On Tuesday, Meta announced “updates to our video ecosystem, creator content and suite of generative AI ad creative tools” at Advertising Week. It shared that in the last month, more than 1 million advertisers and 15 million ads were created with its generative AI ad tools. It also shared that ad campaigns using Meta’s generative AI ad features resulted in a 7.6% higher conversion rate.
C-suite executives at media conglomerates face the growing question of where to invest if they cannot build the internet architecture to monetize their intellectual property (IP). As generative AI use cases grow—especially within Meta’s extraordinary global scale (3.27 billion daily active people engaging on Meta apps)—these models will become more appealing investment opportunites.
Edward Saatchi—the founder of the generative AI platform Showrunner who I interviewed in August—believes at least one Hollywood studio will “take the plunge” on licensing its IP to a generative AI platform within two years and “massively profit” from the bet.
Showrunner and Meta are not mutually exclusive choices for investment. I argued on Monday that “hundreds of millions” of small businesses using generative AI tools on Meta may be better partners for legacy media IP holders than millions of professional amateur creators using the same tools on Meta. But, smaller, more fandom-focused models like Showrunner present a safer choice at a smaller scale.
Media conglomerates facing growing financial and strategic need to do something before generative AI further erodes the value of their IP. But, how should they think about these opportunities?
Key Takeaway
If small businesses can afford to re-imagine the value of old IP better than a studio can, why not let them—and Meta—deliver and participate in the upside?
Total words: 1,300
Total time reading: 5 minutes
The Rationale for Licensing IP
Generative AI is one of four broad buckets of “back to the people” models where studios are likely to license IP to professional amateur content creators:
“As revenues and profits decline, so will the resources to defend large libraries of IP. Lawsuits may not make or break a media conglomerate’s future. However, a media conglomerate that is increasingly resource-constrained may be better off licensing IP for short-term revenue rather than devoting increasingly precious capital to long-term copyright litigation. The permutations of those four ‘back to the people’ models risk death by 1,000 paper cuts, something analogous to what the music industry went through in the early 00s when Napster and other MP3-hosting platforms emerged.”
In music licensing deals with Meta (and TikTok and YouTube), record labels, artists and songwriters each receive a slice of advertising revenue from uses of licensed music on posts. However, these use cases are limited to “personal, non-commercial use”. Advertising revenues are dictated by the pricing of ad impressions that Meta delivers with that content.
Meta does not grant access to the music in its licensed library to “certain business accounts and certain types of posts” to “make sure that the music in our licensed library is not used for commercial purposes.” Meta adds that “Licensed music may also not be available in certain countries or regions.”
Small Businesses
Monday’s essay argued that “hundreds of millions” of small businesses using generative AI tools on Meta offer studios both extraordinary global scale and direct-to-consumer products and/or services revenues. The music industry precedent suggests the opportunity for licensed IP in small business ads is possible but not straightforward.
The opportunities for studios to license content to these small businesses on Meta could be lucrative. The return on investment for small-business marketers within the Meta ecosystem is more sophisticated (e.g., customer lifetime value, customer acquisition cost) than the returns from business models of professional amateurs, who monetize their audiences primarily via advertising impressions.
I also noted the precedent of the early years of radio and television broadcasts, which relied on sponsors to finance shows to reach millions of people. Small businesses on Meta could "sponsor" popular IP by producing AI-generated content from studios but not with the “show” as a vehicle.
Vs. Fandom
Saatchi’s vision for Showrunner is more straightforward. Superfans can create more than 1,000 shows with licensed IP like the Apu and Mo characters from “The Simpsons”. He imagines they will furiously compete for attention over which shows are most popular because they will be compensated.
Those creators will be incentivized to create with a portion of Showrunner’s subscription fees. Creators will be paid based on how many shows they make and how many people watch. Studios will be paid a licensing fee similar to the one studios earn from Netflix or labels earn from platforms like Meta or Spotify.
Fandom may be given the freedom of creation with generative AI tools and also constrained by hard parameters (e.g., limit users’ stories to “safe” topics and protect the studios’ characters from sexual and violent content). In return, studios can financially benefit from the creative imaginations of fans using Showrunner.
The Conglomerates’ Decision Tree
Meta CEO Mark Zuckerberg believes that “individual creators or publishers tend to overestimate the value of their specific content in the grand scheme” of Meta's artificial intelligence (AI) language learning model (LLAMA). He also belives the “quality” of legacy media content is not valuable to LLMs or LLAMA except when “content is really important and valuable.”
Both conglomerates and creators disagree with this perspective and herein lies the dilemma for partnering with Meta.
If they believe their IP libraries are still valuable, there will be no strategic rationale or incentive to partner with Meta. In both content distribution and advertising, valuable IP in the hands of professional amateur creators or small businesses creates risks of brand dilution or damage. This will be true even if older IP has been underutilized or forgotten by audiences in the streaming era.
But, if they agree with Showrunner’s assumption that the only “really important and valuable” IP is for fans, there still will be no strategic reason or incentive to partner with Meta. Why let a technology conglomerate with 3.27 billion global users train its AI models on valuable IP with inelastic fan demand? That reads like existential suicide for both conglomerates and creators.
Instead, media conglomerate executives may focus on the long-term financial and equity returns from a platform like Showrunner than the short-term immediate financial returns from partnering with Meta. Disney’s recent partnership and $1.5 billion equity stake in Epic Games—where Disney will be licensing its IP to Epic—is relevant precedent here.
The deal enables users to play with Disney characters in ways that Disney creatives likely would not. Disney will capture the upside via both licensing revenues and capital gains.
In short, Fable Simulation is a growth opportunity that requires third-party capital and IP, whereas Meta does not.
Meta Is Still A White Knight
Meta’s generative AI tools may still be a white knight offering for conglomerates.
I previously argued in “Back To The Future Of Pre-Paramount Decrees Studio Distribution” that the next generation of consumers “value the user experience (UX) as much as the content, enough to prefer free services to paid services with historically popular IP.” The growing popularity of FASTs seems to have catalyzed a decline in the value of IP libraries.
The lucrative returns of the syndication model are being replaced with the far-less-lucrative advertising revenue shares from programmatic advertising. Also, fewer audiences are paying to watch older library content, thereby reducing the pool of revenues from subscription models.
In this light, Meta’s generative AI tools create new opportunities for scale, relevance and (most importantly) revenue for this IP. Meta’s $132.95 billion in advertising revenues in 2023— “substantially all” of which comes from Facebook and Instagram—is nothing to sniff at. Nor is the opportunity for conglomerates to barter IP in exchange for a share of that pie.
These conglomerates need new sources of revenue and soon. As I wrote on Monday, “Zuckerberg is implicitly offering them a lifeline.” If small businesses can afford to re-imagine the value of old IP better than a studio can, why not let them—and Meta—deliver and participate in the upside?