Two AI-related stories have generated buzz over the last two weeks. The first was the release of “Where the Robots Grow”, the first feature-length fully animated movie made entirely with artificial intelligence (AI) tools. The film was produced by Tom Paton’s AiMation Studios, cost just $8,000 per minute, and was made with a team of nine people.
According to Forbes, low-budget television animation sourced from overseas studios costs between $10,000 and $20,000 a minute and “isn’t anywhere near the quality of Where the Robots Grow”.
The second was a report from The Wrap that Disney is “poised to announce a major AI initiative that will transform its creative output”. The much-discussed question is whether Disney plans to leverage AI technology to create cost-efficiencies in all aspects of production similar to how AiMation Studios did.
The leak seems intentional: For Wall Street, any story involving technology driving cost efficiencies at scale signals that healthier and higher profit margins are on the way.
The Wrap reported that Disney’s AI initiative will also include Parks and Experiences, which was over 70% of operating income in 2023 but 52% of operating income in Q3 2024. More cash flow is good news for investors, especially those with a watchful eye on stock price (still below its 2024 peak of $120), $39 billion in long-term debt and quarterly dividends.
From a supply-side lens, happy, cash-flow-positive days may be here again. But, will consumers love the outcomes of these efficiencies as much as Wall Street investors and Disney executives imagine they will?
Both Wall Street’s and Disney’s past misread of streaming—and recent The Medium essays on the platform Showrunner and Meta’s generative AI—help to explain why consumers may not.
Key Takeaway
Newfound efficiencies in production models will matter less if consumers increasingly prefer the IP in different formats than media conglomerates like Disney and Lionsgate are willing and able to deliver.
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The Streaming Precedent
In financial terms, streaming’s precedent is an apples-to-oranges comparison: AI promises to improve cash flow with reduced costs. But, media conglomerates like Disney and Warner Bros. Discovery sought to win in streaming by boosting capital expenditures, content spending and interest payments (due to zero-interest-rate-policy-funded debt loads).
They also sold Wall Street a sophisticated story of economic efficiency. “Walled garden” models assumed massive libraries of owned and original intellectual property (IP) competitive advantages would attract audiences at an extraordinary global scale. Audiences seemed to need these services: Netflix had built its streaming business off of media conglomerates’ most valuable IP, so the conglomerates could, too.
Pay windows would disappear with linear in decline and Netflix cut off from valuable IP. Media conglomerates could recapture licensing revenues they had shared with third parties in pay windows by leveraging hundreds of millions of monthly paying subscribers.
Investors and executives believed that at least four services would win and one would reach one billion subscribers. The collective global scale of these four services would more than make up for the lost revenues.
Instead, this strategy resulted in what I labeled “The Doom Loop of the Mogul” and “The Big IP Doom Loop”: The “walled garden” model of the media conglomerate model drove outcomes that killed both the value of library IP and owned-and-operated streaming services.
We may soon see a glut of AI-generated, low-budget movies and TV shows from Disney, Lionsgate and others. But, we have no indication yet if this content is what consumers need.
Also, if streaming's past is precedent, Wall Street’s and Disney’s enthusiasm for cost-efficiencies-with-AI story will be short-sighted. Both Wall Street and media executives did not understand streaming technology—in particular, that Netflix was primarily a personalized recommendation platform focused on TV shows and movies—and therefore underestimated the complexity of the business model. They also overestimated consumer demand.
Showrunner
Generative AI platform Showrunner—which I wrote about in August—and other generative AI startups are platforms target fans' inelastic demand for their favorite IP. Technology is fragmenting the books, movies and TV shows of famous IP into value propositions where the “beloved characters and worlds” are front and center.
The startups envision generative AI putting storytelling in the hands of consumers who will pay a platform to use elements of TV shows or movies to create and tell their own stories. Those stories will be built around the text parameters they enter (e.g., world, character, genre, mood).
Content creation and viewing can exponentially grow within a platform that includes the interactive and competitive dynamics of gaming, too. Showrunner founder Edward Saatchi envisions superfans creating more than 1,000 shows with their favorite characters and furiously competing over which shows are most popular.
From the supply-side lens, this is both worrying and compelling. It is worrying the sense that the “TV show” can be so easily reimagined and redefined by generative AI into a widget. Effectively, consumers will be reallocating their budgets to an AI service that they could have paid for a monthly streaming subscription or to a creator.
But, as I wrote in August, it is also compelling: “Whether or not generative AI has a viable future for media businesses, emerging business models like [Showrunner] are further innovating the payment mechanisms for consumers to compensate creators and IP holders.” In other words, these models offer both cost-efficient content creation and monetization at scale for libraries of IP that are increasingly being under-monetized within media conglomerates.
I also noted that in these models, “The media conglomerate has no purpose within the Showrunner product except to receive checks from ‘makes’ and ‘views’ of its licensed IP.” The implication is that Disney’s and other media conglomerates’ pursuits of production cost-efficiencies through generative AI—the Lionsgate-Runway partnership is another example—may produce existential questions for their corporate business models, too.
Meta, YouTube & The New Business of Living Room Content
I have argued recently that YouTube creators are proving that “there are more efficient models than traditional theatrical and television production models that can entertain audiences, at scale, in their living rooms.”
I added: that“the more YouTube competes with Netflix on television screens worldwide, the more YouTube is proving that consumers' 'choice and control' over the medium of the internet means fans are the producers of the content they want to watch.” A “new business of living room content” is emerging.
Amazon is disrupting Netflix's model, too—in July, Prime Video suddenly emerged as a new competitor, at scale, to Netflix’s advertising ambitions—and Silicon Valley technology is disrupting the supply side. In response, consumer demand is evolving away from legacy media content.
Streaming services delivering legacy media content are not yet obsolete: Recent data from research firm Antenna showed that streaming services tailored to specific interests grew 26.9% year-over-year in 2023, compared to premium services’ growth of 17% year-over-year.
But, that data came with two worrying caveats: First, across 25 specialty streaming services, Amazon’s Prime Video Channels controls 58% of subscriptions. Second, specialty streaming services experience higher churn rates than premium streaming services. The success of specialty streaming has come with the costs of consumers valuing their content less and Amazon owning these customers.
Meanwhile, Meta CEO Mark Zuckerberg is arguing publicly that “individual creators or publishers tend to overestimate the value of their specific content in the grand scheme of [generative AI].” Only certain premium content from books, TV and movies will be “really important and valuable” and result in partnerships. The rest is TBD because the legal concepts behind fair use are “going to need to get relitigated and rediscussed in the AI era”.
In sum, the supply side story from YouTube, Amazon and Meta is nasty, brutish and short: Conglomerates’ IP has less value—and often zero value—in the medium of the internet.
The Demand-Side Matters, Too
Both the Disney story and the excitement for “Where the Robots Grow” are evidence that neither Wall Street nor media conglomerate executives have learned the lessons of the streaming era. They also seem to fail to understand the emerging “new business of living room” and its adjacent trends.
Conglomerates seem too focused on the cost-efficiencies created by generative AI, and not enough on how consumer demand is evolving away from traditional TV shows, movies and even console games. Newfound efficiencies in production models will matter less if consumers increasingly prefer their favorite IP in different formats than conglomerates are willing and able to deliver.