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In last week’s “Disney+ Technology, YouTube Creators, Generative AI Tools & ‘Free Money’”, I originally used a different quote from Kara Swisher’s 2019 interview with IAC Chairman Barry Diller. I switched it out for another quote while editing, and this week it seems more relevant:
“…Amazon’s business model has nothing to do with anything anybody who’s been in the entertainment business has lived with their whole lives, which is, we have one job. We entertain the folks. If they like what we do, they buy a ticket or subscribe to this or get that, and then they get that in a fair exchange for their creative ability being essentially exchanged by somebody who says, “I’ll buy that thing.” Amazon’s model has nothing to do with it.”
Diller’s lament echoes Clayton Christensen’s concept of “jobs to be done”.
“When we buy a product, we essentially ‘hire’ something to get a job done. If it does the job well, when we are confronted with the same job, we hire that same product again. And if the product does a crummy job, we ‘fire’ it and look around for something else we might hire to solve the problem.”
With an Amazon Prime subscription, the “job to be done” is free next-day or two-day delivery and entertainment is a perk. Amazon’s model has since had few imitators.
I wrote last Thursday that there is a market fear—some of which I discussed in “The Media Revolution Will Be Prompted”—that generative AI will soon emerge to do a better job of entertaining consumers than streaming. But, Christensen’s framing suggests that generative artificial intelligence (AI) will disrupt a fair exchange of value for creative ability because it can be hired to do the job human creators do. That is the dynamic we are witnessing play out now.
For these reasons, Diller has been beating the drum for the argument that copyright law and fair use—which under copyright law permits limited portions of a work to be used without a license or compensation—must be redefined. He believes AI companies have “sucked up" all available content on the internet for training their language-based models and that "violates the basis of the copyright law.” His campaign reflects the existential dilemma media conglomerates now face.
Key Takeaway
The unfortunate reality for the market and for shareholders is that, even if media conglomerates have fewer reasons to exist, there are no other entities with the incentives or resources to defend their intellectual property from OpenAI and other AI companies.
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Two Questions
Disney CEO Bob Chapek was keen to replicate Amazon Prime model with Disney+. A few months before his sudden ouster, The Wall Street Journal reported Disney was exploring a membership program that could offer discounts or special perks to encourage customers to spend more on its streaming services, theme parks, resorts and merchandise.
Chapek’s implicit concession to the market was that, on its own, Disney+ was doing “a crummy job” of entertaining consumers and competing with Netflix. Consumers (4%+ per month, 50% per year) were churning out twice as much as Netflix (2% per month, 24% per year), according to Antenna. The platform did not seem not offer a fair exchange of value either for the consumer or Disney's library of intellectual property.
That presents two questions. The obvious question is what the value of creative products from humans will be as use cases like Sora—OpenAI’s video platform—emerge that will enable users to create a video with a text prompt. Jordi Maxim van den Bussche, aka Kwebbelkop, told me that he believes generative AI has an additional advantage over human creators: Once an AI model produces a piece of content, it becomes a given that it will remember how to produce content at that same level of quality. Human creators have proven they cannot do that on their own. But, Samir Chaudry of Colin and Samir told me he was confident that at least on YouTube, the algorithm would continue to recognize and prioritize human-created content over “synthetically generated content”.
If we take van den Bussche's observation to a logical extreme, we enter the more uncomfortable, existential question of what a media company needs to do anymore. In the past, it created value for creative talent (and, as the Curse of the Mogul highlighted, it created more value for creative talent than shareholders). But, in the scenario I imagined last Thursday, the role of a media company when a prompt-to-video platform reaches 149 million subscribers, globally, is less clear.
Diller's campaign positions the role of the media company here as leveraging its scale and resources in the defense of creatives and intellectual property rights holders against the threats of AI. But, the challenge is how long it will be able to do so. The Amazon Prime model may assign marginal value to the creative product as a perk to consumers, and that marginal value may be pennies on the dollar of how theatrical, linear and pay window models valued the content. But, generative AI assigns none.
Elsewhere in the marketplace, streaming models discount the economics of existing libraries. The recurring revenues value TV series and movies at a fraction of what past pay windows did (as investors of Paramount Global are learning). After the Hollywood strikes, Nielsen data suggests that it is rare for a streaming TV series or movie to reach the bar for cast and crew to receive residuals.
As I argued last August in "Fare Thee Well, Media Conglomerate": "If the legacy cable media conglomerate cannot figure out how to allocate resources to delight consumers across its own ecosystem, and therefore create shareholder value, why should any of their individual subsidiaries/pieces of the business exist within or without the conglomerate?"
It seems inevitable that generative AI prompt-to-video platforms will solve the job of entertaining consumers better than old movies and TV series, though likely not 100% of the time. As we continue to see in Nielsen's The Gauge, if streaming's past is precedent, it will be enough to disrupt engagement with other traditional media distribution channels . Shareholders and creators will not stick around for media companies to play the role of a self-funded defense counsel as revenues dwindle from ill-conceived and ill-executed bets on streaming. Neither is the best allocation of shareholder value.
The unfortunate reality for the market and for shareholders is that there are no other entities with the incentives or resources to defend their intellectual property from the loophole OpenAI has exploited. Media conglomerates still play an important role, for now.