Artificial intelligence (AI) has presented both opportunities and risks for the media and entertainment industry. Media giants have been up in arms against AI companies like OpenAI for allegedly using their content without permission to train AI models. At the same time, media companies are adopting AI for better efficiencies and cost controls and have been partnering with AI companies to license their content.
Joining the ranks is Disney, which has taken a bold step by partnering with OpenAI, bringing over 200 of its iconic characters to Sora, OpenAI’s AI video generator. As part of the three-year licensing agreement, Sora users will be able to create videos using these characters, some of which will be streamed on Disney+. Such short-form AI-generated videos would pitch Disney (DIS) against the likes of YouTube Shorts, Instagram Reels, and TikTok.
Disney Partners With OpenAI
While Disney is taking a risk by opening up its closely guarded IP to AI, I find it to be a calculated risk and the proverbial case of “if you can't beat 'em, join 'em.” Users were already generating AI-generated content with Disney characters, and through the deal with OpenAI, it is legalizing the use. Disney may still pursue other platforms where its IP is being used illegally by users to create content.
Disney CEO Bob Iger, who discussed the possibility of partnering with AI companies during the most recent earnings call, didn’t mince words about the inevitability of coopting AI. “No human generation has ever stood in the way of technological advance, and we don’t intend to try. We’ve always felt that if it’s going to happen, including disruption of our current business models, then we should get on board,” said Iger while announcing the deal with OpenAI.
Meanwhile, the OpenAI-Disney partnership is yet another of these “circular deals” that we have been seeing. As part of the agreement, Disney will invest $1 billion into the ChatGPT parent and get warrants to buy additional shares. At the same time, Disney will become OpenAI’s customer and use its APIs to build new products while deploying ChatGPT for its employees.
Disney Stock Continues to Underwhelm
While markets have responded positively to Disney’s partnership with OpenAI, DIS stock is still slightly in the red for the year and looks on track for yet another year of terrible underperformance. Unless some “magic” happens over the next couple of weeks, Disney would end up underperforming its average S&P 500 Index ($SPX) peer for the fourth time in the past five years.
Would the OpenAI Deal Be a Game Changer for Disney?
We still don’t have much in the public domain on how Disney would earn revenues from the OpenAI deal. According to reports, OpenAI won’t pay any cash licensing fee but has instead offered Disney the option to purchase the shares later. The user-generated content on Sora that Disney adds to its streaming platform would help enhance its library, but it remains to be seen how the company’s paying subscribers respond to such content. It would nonetheless be an addition to Disney’s already vast library of original content.
Short-form content has been quite popular among users and profitable for platforms hosting such content. Earlier this year, Alphabet (GOOG) (GOOGL) said that it now earns as much revenue per watch hour in the U.S. on YouTube Shorts as traditional in-stream. Meta Platforms (META) said that Reels is also running at an annualized run rate of over $50 billion.
Overall, as things stand today, I don’t see the deal with OpenAI as a game-changer for Disney. However, it is an incremental positive, which adds to my already bullish bias towards the stock. With a forward price-to-earnings (P/E) multiple of just 16.7x, Disney looks like a no-brainer stock to buy, especially at a time when broader market valuations appear stretched by most yardsticks.
On the date of publication, Mohit Oberoi had a position in: DIS , GOOG , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
- Wedbush Is Betting on a ‘Transformational’ Opportunity in Quantum Computing. 1 Top Stock to Buy Now.
- This Bank Stock May Be Small, But It Has Big Potential
- Could This Unexpected Tech Stock Be One of the Best Buys for 2026?
- Analysts Say This 1 Lesser-Known Chip Stock Is a Top Buy for 2026. Should You Add It to Your Portfolios Here?
