The AI Backlash, or, The Hollywood Revolution That Fizzled

It was not so long ago that artificial intelligence (AI) was poised to fundamentally rewrite the entire Hollywood script. In fact, it was not so long ago that artificial intelligence was poised to write many scripts for Hollywood to begin with. But, as Prussian Field Marshal Helmuth von Moltke the Elder once said way back in the 1800s…don’t count your chickens before they hatch. No, what he actually said was, “No plan survives contact with the enemy.” And indeed, the plan for AI seems to have buckled in large parts of Hollywood.

So what happened? What happened to this tool that was going to democratize Hollywood, open up new opportunities for everybody with a trunk script and decimate the star system as we knew it? It turns out that several things happened.

The Platforms Pulled Back

One of the biggest points was that OpenAI pulled the Sora app out of use. There was no shortage of use for the app, as OpenAI offered a note of thanks to everyone who had interacted with Sora, and offered “…details on preserving your work.”

This also left Disney (DIS) high and dry, as it had a $1 billion deal with OpenAI to bring Disney characters to the app. Disney saved a billion bucks with this move, but loses access to a platform that might have seen a whole new level of interaction with Disney characters, including potentially some that have not been seen in decades.

But Sora was already under fire, with OpenAI forced to improve opt-out systems and give Hollywood more control over who appeared on the app and who did not. It might well have been that OpenAI could see that Sora was painting itself into a corner, able to exist, but unable to be used in any realistic fashion as the characters would be out of use. Perhaps OpenAI could have been modified enough to make, say, Mr. Legally-Distinct-From-Jack-Black to survive, but that might have taken more time and resources than would have been useful.

Use Cases Get Tough

Reports also emerged that suggested that the notion of AI filmmaking might not have been ready for prime time as it was. Lionsgate (LION) set up a deal with Runway AI to take its current lineup—including John Wick and The Hunger Games—and convert them to anime-style cartoons. The produce could have been sold as a new movie, Lionsgate figured, and all for the cost of a few processor cycles.

What Lionsgate discovered, however, was that it was not that simple. Despite the fact that Lionsgate has a fairly substantial catalog—including a pile of direct-to-video horror movies from the mid-2000s clear through to the late 2010s and beyond—that was not enough to produce a complete model. It turns out that not even Disney, which has been running far longer than Lionsgate and produced a whole lot more content, has a sufficiently large library to train an AI model.

Even the video models that we see today are prone to error. People bending in unexpected ways, clipping through reality, and having unexpected numbers of fingers are all part of the landscape here. That works well for the funny video you made of a cat playing the bagpipes at three in the morning. It does not work well for something you are planning to sell tickets to.

Oh, and People Hate It

While there are people who like the idea of being able to make their own movies without access to millions of dollars in capital, there are plenty of people who do not. The phrase “AI Slop” is increasingly prevalent and often applied to anything even hinting of AI. Alphabet’s (GOOGL) YouTube has started asking viewers if what they just saw “feels like AI slop,” whether or not it actually is, and applying penalties accordingly.

Pamela Anderson, meanwhile, got together with American Eagle Outfitters (AEO) to “…always keep it 100 percent real: no AI-generated bodies, no AI-generated people. Ever.” A recent campaign featuring Anderson backed that much up, as Anderson was featured in the advertising attempting, but failing, to generate AI models from prompts.

Thus, much of the market for AI video tools just kind of fell apart. With the software still in the development phase, and the market taking an active distaste toward the product, the ability to make AI into a “Hollywood replacement” is falling apart. At least, it is for now. Whether it stays fallen apart is anyone’s guess going forward.

Which Stock is the Best Buy?

We covered several different stocks in this broad overview of a market struggling to come to grips with the impact of AI. Three of the four stocks mentioned here were rated Strong Buys, with only one—American Eagle Outfitters—considered a Hold. But that Hold also comes with the largest potential upside at 43.35%.

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