Despite fears of a possible bubble bursting, artificial intelligence (AI) is a technology that increasingly looks like it's not going away. There are already businesses winning the AI race, whether they make hardware, operate cloud platforms, or run the large language models that have become so popular among consumers.
But other industries are starting to embrace AI instead of fighting it, showcasing how seriously executive teams are taking this new technology to bolster their competitive positions.
In fact, a prominent streaming giant just decided to partner with a top AI company in a move that could impact the media and entertainment sector. Investors should take notice.
Image source: Walt Disney.
The House of Mouse is leaning into AI
It was announced on Dec. 11 that Walt Disney (DIS 0.67%) entered a three-year partnership with OpenAI, licensing more than 200 characters (including Mickey Mouse, characters from Inside Out and Frozen, and Marvel superheroes) for photo generation on ChatGPT and video generation on Sora by those apps' user bases. Disney can show these user-generated videos on Disney+, its streaming platform.
What's more, Disney will invest $1 billion in OpenAI. And it will become a customer, integrating OpenAI's technology across its organization in various ways for its employees and to help create new products for customers.
This is clear evidence that Disney is leaning into AI, at a time when those in Hollywood worry about the tech's impact on content creation.
"Disney and OpenAI affirm a shared commitment to responsible use of AI that protects the safety of users and the rights of creators," the press release reads.
This is an encouraging statement for those in the industry, but it will be interesting to see how much appetite there is for watching AI-created videos from viewers.
Disney benefits because it can potentially earn incremental revenue by leveraging its intellectual property in this new way. While it's not known if the business will make money from its characters' use on ChatGPT or Sora prompts, it can drive more engagement on Disney+ if this type of short-form content catches on. Disney could better compete with Meta Platforms' Reels on Facebook and Instagram and Alphabet's YouTube Shorts. There is intense competition for attention.
And it gives Disney a first-mover advantage. Perhaps if AI-generated videos go viral, investors could see similar moves by Netflix, for example.
One obvious critique of this decision might be that Disney is selling out and diluting the value of its intellectual property, making its famous characters available to the masses. With ChatGPT counting 800 million weekly users (as of early November), however, this is a good example of a media and entertainment powerhouse attempting to stay ahead of the curve.
NYSE: DIS
Key Data Points
Investors can find value in the streaming market
This partnership highlights just how valuable Disney's intellectual property is. With characters, storylines, and franchises that span Disney, Pixar, Marvel, and Lucasfilm, no company can go toe-to-toe with this depth and breadth of content. It makes sense that OpenAI would want to sign a deal with an industry leader. This also suggests there has been significant demand from ChatGPT and Sora users to be more creative and work with Disney characters rather than other studios' intellectual property.
From an investment point of view, those looking to put capital to work in the streaming industry might want to consider Disney. It has become a leader in the streaming wars, with Disney+, Hulu, and ESPN providing a full range of content for an entire household. And its experiences segment is extremely profitable.
Shares currently trade at a forward price-to-earnings ratio of 16.8. It's difficult to find value like this in the stock market these days.
