The two industries on Earth that are changing more, and faster, than almost all other are AI and entertainment. AI is a few years old, entertainment is centuries old. Oddly their inflection points are merging now. This series of blog posts takes a look at how the nexus is evolving.
Humanity has entered an unprecedented technological evolution. No mission, organization, job, or person on the planet will go unimpacted by artificial intelligence this year. Revolutionizing every data-driven opportunity, AI has the potential to bring on a new era of prosperity, allowing the quality of life to reach unimaginable heights.
Source: HiddenLayer AI Threat Landscape.pdf
Contents
“Entertainment” is Enthralled With AI
The control points in entertainment have changed – not unexpectedly, but enormously. The hegemony of the legacy funder-distributors (the “studios and networks”) has been overcome by fundamental and creative concerns about costs.
The next three to five years promise a sea-change — ushering in a new world of entertainment where creators large and small ignore the legacy pathways to distribution and simply “publish” (without the need for studios or networks) their original stories/films and TV series to multiple online platforms, using vast cost savings delivered by AI tools and further eroding the old controls exercised by the legacy funders/marketers.
The discussion below focuses on the US entertainment capital of “Hollywood” as a (or “the”) primary case study — but the points made will be applicable to any other major global entertainment generators – e.g., Chinawood, Bollywood (India), Nollywood (Nigeria/Ghana) — and to any of the other film/TV “woods.” BTW, lest anyone wonder, Chinawood, Bollywood, and Nollywood each produce and distribute more films and TV each year than Hollywood.
Before Now in Tinseltown
The “old guard(s)” of US TV/filmmaking, for many decades, were the “Big Six” studios, mostly based in West and North Los Angeles – Universal, Disney, Paramount, Sony, 20th Century Fox and Warner Bros.
The old Big Six (now the “Big Five” since Disney bought Fox in 2017 whereas the current Skydance/Red Bird [Q2 2024] “merger” with Paramount is expected to keep Paramount intact) are/were the “legacy funder/distributors” in H’Wood film and are completely vertically-integrated and have multiple divisions for financing, production, releasing, real estate and theme parks. Each now has multiple film creation/distribution divisions.
In a further consolidation of power and opportunity, all of the Big Five have TV or media conglomerates as parents (ABC-Disney, Comcast-NBC-Universal, CBS-Paramount Global, Warner-Discovery, and the 5th, Sony, has large TV production operations as well AKA Sony Pictures Television), allowing the Big Five to combine broadcast, cable, satellite, and hybrid TV options with their other entertainment operations.
How/Why “Hollywood” Turned Upside Down
In 2024, entertainment content production is not only increasing, but is literally booming and, not surprisingly, most entertainment productions (in terms of numbers of productions) have moved away from the Big Five for reasons that include:
- Changing audience tastes;
- Constraints on originality and creativity in Big Five story-concepting for film;
- A not-so-quiet rebellion by above-line creative talents;
- Major bankrupt and/or failing theaters (Q3 2022, Cineworld, AMC);
- The demonstrated power and allure of independent film (e.g., A24’s Everything, Everywhere All at Once winning 2023’s Best Picture of the Year Oscar, in addition to many other recent Oscars for indie films;
- A proliferation of CTV and OTT TV distribution options;
- Swooning Big Five stock prices (e.g., 2023-2024 Disney, Paramount, etc;
- A decades-long over-dependence by the Big Five on heavily-marketed (and vastly-expensive) “event films” that deliver massive “off the top” distribution fees but, all-too-often, offer absolutely no profits to the creatives;
- Numerous appealing state film and film tax incentives; and
- The list of top “independent distributors” is also growing steadily.
The Market Opportunity
Among current market drivers for new AI tools in TV/film are:
- Surging investment in AI for entertainment;
- Mammoth ad dollars fueling TV/film production;
- An insatiable audience appetite for content;
- New pricing models in US OTT/CTV;
- The fact that there are nearly 400 OTT channels in the US alone (dominated, of course, by the SVOD (+AVOD) models of Netflix, Amazon Prime Video, YouTube, Hulu, Disney+, Max);
- US OTT video ads are projected at $132.9bn for 2024.
- Increasing ad spend in US CTV (2023: $24.6bn);
- Huge ad spend in US broadcast and cable TV (2023: $60.38bn). These ad spends are expected to increase again in 2024; and
- An increased 2024 return to theaters by consumers.
What Does the Market Look Like?
“Studios should “spurn” the idea that artificial intelligence tools can [should] replace writers, actors and visual artists and instead embrace the technology’s ability to shave tens of millions off the cost of the production process.”
Prior AI Usage in TV/Film
AI in TV/film is already “established” for a number of TV/film making scenarios, e.g.: VFX, generating voices for animated characters, generating scripts from scratch/rewriting scripts, making casting decisions, de-aging actors, and creating digital twins for a variety of purposes.
The global TAM for “AI in entertainment”
As of 2022 (i.e., a year and a half ago) TAM in AI for entertainment was projected by two analysts (Grandview and Yahoo Finance) at $14.8bn, with the US taking ~ 37% of that, at ~ $5.48bn. The global projection from these analysts for TAM in 2030 is ~ $99bn with the US share expected to be ~ $36.6bn, growing at a CAGR of ~ 26%.
Another analyst (Business Research Company) pegs the global TAM for AI in entertainment market in 2023 at $13.79bn, and 2024 (at ~ $17.65bn) with an ongoing CAGR of ~ 25.7%.
The US is still the world’s largest market and, at 37% of those numbers, the TAM for US AI in the Entertainment market for 2024 looks to be in the range of $6.53bn … i.e., approximately the same amount that all the Hollywood movie distributors (not just the Big Five) will take from distributing their 2024 films to theaters.
The TAM in US Film
The filmed entertainment market remains large despite being in the midst of convulsive change as (i) streaming/OTT/CTV steadily encroaches on theater going and (ii) AI promises a massive upgrade to a century+ of arcane filmmaking practices.
While reported statistics can and do vary widely, we see an estimated range from $7.3bn (2022) to ~ $8.9bn (2023) in annual US theatrical film transaction (box office) dollar volume for the years 2022-2023. In 2023 ~ 300 US feature films were produced but only 107 were released to theaters.
NOTE WELL: Film distributors only receive about half (referred to as “film rentals”) of the box office – the theaters keep the rest. So if 2023 box office was $8.9bn, the studios only got about half of that (~ $4.45bn).
Despite a half-year of industry strife and strikes (rebelling partly against AI), in 2023, 23% more people went to theaters than in 2022.
A robust 2024 transaction dollar volume was projected for US film in theaters at ~ $16.25bn, a large increase over recent years but the 2024 summer has started woefully and disastrously slow (one flop after another) for film in theaters.
The TAM in TV Alone (Digital Stream/OTT/CTV, Broadcast, Cable)
The market is growing at a staggering rate:
- The 2023 global marketplace for OTT content was ~ $450bn.
- The US is the world’s largest OTT market. 88% of US households subscribe to at least one streaming service.
- “When it comes to the streaming companies pulling in the most revenue — surprise, surprise: Netflix is still king of the proverbial mountain. Netflix currently commands a formidable 51% share of all direct-to-consumer streaming revenues, amassing a staggering $8.5 billion in 2023.”
To compare Netflix to H’Wood theatrical film revenues, in 2023, Netflix alone (after subtracting the theaters’ 50%-55% share of total film box office) accrued ~ 2x as much revenue as all the studios combined garnered in US “film rentals” from sending ~ 107 films to theaters.
Quoting MNTN: “Following suit, after Netflix, Disney+ secures the second position with a 13% share, totaling $2.2 billion, while Hulu claims 10% with $1.6 billion. Paramount+ and Peacock occupy the fourth and fifth positions with 7% ($1.1 billion) and 5% ($830 million) shares, respectively.”
Some Obvious Issues
- There are currently ~ 14 major categories of AI in film/TV – either in use or pending. Most either are already, or likely will be, well-accepted, but a few – including the big one, Gen AI — carry some controversy.
- Making a complete, acceptable film/TV program with Gen AI is not yet possible but – legal/industry issues aside – it soon will be. As of today, current technology imposes fairly extreme time limitations on Gen AI content (seconds to a minute).
- A significant group of key investors think that AI for film/TV is still in the “messy teen era.”
- Gen AI platforms are enormously expensive and time-consuming to create.
- Control processes on Gen AI seem to be woefully inadequate.
- A portion of the audience dislikes characters in the “uncanny valley” (human-like characters that aren’t human).
- The TAM in AI and in film/TV is very robust but financial metrics for finding the SOM for AI in entertainment are very elusive, due in part to the novelty of the technology and the fact that many seemingly “hot” providers are extremely new to the market. Some companies that might be competition to a new provider/user were only launched in the past few weeks-to- months and have a limited, or no, operating history and no revenue history.
- There is an extensive threat landscape in AI.
Stay tuned for Part Two…