[Author's Note: My latest Medium Shift column went live on Monday. In “Giving Fans AI to Riff on Popular Shows”, I wrote about Showrunner from Fable Simulation, a platform that can write, voice and animate episodes of shows. The simple way to understand it: Imagine a fan of “The Simpsons” making episodes about characters such as the bartender Mo or the convenience store owner Apu.
I interviewed its founder, Edward Saatchi, and discussed his predictions for the decentralized AI future coming to Hollywood and gaming.]
Generative artificial intelligence (AI) and other technologies (gaming, blockchain, creator economy platforms) increasingly offer faster, cheaper and sometimes better storytelling models than traditional media business models like books, movies and television shows. All have yet to prove that they are better business models than legacy media.
The media conglomerate paradigm centralized book publishers, linear cable channels, production studios, merchandise and—in the cases of NBCUniversal and Disney—theme parks. A single piece of IP—Harry Potter, Star Wars, Stephen King novels—could be monetized across multiple distribution channels at minimal marginal cost. Public markets have valued those businesses in the tens and hundreds of billions of dollars.
But, they also are all slow-moving storytelling models. For example, Fable Simulation’s Edward Saatchi described the show “House of the Dragon” from premium cable channel HBO as the equivalent of “an eight hour movie release every two years.” It is based on “A Song of Fire & Ice” novels from George R.R. Martin, who last completed his fifth novel in the series in 2011. Fans are still waiting on the next one.
At Disney, it can take over four years between an announcement of a new theme park experience and the actual launch.
By comparison, "back to the people" models are exponentially faster. Generative AI models like Fable’s Showrunner—a platform that can write, voice and animate episodes of shows—and OpenAI’s Sora instantly can produce video content based on text prompts. Creators offer a mix of real-time and produced content across social video platforms, though YouTube creators fare best with weekly produced content. Games offer real-time story engagement and "memecoins" can emerge and change value in the blink of an eye.
How will public and private markets all this newfound storytelling efficiency for fans and superfans, if at all?
Key Takeaway
Complicated supply chains and expensive budgets for television and movie productions move too slowly for fans paying monthly subscription fees. Netflix generative AI and other "back to the people" models are increasingly delivering faster, cheaper storytelling at the intersection of gaming and video.
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Premium Content’s Demise
The obvious argument behind Saatchi’s “House of Dragons” example is that fans are under-served by the infrequency of television and movie productions. The implicit, more important argument is that complicated supply chains and expensive budgets for television and movie productions move too for slowly fans paying a monthly subscription fee.
For example, in Disney’s model, expensive budgets produce blockbuster movies with characters that may be monetized across multiple pay windows and its famous “flywheel” model (e.g., theme parks, linear, streaming, merchandise and licensing).
But, recently Disney has had expensive misses that fail to drive that flywheel. The recently cancelled Star Wars show “The Acolyte” was produced for $180 million. It drew a passionate following but did not draw a large enough audience and lost viewers during its season. Merchandise is now being pulled from Disney stores in real time.
“Star Wars” fans will have to wait for the next installment of the Star Wars mythology. There seems to be nothing in the pipeline until 2026 (“The Mandalorian & Grogu” movie release date). This is both time and economically inefficient for Disney shareholders. It is also punitive for the value of the Star Wars IP, which has generated $12 billion in value for Disney since Lucasfilm was acquired in 2012 and now seems creatively adrift.
Netflix’s Solution
Netflix’s mobile games initiative is one solution to this problem. Co-CEO Ted Sarandos told investors on the recent earnings call that the objective is giving “the superfan a place to be in between seasons [of a show], and to be able to use the game platform to introduce new characters and new storylines or new plot twist events."
In other words, the traditional production model is a similar pain point for consumers, creative teams and Netflix that mobile games can address. It has just announced that the mobile game “Squid Game: Unleashed” will be available to “play soon” on Netflix. That should be a few months before the release of the second season.
Sarandos seems to be conceding that the legacy media storytelling model is inefficient even for Netflix. Its popular series “Stranger Things” has released new seasons every two to three years. The next installment of its surprise international hit “Squid Game” is scheduled for release this December, almost three years after the first season.
If mobile games technology enables Netflix to push the story forward and monetize the IP in the years between TV seasons, then why not do so?
This is not a new approach. Disney's Star Wars franchise has long pushed and expanded its mythology forward between movies across books, animated series and games (in a licensing partnership with EA), too. All took years to develop (major video games or "AAA" can take as many as seven years to develop) But, Netflix’s mobile games-focused model is faster (two to four months development), cheaper (low to mid six figures) and possibly better (a question only consumers can answer).
Also, Disney has multiple streaming back-ends (Hulu, BAMTech), and Netflix has a robust technological back-end that has enabled it to integrate games seamlessly into the app’s user interface and the consumer’s subscription (the games are free for subscribers). It is worth noting that unlike Netflix, Disney’s executive teams are “ill-suited” to build and run gaming businesses because they are neither digital natives nor gamers.
The Need for Speed
The logical extreme of Sarandos' sales pitch is that valuable IP needs only cheap games and streaming video to succeed and scale as time and cost efficiency begin to outweigh the blockbuster model of the past. There are other businesses—”Stranger Things” has a show on London’s West End and an “immersive experience” in New York, NY, Atlanta, GA and Los Angeles, CA—but games and video are on-platform for Netflix for over 270 million monthly subscribers.
Showrunner sits at a further extreme than Netflix because it instantly produces original IP faster, cheaper and at a reasonably good quality. It has gone down the proverbial rabbit hole at the intersection of games and video storytelling while Netflix is still in “crawl walk run” mode.
If thousands of creators will be able to compete on Showrunner to be the most profitable with third-party IP—as Saatchi predicts—then Netflix soon will have two problems on its hands:
Competition for attention from Showrunner for fans of IP and animation (which is already a challenge it lists in its letters to shareholders), and
A faster business model that is still too slow to compete for fans’ needs being increasingly met by Showrunner, Galatea and other “back to the people” models.
How to value?
For now, Netflix is fine. It has almost 2x the market capitalization of Disney now ($298B to $165B), despite Disney’s Experiences division, alone, having similar revenues ($32.6 billion to Netflix's $33.7 billion) and 1.3x the operating income of Netflix’s entire operating income ($6.95 billion) in 2023. Netflix’s stock is up 8% since its Q2 2024 earnings call and Disney’s is down 6.5%. . Netflix’s stock is up 8% since its Q2 2024 earnings call and Disney’s is down 6.5%.
The market seems to value Netflix’s story of continued growth, low churn and dominance of its legacy media competition. Its forward-looking P/E ratio of 37.2 suggests investors do not yet see any vulnerability to faster and cheaper models like Showrunner or Sora. Sarandos told investors on the call that there is "a better business and a bigger business in making content 10% better [with generative AI] than it is making it 50% cheaper."
As for Fable Simulation or Sora, we do not yet know how private investors value them (OpenAI is valued at $80 billion). But, one market signal is that private investors value a company called Inkitt—with a Showrunner-like, text-based platform focused on books called Galatea—at around $400 million.
The reality is that the future is here, but all this newfound efficiency is hard to value. The question is when, and not if, that may change. Saatchi's prediction is that a major media company will take the plunge with generative AI within two years. That may be our best benchmark, for now.