Disney Allies Itself with OpenAI, Enabling Disney Characters to Appear on Sora
I was in private practice during the fallout from the DotCom bubble. My firm defended banks and analysts against suits from investors. I read a lot of SEC filings. The filings by new Internet companies all told the same story, paraphrased below:
We have never made money. In fact, we lose money every quarter. We don’t really know how to make money yet, and we have no firm plans about how to make our business model profitable. We have invested in a lot of companies that are just like us. They have never made money. They lose money every quarter. They have provided no evidence that they have plans that will enable them to make their business models profitable. Like us, they have invested in other companies like us.
It shocked me the first time I read it. It amused me the fifth time I read it. It lead me to be skeptical of theories of market efficiency and rationality after I read it tens or dozens of times.
David Streitfeld writes in The New York Times that the current AI bubble is not like the DotCom bubble. He gives reasons to think that things will be different this time, to which I say: Things are always different. The bursting of the DotCom bubble was not like the bursting of the mortgage bubble, and those were different from the OPEC crisis and the recession followed by inflation brought on by the pandemic. From my narrow layperson’s perspective — I am not an economist — I see familiar features from a lot of past economic crises all rolled up into one.
I see start-ups investing in an unproven technology. Maybe AI will do many of the things people hope (or fear) it can do. But there will be a great shaking out, and it looks like the major players will buy up the start-ups they like and drive the others out of business, whether or not they have promise. It’s hard to see how investments in AI startups cannot create a lot of waste. Technology has a very short half-life. Today’s latest AI chips may be worthless in two years and certainly will be in five. If an AI company goes bust, what becomes of its data centers, miles of cable, nuclear power plants etc. There will be spectacular failures that can have huge impacts on companies that are too big to fail. And those impacts could snowball because, just like in the DotCom era, the companies have invested in one another. As a result, it’s not possible for a big AI company to lose its shirt while the others remain fully clothed. Nearly two-thirds of venture investment is currently going to AI start-ups.
The rest of the economy is in the doldrums. Should there be a sudden contraction in the AI economy, there’s not much potential for offsetting such contraction in other industries, especially because a collapse in the AI world could vaporize trillions of dollars in investments, leaving the non-AI companies that have invested in the AI companies without the means to capitalize on a market opportunity.
Meanwhile, we have an administration wed to inflationary policies that do not promote short-to-medium-term economic growth. Tariffs are inflationary, obviously. So too, it seems to me, are policies that make it harder for immigrants to come to this country or stay here. It shrinks the labor pool, which should drive up labor costs. Businesses then have to spend more capital on wages and benefits and have less money to spare for investment. Shrinking the pool of funds available for research will stifle the innovation vital to entrepreneurship. Meanwhile, the government is sabotaging alternative energy, which means that states and businesses that have invested in alternative energy infrastructure may not have the means to maintain it. Such entities will have to revert to fossil fuels, driving up energy costs, also exacerbated by crypto and the AI boom, while killing us softly with their smog. All of this just seems so obvious, but I must be missing something because the Republican-led Congress is doing nothing to oppose these policies, and Republicans understand what makes for a good business climate. Right?
I’m thinking about all this as I read David Bloom, reporting in Forbes on The Walt Disney Company’s decision to invest $1 billion in OpenAI. At the same time, Disney has granted OpenAI a license to use 200 Disney characters in what Mr. Bloom calls OpenAI’s “massively popular new Sora social-video mobile app,” but which I would call the latest app to flood the web with brain-rotting AI slop.
Not only is Disney paying $1 billion and licensing its characters, it is also doing PR for OpenAI, which took a lot of heat for Sora’s lack of guardrails to protect intellectual property. Not so, says Disney: “OpenAI is both respecting and protecting our creativity,” says Disney CEO Bob Iger.
Yeah, great. If Sora is still a thing two years from now, perhaps Disney’s $1 billion bet will pay off. If not, Disney can still bring value to its shareholders when Netflix acquires it. Or perhaps, Mickey Mouse will one day be owned by funds from Saudi Arabia, Abu Dhabi, and Qatar, supplemented by private equity. And who knows? Maybe the President will also take a golden share.