, by definition,
Speaker 4: contrarians don't do that well, otherwise they wouldn't be contrarian.
Speaker 4: And I think that's another fact that people tend to
Speaker 4: forget that if you're really going to make a lot
Speaker 4: of money, you probably do need to partic a contrarian bet.
Speaker 4: But generally speaking, people aren't stupid, the market isn't wildly
Speaker 4: wrong most of the time. Being very contrarian will often
Speaker 4: lose you money.
Speaker 1: It's not just individual market players who can gain enormous
Speaker 1: popularity relatively quickly. That popularity can also come to new
Speaker 1: ways of approaching investing overall, things like so called smart beta.
Speaker 4: This was a great idea that got people very excited
Speaker 4: for a while and has generally now become It's a
Speaker 4: phrase I almost never hear anymore.
Speaker 1: The term smart beta is said to have been coined
Speaker 1: by the consulting firm Willis Towers Watson in two thousand
Speaker 1: and six to describe funds that merge the benefits of
Speaker 1: active and passive management. Smart beta funds don't have a
Speaker 1: manager rebalancing holdings, but they have rules and factors that
Speaker 1: play the role of a manager.
Speaker 5: Well.
Speaker 6: Beta really just measures how much a strategy or a
Speaker 6: stock moves, and alpha is the performance of the stock
Speaker 6: relative to that sensitivity to market movements.
Speaker 1: Rob Arnett is the founder of Research Affiliates, which launched
Speaker 1: its Fundamental Index in two thousand and four.
Speaker 6: The inspiration for it was Fundamental Index, which was our
Speaker 6: idea back in two thousand and four, Fundamental Index simply says,
Speaker 6: why should we weight stocks according to how popular, beloved
Speaker 6: and expensive they are? Why not weight stocks according to
Speaker 6: how big they are in the economy. Now, what that
Speaker 6: does is several things. Firstly, if a stock is a
Speaker 6: growth stock priced at a premium multiple, it reweights it down.
Speaker 6: If it's a value stock priced at a deep discount,
Speaker 6: it rewaights it up. That's not because these aren't good
Speaker 6: companies and these aren't troubled companies. That's because the good
Speaker 6: news is already in the price. The bad news is
Speaker 6: already in the price, so it's harmless to reweight it.
Speaker 1: Because they folks on value stocks, Smart beta funds may
Speaker 1: have missed the moment for the tech stocks known as
Speaker 1: the Magnificent Seven, which have been driving the S and
Speaker 1: P five hundred higher recently. Of the more than nine
Speaker 1: hundred smart Beta ETFs, about six hundred have no exposure
Speaker 1: to the Magnificent seven stocks. According to Bloomberg Intelligence.
Speaker 6: Rules based strategies have had outflows. The genuinely smart forms
Speaker 6: of smart beta have been doing much better than that.
Speaker 6: It leans heavily towards cheap stocks, well cheap stocks have
Speaker 6: been out of favor for the last fifteen years. If
Speaker 6: you had a growth bias, you beat your value counterparts
Speaker 6: for the last fifteen years off and on. Not every year,
Speaker 6: of course, but over the fifteen years by a very
Speaker 6: wide margin. And so anything with a bias towards value
Speaker 6: will have had that headwind and will have struggled accordingly.
Speaker 1: While some trading strategies or financial instruments might go in
Speaker 1: and out of fashion, sometimes what we think of as
Speaker 1: new products in the market really aren't new at all,
Speaker 1: like SPACs.
Speaker 5: David in the early nineties, for those of us who
Speaker 5: are old enough to remember, the US had somewhat of
Speaker 5: the recession, and so there was a capital shortage, and
Speaker 5: two very smart lawyers who represented an industrial company that
Speaker 5: was short of capital and that needed to raise additional
Speaker 5: capital in the public markets came up with the device
Speaker 5: that we now know as the SPAC.
Speaker 1: Betsy Cohen is a financial technology pioneer who founded Internet
Speaker 1: banking for Bank Corp. In nineteen ninety nine and now
Speaker 1: serves as chairman of the Cohen Circle, which she co
Speaker 1: founded in twenty fifteen to bring more than ten SPACs
Speaker 1: to market.
Speaker 5: In a way, the SPAC format and structure has really
Speaker 5: always remained the same and is meeting the same needs,
Speaker 5: and those needs are a capital shortage within a particular area.
Speaker 1: The number of SPACs coming to market peaked in twenty
Speaker 1: twenty one, with six hundred and thirteen just that year,
Speaker 1: and dropped to just thirty one in twenty twenty three.
Speaker 1: If we go back two years twenty twenty two, it
Speaker 1: seemed that there were an awful lot of SPACs. It
Speaker 1: was really almost dominating the market.
Speaker 5: It seemed like a lot of fun.
Speaker 1: It's come down a fair amount since then. Why has
Speaker 1: it come down?
Speaker 5: I think there are several reasons. One of many of
Speaker 5: the SPACs did not find appropriate targets, and secondly, there
Speaker 5: was an excise tax that was imposed if you did
Speaker 5: close the spec, and so that was a financial liability
Speaker 5: that had not been thought of at the beginning of
Speaker 5: the process. So I think that there were enough cases
Speaker 5: of failure in the market that a company would come
Speaker 5: to market and then miss its first earnings projections that
Speaker 5: it became a much riskier vehicle to use.
Speaker 1: Whether it's the latest star investor or hot strategy. What
Speaker 1: draws us to these overnight success stories is just that
Speaker 1: they make for a good story, one that the financial
Speaker 1: media wants to tell and one that the audience wants
Speaker 1: to hear.
Speaker 4: We as journalists, you make a much better story when
Speaker 4: you really do tell tell it with a hero, with
Speaker 4: a person, with a with a with the beginning in
Speaker 4: the middle and an end. You want you want to
Speaker 4: be able to make it into a narrative. Then people
Speaker 4: will enjoy what you're showing them. Then people will understand
Speaker 4: the point you're making. But you might help people fall
Speaker 4: into a narrative fallacy we we the media maybe part
Speaker 4: of building up people only to then have to knock
Speaker 4: them down.
Speaker 1: Today, ETFs have become popular on Wall Street right now.
Speaker 1: They seem to be everyone's answer to just about everything.
Speaker 1: But how long will the love affair last?
Speaker 4: It would appear that they are in this country now.
Speaker 4: In many ways, the ETFs can be a superior product.
Speaker 7: You could.
Speaker 4: You know that they can be much more nimble, they
Speaker 4: can trade that much more rapidly, and therefore they can
Speaker 4: be of more different uses to people. But certainly my
Speaker 4: fear with exchange traded funds it's There's a line from
Speaker 4: one of David Bowe's albums begins with flees the size
Speaker 4: of rats, eats on rats, the size of cats, that
Speaker 4: that that ultimately they are Everybody is just taking a
Speaker 4: different bite of what's ultimately the same thing. That you're
Speaker 4: just churning these assets around in a different way without
Speaker 4: really little The complaints I was making about smart baits
Speaker 4: earlier that you without really adding anything.
Speaker 1: In a world of growing and rapidly changing markets, it's
Speaker 1: no surprise that new people and new ways of investing
Speaker 1: show up regularly, or that we eagerly welcome the next bright,
Speaker 1: shiny object. But it's one thing to rush to them.
Speaker 1: It's another to stay with them too long, because in
Speaker 1: the long run, we are always reminded that that which
Speaker 1: varies greatly from the mean shall eventually return to it.
Speaker 1: Coming up, the big business of hot bruise, we taught
Speaker 1: coffee supply and demand. Next on Wall Street Week.
Speaker 8: You're listening to Bloomberg Wall Straight Week with David Weston
Speaker 8: from Bloomberg Radio. This is Bloomberg Wall Street Week with
Speaker 8: David Weston from Bloomberg Radio.
Speaker 1: This is a story about our habits, those rituals we
Speaker 1: follow every day and come to take for granted, even
Speaker 1: as we start sharing those rituals with hundreds of millions
Speaker 1: of other people.
Speaker 4: This is a fine cup of coffee, Shannon Ravioli, not Roney.
Speaker 9: If you want the thing you loved, you did it.
Speaker 8: Congratulations, world's best cup of coffee.
Speaker 10: We are taking around the three billion cups every day
Speaker 10: in coffee. These means around one hundred and seventy two
Speaker 10: million bags of sixty kilos each bag.
Speaker 1: Venusian Naguera is executive director of the International Coffee Organization,
Speaker 1: a group created more more than a half a century
Speaker 1: ago to encourage trade between countries. She says, the trend
Speaker 1: in coffee consumption is moving in one direction.
Speaker 10: The demand is growing around the world, mainly in Asia
Speaker 10: and also in what we call to the producing countries,
Speaker 10: the producing countries that use it to drink a lot
Speaker 10: of coffee. In the past, where only Ethiopia and Brazil,
Speaker 10: now you have many other producing countries taking a lot
Speaker 10: of coffee. And additionally to that we have now China, Philippines, Vietnam,
Speaker 10: Indonesia taking a lot of coffee together with South Korea,
Speaker 10: Japan and other countries in Asia.
Speaker 1: Wock you All these habits being cultivated around the world
Speaker 1: add up to big business. According to the analysis from
Speaker 1: SMP Global. The annual revenue of the industry worldwide has
Speaker 1: soared from around two hundred billion dollars in twenty nineteen
Speaker 1: to know you four hundred and six billion dollars today.
Speaker 1: But as coffee demand continues to rise, production has been inconsistent.
Speaker 1: In the last two years. Consumption outstripped supply as bad
Speaker 1: weather took a toll on coffee farms that helped send
Speaker 1: prices of Arabica being futures surging more than eighty percent
Speaker 1: in the span of a year, from one hundred and
Speaker 1: forty six in September of twenty twenty three to a
Speaker 1: high of almost two hundred and seventy four this year.
Speaker 11: Coffee as an industry really starts in the late nineteenth century.
Speaker 11: That's really when we see the start of trading, so
Speaker 11: the New York Coffee Exchange opens in the eighteen eighties.
Speaker 1: Jonathan Morris is an expert in the field, dubbed the
Speaker 1: Coffee Historian. He's the author of Coffee, a Global History
Speaker 1: and a professor at the University of Hertfordshire.
Speaker 11: Now we have a much more expanded global market, so
Speaker 11: coffee consumption has been rising. A lot of emulation in
Speaker 11: that rise so essentially that's what we're seeing, and the
Speaker 11: demand for coffee in that sense is ever growing.
Speaker 1: A good part of their growth comes from the Starbucks
Speaker 1: of this world, a phenomenon that may have taken off
Speaker 1: in Seattle, Washington, but it is turned into an international trend.
Speaker 11: So what's really changed coffee in the last sort of
Speaker 11: thirty forty years is obviously the growth of the if
Speaker 11: you like, the international coffee shop chains, that kind of format.
Speaker 11: And I say it's changed it not because it's accounted
Speaker 11: for a huge proportion of consumption, although it's certainly driven
Speaker 11: that up, but rather because of the amount of emulation
Speaker 11: that that's created across the market. So coffee as a
Speaker 11: beverage has become much more popular across the globe.
Speaker 1: It's not just that more of us are spending more
Speaker 1: of our time in our favorite coffee shops. Increasingly, entire
Speaker 1: countries are getting into the game, quickly developing their own
Speaker 1: habits of turning to coffee instead of their traditional beverages.
Speaker 11: So China as a market alone is now probably something
Speaker 11: like in the seventh or sixth in the world in
Speaker 11: terms of volume, and of course the growth across particularly
Speaker 11: Southeast Asia as a whole has really driven the big
Speaker 11: expansion of coffee in the last few years.
Speaker 1: Steven Sutton's job is to meet that demand while strengthening
Speaker 1: the supply chain his New York coffee shops specializing getting
Speaker 1: beans to customers at breakneck speeds. It can take large
Speaker 1: chains up to a year to get coffee from farm
Speaker 1: to cup. Sutton's de Vosion sells beans that have been
Speaker 1: harvested less than a month before hitting shelves. To do that,
Speaker 1: he uses FedEx to overnight the beans straight from Bogata
Speaker 1: to Brooklyn, where he roasts around ten pounds of them
Speaker 1: every week. Within days, they're in cafes, executive dining rooms,
Speaker 1: and high end restaurants like eleven Madison Park.
Speaker 12: We actually opened doors in two thousand and six, and
Speaker 12: the whole idea was to do some different locally in
Speaker 12: Colombia for the farmers and finding absolutely the best coffees
Speaker 12: that were lost at that time because of the internal
Speaker 12: conflict of Colombia. So we decided very early on that
Speaker 12: we were to concentrate our efforts of understanding how to
Speaker 12: go to the farmer, how to say maneuver the territory
Speaker 12: and its difficulties at that time so we can get
Speaker 12: to the farmer pay them actually fair wages, because one
Speaker 12: thing is fair trade and one thing is fair money wages.
Speaker 1: Sun's direct relationship with farmers has been both good practice
Speaker 1: and good business. Better sourcing can mean better coffee, and
Speaker 1: that's been a staple of his success.
Speaker 12: Actually getting the taste that they got at origin, and
Speaker 12: that until now it's pretty much unheard of. So we
Speaker 12: averaged let's call it around fifteen days old coffees before roasting.
Speaker 1: So that sounds remarkable, but also sounds remark expensive. Potentially,
Speaker 1: what's the difference in the price of the fresh coffee,
Speaker 1: the freshly roasted and ground as opposed to things that
Speaker 1: take six months.
Speaker 12: So there's there is a difference, but it's not a
Speaker 12: huge difference. I mean, you're probably going to be paying
Speaker 12: a dollar more for our coffee. If you take out
Speaker 12: a lot of the middle people and a lot of
Speaker 12: the normal process of coffee, you'll end up finding that
Speaker 12: number one, the money can actually go to the farmer.
Speaker 1: Suton says that making sure everyone gets their fair share
Speaker 1: of the pie is one key piece of the puzzle,
Speaker 1: but another is protecting the supply chain. As the rising
Speaker 1: impact of climate change takes a toll on growing conditions.
Speaker 13: The coffee market has been suffering with supply trucks, especially
Speaker 13: giving weather, because of weather problems we had in Brazil.
Speaker 1: Carlos Costa is the chief commercial officer at Hedge Point
Speaker 1: Globe Markets and its spent years analyzing soft commodities like coffee,
Speaker 1: whose futures point to more confidence in the short term
Speaker 1: trade than in the long term investment.
Speaker 14: Cost of production all days in Brazil it's around seven
Speaker 14: hundred has per bag, seven hundred and fifty for Arabica,
Speaker 14: and the price is trading at fourteen hundred fifteen hundred,
Speaker 14: so they are making a quite good amount of profits
Speaker 14: if you compare cost of production and price of selling.
Speaker 14: So farmers are making good money out of that in
Speaker 14: the supply chain. If you see other participants, traders, the
Speaker 14: margin of the trading is not you know, for commodity
Speaker 14: trading is not that much. We're talking about three five
Speaker 14: percent bottom line. But looking ahead and look into the future,
Speaker 14: our sentiment, as is the volatility my continue to stay
Speaker 14: on the high level because of the supply and straints
Speaker 14: we have nowadays and also the lower level of inventories,
Speaker 14: which bring more concerns in the market as well. But
Speaker 14: the main history here is that the world has been
Speaker 14: consuming more coffee year over year, and supplies has not
Speaker 14: been following that growth in the men both because of
Speaker 14: weather situations that affected supplies, but because you also haven't
Speaker 14: saw so much growth in the majority of the origins
Speaker 14: in terms of area.
Speaker 1: Although production has rebounded this year, climate change means supply
Speaker 1: volatility isn't going away and demand will only continue to rise.
Speaker 1: For people like Steven Sutton, who see the whole process
Speaker 1: from start to finish, meeting that demand in the long
Speaker 1: term means investing in the next generation.
Speaker 12: We are very active in doing things for the community
Speaker 12: and the farmer to protect our stakeholders and where we're
Speaker 12: getting our coffee from us we go to a local
Speaker 12: school in Ghaccetta and we are teaching these kits about
Speaker 12: how to do better coffee, how to get better economics.
Speaker 12: We give them tools from a young age not only
Speaker 12: to help them create a business, but also to help us,
Speaker 12: as pretty much all the stakeholders inside of the coffee process,
Speaker 12: to protect where the source is coming from. We like
Speaker 12: to start building something that's more sustainable, and we think
Speaker 12: that not necessarily is what should be done. I think
Speaker 12: it's part of it, but I think it's also part
Speaker 12: of how we farm and how we teach these farmers
Speaker 12: how to protect their farm not only by having coffee
Speaker 12: but other things and protecting their environment. If we can
Speaker 12: do that in a large scale, then I think we
Speaker 12: will have a good future in the coffee world. If
Speaker 12: we can't, then I foreseeing twenty fifty coffee being a
Speaker 12: complete luxury.
Speaker 1: Up next, How artificial intelligence is changing the world of
Speaker 1: art and entertainment, the view from AI and artists themselves.
Speaker 1: Next on Wall Street Week.
Speaker 8: This is Bloomberg Wall Street Week with David Weston from
Speaker 8: Bloomberg Radio.
Speaker 1: This is a story about creativity, something we normally consider
Speaker 1: to be a quintessentially human trait, but something that machines
Speaker 1: increasingly seem to be encroaching on. You really think you
Speaker 1: can just walk away from all this? There's no other choice.
Speaker 11: There's always a choice.
Speaker 12: You just don't like the alternatives.
Speaker 7: What would you have me do?
Speaker 1: This video was made entirely by AI. It was generated
Speaker 1: by Runway, which builds AI tools from multimedia content. Crista
Speaker 1: Baal Bealezuela is the company's founder and CEE.
Speaker 9: You can think of generated AI as a version of CGI.
Speaker 9: It's a better version of the things we've done in
Speaker 9: the past. Imagine a world where you have a system
Speaker 9: that can create imagery on a real time basis. It
Speaker 9: feels like a video game, feels like a movie, but
Speaker 9: you're generating things that you've never seen.
Speaker 1: Before all over the world. Filmmakers, it's frightening on so
Speaker 1: many levels that so many people who will lose their jobs. Musicians,
Speaker 1: the way they are learning and the company is developing,
Speaker 1: it's going to be a threat visual artists.
Speaker 15: Every single professional artist I know has been affected by this,
Speaker 15: and not a good way.
Speaker 1: All worry about what generative AI could mean for their
Speaker 1: creative work, and it turns out that they have good
Speaker 1: reason to worry. A report from January twenty twenty three
Speaker 1: concludes that more than two hundred thousand people in the
Speaker 1: entertainment industry could be adversely affected by AI in twenty
Speaker 1: twenty six, nearly a third of the entire workforce. But
Speaker 1: for those who can use AI, it's already becoming a
Speaker 1: valuable tool in the industry.
Speaker 9: Screenwriters are using Runway, there's a sort of BFx. Artist
Speaker 9: are using Runway, and so every part of the production
Speaker 9: cycle has avenues and spaces where you can augment and
Speaker 9: incorporate it and improve the process using AI.
Speaker 1: Runway is growing fast, training its models to animate and
Speaker 1: alter already existing images in videos, and its adoption in
Speaker 1: the industry is little wonder given what generative AI can
Speaker 1: mean for a company's bottom line.
Speaker 9: So this is your studio, Yes, this is our studio,
Speaker 9: and so today I'm going to show you a with
Speaker 9: creating video that involves no prompts, there's no text, and
Speaker 9: the idea there is that you can take the emotional,
Speaker 9: the expression, the performance of the actor and apply to
Speaker 9: your animated character or live action kind of like element.
Speaker 9: So to me, when I read a few lines, go
Speaker 9: for it.
Speaker 7: No and you're scared.
Speaker 11: Okay, discussed it so discussed like smells really bad.
Speaker 9: So now now what we're going to do is we're
Speaker 9: going to take that performance that Jamie just did and
Speaker 9: we're going to map the un scanned kind of the
Speaker 9: face to translate that set of expressions and emotions you
Speaker 9: just perform for us into an animated character. And that
Speaker 9: happens almost in a roting basis. It's a couple thousand
Speaker 9: dollars for every second of a triple a movie or
Speaker 9: like a good movie. Right, there's a lot of money
Speaker 9: being put into just making a few seconds. The approach
Speaker 9: it takes is like, you can have systems that can
Speaker 9: aid you in creating all of those things in much
Speaker 9: shorter times for a fraction of the cost. And so
Speaker 9: if rendering might take you traditional methods a couple thousand dollars,
Speaker 9: rendering for us is just like less than a dollar.
Speaker 1: To take advantage of that kind of cost savings, Entertainment
Speaker 1: companies are planning to ramp up their use of generative
Speaker 1: AI a lot. A recent survey showed companies plan to
Speaker 1: use AI extensively in the next three years on everything
Speaker 1: from sound design and cinematography to voice acting and writing,
Speaker 1: which may be good for the companies, but isn't so
Speaker 1: good for the creators.
Speaker 15: You know what sucks is like I like these colors,
Speaker 15: and I like the idea, but I would never paint
Speaker 15: it like that. It's so boring. She has absolutely no
Speaker 15: emotion in her face.
Speaker 1: Kelly mcckernin is a classically trained artist in Nashville who
Speaker 1: built a following with a distinctive style of illustration and
Speaker 1: watercolor portraits. But two years ago Kelly started finding images
Speaker 1: on the Internet that looked eerily familiar.
Speaker 15: Summer twenty twenty two was when I first saw some
Speaker 15: images coming out of Dolly and mid Journey and a
Speaker 15: couple of other AI generators. It was very confusing because
Speaker 15: I wanted to know how they did that. At this point,
Speaker 15: there are more images online using my name as a
Speaker 15: prompt than there are actual artworks I've made. So because
Speaker 15: of this, between twenty twenty two and twenty twenty three,
Speaker 15: I saw my income drop by thirty percent. So after
Speaker 15: ten years as a professional artist, I'm no longer able
Speaker 15: to make a full time living off of my work.
Speaker 15: For twenty years, I've had artwork online, and so all
Speaker 15: that art is hoovered up by these companies who believe
Speaker 15: because it's publicly available it's fair use. They should have
Speaker 15: properly licensed these images. We should have been compensated and
Speaker 15: at the very least given our consent, but that didn't happen.
Speaker 1: McKernan has joined with other artists to sue several generitive
Speaker 1: AI firms, including Runway, for claims of copyright violation stemming
Speaker 1: from the company's use of images of their work taken
Speaker 1: from the Internet and used to train AI models entertainment.
Speaker 1: IP lawyer Jennifer Wallace believes McKernan and other creators have
Speaker 1: a strong case.
Speaker 16: If the AI companies want to enter into licenses with
Speaker 16: the companies that own the copyrighted material, they absolutely can
Speaker 16: do that. But that's not what they're doing. And it's
Speaker 16: kind of the model of the tech industry where I'd
Speaker 16: ask for forgiveness, not permission.
Speaker 15: What I was afraid of happening did happen where instead
Speaker 15: of a company reaching out to me, or perhaps a
Speaker 15: small publisher reaching out and wanting to commission me for
Speaker 15: book cover, for example, they could instead save a lot
Speaker 15: of money by just going into one of these programs
Speaker 15: and typing in the image they want and then saying
Speaker 15: in the style of Kelly mcckernan instead of hiring me,
Speaker 15: And this is exactly what started to happen. There were
Speaker 15: well over ten thousand images through the Journey alone by
Speaker 15: the end of twenty twenty two that I could publicly
Speaker 15: search where my name was used to create images.
Speaker 16: So there's three ways that the industry is going about it. Right.
Speaker 16: There's federal legislation that creates a new IP right for
Speaker 16: artificially generated name, image, and likeness. There's licenses. So sag
Speaker 16: Aftra just entered into an agreement with an AI company
Speaker 16: that generates very realistic name, image, and likeness and voice
Speaker 16: replicas of its actors, and it entered into a contract
Speaker 16: that allows the actors to decide if they want to
Speaker 16: allow this company to be able to replicate their voice
Speaker 16: and to set their own prices for it, and then
Speaker 16: you have the litigation that's going through the court systems.
Speaker 1: Valezuela contends that the copyright claim is based on a
Speaker 1: fundamental confusion about how his generative AI models work, a
Speaker 1: confusion indicated by the very word copy right, because he
Speaker 1: says generative AI is not copying, it's learning.
Speaker 9: It's good to remember that these models don't copy data.
Speaker 9: They're not trying to replicate existing data. Like the goal
Speaker 9: for a good model is not to create a scene
Speaker 9: that already aciss there's no point in it. There's no database,
Speaker 9: so you're not pulling from existing scenes. What you're doing
Speaker 9: is you can think about it as a as a student.
Speaker 9: You're showing that student many many different films, and you're
Speaker 9: learning the principles of how a camera moves, what different
Speaker 9: lenses You can use what a performer looks like, and
Speaker 9: then you're asking that model to create new versions of
Speaker 9: what you want. But the things that are creating have
Speaker 9: never been seen before, have never been generated before.
Speaker 7: I'm very skeptical. I could put the history of William
Speaker 7: Randolph Hirst into a large learning model and I wouldn't
Speaker 7: get Citizen.
Speaker 1: Kain, whatever the legal issues involved. Jennathan Taplan says generative
Speaker 1: AI poses a real threat not to the top of
Speaker 1: the creative food chain, but to the vast majority of
Speaker 1: creative artists and writers who make up the core of
Speaker 1: the entertainment industry, people of whom we may never have heard.
Speaker 7: It's not necessarily a real threat to Bob Dylan, but
Speaker 7: it's a real threat to the what I would call
Speaker 7: the working musician who may get one thousand dollars a
Speaker 7: month or a quarter from Spotify.
Speaker 1: In the end, the issues surrounding generative AI and its
Speaker 1: effect on the entertainment industry likely do not come down
Speaker 1: to the law or even the financial consequences for individual artists.
Speaker 1: It's all about creativity and whether generative AI holds out
Speaker 1: the potential for increasing human creativity or drowning it under
Speaker 1: a seat of duplicative content we don't need.
Speaker 9: We've always seen AI as a baseline for a new
Speaker 9: media format, a new way of storytelling, a new set
Speaker 9: of creative an artist. The gold is not technology. We
Speaker 9: don't build models for the sake of building models. But
Speaker 9: it's important to understand that technology serves a human need.
Speaker 9: And if you don't emphasize the human need, then there's
Speaker 9: no goal. And so we've always on emphasize that aspect
Speaker 9: of FAID, and our aspect is to create great storytelling
Speaker 9: tools more than anything else.
Speaker 1: There's little doubt that AI will make storytelling faster, cheaper,
Speaker 1: less labor intensive. But that means it will also cut
Speaker 1: out the need for people to make thousands of small
Speaker 1: decisions like the color of the sky in a movie,
Speaker 1: or the balance between woodwinds and strings and a symphony,
Speaker 1: creative judgments made in nanoseconds by something that's learned from us,
Speaker 1: but that is not us. Will it be as good
Speaker 1: or better than what we humans would have done? Perhaps
Speaker 1: on certainly the AI models would think. So that does
Speaker 1: it for this edition of Bloomberg Wall Street Week. If
Speaker 1: you missed any part of today's program, you can listen
Speaker 1: on demand with our Wall Street Week podcast. Find that
Speaker 1: on Apple, Spotify, or anywhere else you get your podcasts.
Speaker 1: I'm David Weston. Stay with us. Today's top stories and
Speaker 1: global business headlines are coming up right now.