Why Iger Gave OpenAI the Keys to Disney’s Vault

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1:07The critically acclaimed series explores the undeniable chemistry, whirlwind courtship, and high-profile marriage of one of the most iconic couples of the 20th century. with Sarah Pidgeon and Paul Anthony Kelly leading a cast, including Naomi Watts, Constance Zimmer, Alessandro Nivola, and Grace Gummer. Called A Stunning Portrait of Love by Variety, Love Story is Emmy eligible in all limited series categories. Now streaming on Hulu and Hulu on Disney Plus for bundle subscribers. It is Monday, December 15th. Many in Hollywood, including me on this very show, went pretty nuts this past summer when OpenAI introduced Sora 2, its new AI text-to-video tool.

1:51There were almost no copyright guardrails. People could use the intellectual property freely. I made a couple of creepy videos with Wednesday Adam and Peter Griffin from Family Guy. Sam Altman, the OpenAI CEO, first announced that copyright owners were gonna have to opt out of Sora 2 individually. A huge middle finger. But after the freak out, he changed that to opt in and the characters mostly disappeared from Sora, as did the users. Against that backdrop, it was pretty shocking to see the announcement last week that Disney, the leader of the Hollywood studios, home to thousands of copyrighted characters, is now jumping into bed with OpenAI, investing a billion dollars in the company and signing a three-year deal to allow more than 200 characters to be added to the AI platform for use by fans.

2:34That means Craig can finally make some sexy Little Mermaid videos or make a Yoda-fighting Buzz Lightyear-to-the-death video. There's some caveats, of course. No voices or human faces. so they hope to avoid image and likeness issues, though the guilds are rightly suspicious. And they say that guardrails are in place to protect against copyright abuses or the misuse of characters. Not sure how that's going to work, if it's okay for Homer Simpson to give a Hitler speech or those sexy videos of The Little Mermaid. Disney also hasn't said what OpenAI is paying to license these characters. Some reports suggest it's not very much, given how much this deal legitimizes Sora and potentially will lead to other deals with big copyright holders.

3:14There was lots of language about Disney and OpenAI, quote, affirming a shared commitment to the responsible use of AI that protects user safety and the rights of creators. Disney also agreed to become a big customer of OpenAI for all its internal systems. A huge win for Sam Altman and OpenAI. Big middle finger to Google, which Disney would very much like to protect its copyrighted materials as well. So the big question is, why did Disney and its CEO, Bob Iger, do this? Is Disney so desperate to jump on the AI bandwagon that it would take this kind of brand risk with its most valuable characters?

3:50Is this a play for Disney Plus to eventually become a much more interactive platform? And what could ultimately go wrong there? We've got Lucas Shaw from Bloomberg back here to discuss. We'll do a little update on the Warner Brothers sales situation, but mostly it's Disney and open AI. What the heck is Iger thinking? From The Ringer and Puck, I'm Matt Bellany and this is The Town.

4:14We are here with Lucas Shaw from Bloomberg. Welcome back, Lucas. Happy Monday. We are talking about maybe the deal of the year. Certainly one of the more surprising deals on its surface. But once you start to think about it, don't think it's that surprising. Disney, OpenAI. The details, I think, are a little bit intriguing here because obviously you wouldn't expect Disney to be putting money into OpenAI. You'd expect the money to be flowing the other way, which it is in some ways. But a lot of stuff that OpenAI is getting here in this Sora deal. Why did Disney do this? Sora was kind of dying. Downloads had cratered.

4:55Didn't seem like anyone was talking about it. I mean, we'll see if this helps. Supercharge it. But this company is threatening to Disney in so many ways. Why did Iger do this? Their dying probably created an opportunity. I think if you look at it from Disney's point of view, you are sitting here and saying, okay, gender of AI video is probably going to become a thing. We want to be ahead of it. Like you can either believe that you can just stop it, right? By saying it won't matter if it doesn't have Disney characters, which I don't think is true. Yeah. The Viacom 2006 strategy for YouTube. It won't matter.

5:32Hollywood can just try to shut everything down and like starve it of our stuff. or we can try to do a deal that accomplishes enough of our objectives, which is we get some equity in the company, which is sort of a must so that you can benefit if it goes public and you make a bunch of money from that. Minimal though. A billion dollars when a company is valued with their value, that's not great. Minimal. You get some protections. I will leave it to the kind of experts to determine how real those protections are. You get the little meat wave to investors to say we're going to put some AI video in our app, which is going to be totally pointless and not mean anything.

6:07Oh, you think so? We'll get to that. We'll get to that. To what they did after it, if you are worried about Google, you pick off the player that needs you. OpenAI needs you more than Google. So you can get a better deal with them. You're Disney. You have the most power and influence of any entertainment company to do a deal with one of these AI companies. And you pick the one that needs you more because OpenAI needs you more than Google does. Google's a colossus. They have more leverage on you. And so you try to forge the best deal you can possibly get that you feel good about and hope that that becomes something of a template for the industry.

6:43Now, whether you think this is, in fact, the best deal, that I'm going to leave to the experts. But I think that was the Disney thinking. Well, we can have opinions, but I agree with you. The ultimate play here is Google. Like my colleague, Julie Alexander, wrote, like all other media publishers, this is a long play to make Google pay. And it's not a coincidence that they sent the cease and desist letter the same day they announced this deal. They want the message to Google to be pretty clear. We are down to do deals on this. If you are going to come to the table. And we'll work with the company that's threatening search, that is your competitor in AI video.

7:21We will partner with them if you don't give us what we want. And Google took down a bunch of Disney videos in response to this. did not necessarily come to the table that we know of. Maybe they're negotiating behind the scenes. Maybe they've been negotiating all summer and fall behind the scenes and couldn't come to a deal. We don't know that. But the better question to ask when you look at this deal is, what if they didn't do it? How does this technology and content play evolve if Disney is not at the table? Now they're at the table. Well, it just means that these companies would continue to develop the products in isolation.

7:58and to your point about like google took some stuff down do you believe that let's say sora becomes popular again right or really does become a a big app do you think that there would be just no disney material there at all that they would they would be whackable they would have to police it if they didn't have a deal with disney stuff would proliferate and like they'd claim to be doing their best but they'd say you know you know what would make us really do our best if you did to deal with us because otherwise we can only do so much. I mean, Craig would be on there all day long posting sexy little mermaid videos and they would try to get them removed one by one.

8:35And he would just post more like that's what would happen. And they know that they would eventually come to some kind of a deal like everybody did with YouTube. And it would just be three, four years down the line if they were to sue or even if they just let it go on its own, they would have less leverage than they do now. Right. I do think that they felt like they had good leverage at this moment, given that Sora had dipped a little bit. OpenAI probably worried about Google. Disney had already sued a couple of other companies, so they'd proven that they were willing to fight if they really wanted to.

9:10Did you see the sort of, there was like the initial flurry of attention around Sora, and then, to your point, it seemed to recede. Do you feel like that is temporary? or do you feel like this app is going to come back in a real way? Well, not now. I mean, the second that the Disney characters are available, there will be a surge of interest, I think, because there will be a novelty. Whether that translates into long-term growth or a reverse of the trajectory, typically apps, when they decline in usage, they don't recover. It's like, oh, we check it out, we don't like it, and people move on. But I do think that the trajectory was really kneecapped when people went to Sora, saw that there were no copyrighted characters there, and then got bored.

9:56So now they're going to have the opportunity to see Darth Vader, Yoda, all of them on the app. And I think this is going to open the door to other content owners for doing deals. I mean, we're going to see, and one of my predictions for next year is we will see multiple media companies do these kinds of Sora deals, saying, where's my Sora money? Right. And we don't know how much money that is. I mean, the licensing, there was a report from the information that said that they were getting essentially equity or opportunities to buy more stock for the license agreement. I don't know if that's true.

10:29If that's the case and they're not getting actual payments, that's a very big deal and would not be great for Disney. But they're getting something in return for this. And there's probably a usage payment, meaning if this goes crazy and it becomes the biggest thing on the Internet, they will make more money. It's only a three-year deal, so they can renegotiate it if it's huge. There are some protections there. Right. Although, in terms of the three-year deal, once you've approved the usage and creation, the odds of you taking it down are pretty low. Yeah, that's true. One of the things about this deal is that it provides for a curated selection of AI-generated videos to be ingested into Disney Plus and available to users of Disney Plus.

11:17And I took this as the first step toward Disney offering some kind of AI generation tool on Disney Plus. So you go there to watch The Simpsons. And then when you're done watching The Simpsons, you can make Homer send your buddy a birthday greeting or things like that. that's pretty valuable if they can do that right because disney has largely been an also ran in the user-generated content world and these things are out there so does this now mean that disney is a player in the ugc race i think it's gimmicky and it doesn't really matter really i don't know man if there's like a couple hundred cool disney generated character videos on disney plus and you can click on it and have it play like YouTube, my kid would watch that.

12:06I just think for that type of video, people are going to be going elsewhere, not to Disney+. True, but maybe if it's perceived as the best of the best. If AI video takes off in a huge way, whether it's with Sora or Veo or one of the others, I think that's where people will consume it. And the folks who want to create stuff will go to the apps that are best at creation, which Disney Plus is not going to be. But it's early, maybe someday. They will go to the apps that promise the biggest audience, which Disney Plus is not at the moment, and probably will not for that type of thing going forward.

12:42And so I think it's a nice little thing to keep people engaged. And it's a fun, it is like a fan service, whatever. But I don't think it's a huge needle mover. And I don't think Disney Plus is suddenly going to become a haven for UGC because that would be a total legal nightmare for a company that is as risk-averse as Disney. It's true. Although the curated aspect of it is interesting. If the goal of Disney plus is to be premium and franchise driven, you know, you can go and find a lot of clips of Taylor Swift on the internet and her performance and even some backstage stuff. You cannot see the curated docu series about Taylor Swift anywhere other than Disney plus.

13:16And maybe if once a week, the 50 best Disney UGC videos are available in a quote unquote show on Disney plus kids would go there to watch the most fun and cool things that Homer and Peter Griffin and Yoda are doing that are made by other Disney fans. It's more like a play for community. Like the Disney community is sending up these videos and we are displaying them for the Disney Plus community to enjoy. And it's better than or considered more premium than what's out there. It'd be like if they curated their favorite YouTube videos and people would still just go watch the videos on YouTube instead of on Disney Plus.

13:59They would, but YouTube is more ubiquitous. I'm not letting my kid download Sora. That's for sure. But Disney's got to do something. They have the most engaged fan community in the world. And yet they don't do much on their own app to engage that fan community. They started to put park stuff and they started to do a little shopping and maybe they'll get into connectivity. But like, I hate to use the word metaverse, but like, where is the metaverse version of Disney Plus? The interactive social community that people who love Disney congregate around, like they need Disney Plus to be that. And maybe this is the this is a key step towards that.

14:41Yeah, this, the partnership with Epic Games, which is the publisher of Fortnite, they've got some of these smaller partnerships that have yet to yield anything material. They haven't even really figured out how to integrate the parks with the streaming business and create a membership program. It is insane. There is no connection between Disney Plus and the parks. I was at Disneyland last weekend, and there's no benefit. If you're a Disney Plus subscriber, you should get a discount on snacks. Yeah, a discount at the store or something. if the AMC movie theater chain can figure out a member program that people are excited about how dare you criticize my friend Adam Aaron I'm not criticizing people who are AMC Stubbs members are proud AMC Stubbs members that should be easily replicable on a much bigger scale for Disney it's the coolest membership program in Los Angeles according to the Wall Street Journal yeah hey my fiance is a member and you better believe that she's proud when she can go in the shorter line to get a Diet Coke and popcorn they have hats They have hats.

15:41That means it's a real club.

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17:02Esquire raves its hands-down the best TV show of the year, and IGN hails it a masterpiece. Lee Sung Jin's series remains an untouchable force. Beef, for your Emmy Awards consideration. What do you think will happen next? Someone else doing a deal with Sora or someone doing a deal with Google? Oh, you mean Google will raise the middle finger to Disney and do a big universal deal? Yeah. All of a sudden, we'll get the Odyssey exclusives. We get to manipulate Matt Damon into fighting the Trojan Army. Sure. Donna Langley and Neil Mohan hang out at Cannes together. and sure yeah no it'll be minions honestly that's the biggest thing they have is the minions i don't know if you could do jurassic park there's there's a bunch of other stuff yeah it's just the actors you know most of the universal franchise are actor driven right well i was trying to think about that this morning with something like paramount where like what what real ip do they have that someone would want to partner on sonic although sonic's not owned by them yeah that's but a lot of them are, I don't know how the AI rights work with Sonic, Transformers, G.I.

18:09Joe. Are those things that Paramount can control or do the original rights holders have? Yeah, I don't know the answer to that, but I would assume that Paramount would have some rights in the movies versions of Transformers. But does that extend to artificial intelligence? I don't know. Unclear, unclear. So you were sort of like punting on the guardrail issue. Like you're going to leave that to the experts, but it's kind of a big deal here. I just don't understand how they're going to prevent me, bad actor from, you know, making Homer Simpson give a Hitler speech or taking clothes off the princesses, things like that.

18:49What kind of indication do we have that open AI is trustworthy? Dizzy seems to be totally fine with this. Well, or even the thing is, is that even if they do try hard to stop that stuff, they won't be able to stop all of it. Yeah. YouTube and Instagram and other UGC platforms that try to control infringing material and try to stop stuff that is kind of truly offensive or illegal can't stop it, right? They do a good job, but they don't have a perfect record. So there's no way that any of these AI companies are going to, especially because just the sheer volume of stuff that's going to be produced.

19:28So they will, I do think that if it's a company that they have a deal with right now, OpenAI now has a deal with Disney. They will work hard to prevent bad things from happening. But it's taken a lot of these sites, like in UGC, it's a lot of what's called content ID, which is more for copyright infringing material. But it took a long time for those tools to be developed. I don't think that they've been perfected yet. So certainly it's not going to be easy to stop Homer Simpson from doing horrible things. Remember, we had the guy on who ran that showrunner app earlier this year, right? which is essentially kind of similar to what this is, which is basically like fan fiction curation where you can kind of control the fan fiction.

20:07Do you see this deal as like the canary in the coal mine of Disney and content companies using AI to basically cut out the old antiquated ways of production and then soon, like basically these are just auditions for cheaper content that will eventually become miniseries that are basically generated by AI that are going to be on all these platforms. Yeah, that's essentially a version of the what if it's really good question. Yes. Now, it's going to be a lot harder in this context because the voices are not coming along. So the voices are not going to be the same. But that's something that Disney could allow if they think it's good.

20:42Sure. For right now, we're talking about people making like 15 second videos that will have like Homer Simpson appear and do something stupid. We're not talking about being able to make a television show. To your point, you can't have any of these people speak. We are so not there yet. I'm not saying we won't get there eventually. But do you think that that is in their head, that that's in the back of their minds, that that is the long game here, is that they're just dipping their toe in the water? Well, so you're sort of asking the question from the unions and producers who were very upset about this deal.

21:14Yeah, but the Writers Guild put out a statement saying this is, you know, trampling our rights as creators, et cetera, et cetera. I don't think that that is Disney's intention. I think that OpenAI and Google and anyone who has an AI video generator would like it to eventually be the next YouTube where it is the most popular way for people to both create and consume video. And that will sort of indirectly eat into the time spent with Disney product. But there's no way that that's what Disney wants, right? Disney's bread and butter is creating high-end programming that you can't get anywhere else.

21:48Yeah, they're holding their nose in doing this because they know they have to and they know it's the future, but they don't want it to replace what they do as their core business. Maybe it'll make it cheaper, though. There are the people who believe that AI will make production cheaper, where even if you're making a$200 million, it'll make a$200 million movie cost$120 million. Yeah, and these are the kinds of apps that they can, I mean, you just did a piece for Business Week about the debate here, and Timur Bekbemkov, who's a pretty prominent director, he said he's doing it. He's making his own AI movies, and the guilds aren't happy with them.

22:24Well, the most interesting thing about it was that he made a movie that Amazon will release in January that has one of its main characters is an AI character embodied by Rebecca Ferguson. And Amazon did not allow him to use AI on the movie. But he will simultaneously fucking around making an AI movie. And then the people who were involved in the movie were mad at him. And that's the Chris Pratt movie, Mercy, which ironically feels like it was a movie made by AI. Are you surprised that some of these big filmmakers, you know, Guillermo del Toro, Rian Johnson, Bang Chun-ho, etc., are so opposed to it instead of saying, like, I want to mess around.

23:05Why? Of course they're opposed. It's offensive to creative people to suggest that a machine can replicate their output. But not if you view it less as something that replicates their output and more as a tool they can use to enhance their output. Okay. Yeah, okay, great. You're going to get speaking gigs for every studio, by saying that because that's what they want us to think. But if I was a filmmaker and made my life around the creative expression of my art, I would be pretty wary of the AI programs that profess to replace that. Right. But so then by that logic, if you're someone who feels that way as a filmmaker, as a studio, wouldn't the logic then be, fuck these guys, let's starve them.

23:48Let's not do deals. let's if they think they can do this like good luck trying I don't know the studio position on this I think is very complicated and Iger there's no coincidence that Iger was on CNBC the day that this was announced basically like throwing up his hands to everyone saying hold your horses this is not anti-creative this is not anti-studio we're just experimenting we're putting our characters here to give fans more choice on how to deal with them. Like he knew that this was going to be controversial. Right. He wanted to manage the message as he always does. Well, any CEO, but him in particular, he's good at this.

24:31He has credibility with creatives based on his past leadership there. If Ted Sarandos did this at Netflix, people would be a little bit more up in arms. Right. I'd say the average worker would. A lot of this high-end talent does like that. Well, we don't have to get into Ted's popularity. But speaking of, what do you make of the legitimacy argument that is now taking hold in the whole Warner Brothers auction that maybe, just maybe, the Larry Ellison backstop on the Paramount bid was not as solid as Paramount and the Ellisons would like us to believe? Right. This is the argument that actually it's the Middle Eastern money and other people that are backstopping.

25:12And the fact that Larry has only committed$12 billion of this supposed$108 billion deal. The Saudis, Qataris, other Middle East money, they have$24 billion, twice as much in this deal. Yet somehow they don't want any control over these outlets, including CNN. Yeah, I think the Paramount pushback on that has been that if any of the Middle Eastern financing pulls out, that Larry would still cover it. So he is technically backstopping it. But if you were to identify the subject that makes the two, each suitor for Warner Brothers most uncomfortable. for Netflix. It's basically movie theaters that they're going to that nobody really believes them that they're going to put these movies in theaters.

25:56And for Paramount, it's the source of the capital and that Larry is not actually putting up all the money and that it would seem like a bad idea to have Middle Eastern sovereign wealth funds having such a huge stake in not just major Hollywood studios, but in major news organizations. Yeah, it's just funny that David Ellison is so taken aback by that question. It's like, how dare you? How dare you question my father? He's the second richest man in the world. But if he was, maybe he should be putting in more than$12 billion. It's the classic OPM, other people's money. If you're rich, you want to use someone else's money.