Why Disney Struck a Deal With OpenAI - DTNS Weekend  ## Document Notes ## Highlights - **Disney's Strategic Pre-IPO Bet** - Disney's $1B pre-IPO investment buys roughly 1% equity and warrants in OpenAI with large upside if OpenAI IPOs high. - Andy Beach emphasizes the deal is far more advantageous to Disney than it appears at first glance. Transcript: Andy Beach In many ways, like when I first read this, I thought classic Hollywood deal, like that immediately jumped to mind. And because on paper, and if you're looking at it from sort of purely an AI and tech side, you're thinking, oh, my God, did like OpenAI just landed a whale? They're doing an amazing job. The reality is this deal is so good for Disney that you can't help but just look at all the pieces. So I did a little digging and I read through as many things as I could find. And here's the biggest pieces. You called out the first one. There's a billion dollar investment that OpenAI is making in, or sorry, that Disney is making into OpenAI. Keep in mind that this is technically a pre-IPO investment that they are making. So they are getting equity in the company in the form of about 1% that they will own. They will also have warrants, meaning they have options that they can buy more equity later at a set price. So right now, that right there is a sweetheart deal because the reality is that if OpenAI were to go public next year, it would probably be in the trillion dollar range, which immediately Means that that billion dollar investment has massive upside because it's immediately worth a lot more than Disney put in. ([Time 0:04:27](https://share.snipd.com/snip/e63b55de-127d-4f95-b45d-7ff0a6ff3f20)) - **Big License With Tight Limits** - Disney licensed 200+ character elements (characters, costumes, props, vehicles, environments) to OpenAI for three years while excluding long-form content and actor voices. - Andy Beach notes output using Disney IP created in Sora becomes permanently licensable to Disney. Transcript: Andy Beach So you were quite right. There, there are, there is a three year license deal that Disney is going to allow up to 200 or more animated mask and creature characters across the portfolio. So Disney, Pixar, Marvel, Star Wars. And it's not just the characters themselves. It's also costumes, props, vehicles, and environments that all go into that. All of that can now, there is a license by OpenAI to say, yes, we are legally using this to create content inside of our large language models. The parts that are sort of cut out of it are, there will be no ability to do long form content with it. And there'll be no ability to use actor voices that are associated with it. So the pieces are almost, you could think of them as the characters and the elements around the characters that are being licensed to them. Disney-esque part of it is that they there are two additional pieces they reserve the right to to pull out any select fan mage sora shorts and publish them on on disney plus in some way And anything that includes their their characters and material they still retain a permanent license to in other words, anything you create inside of Sora, if it has a Disney property Or character in it, congratulations, you just made a thing for free for Disney. Yeah. Tom Merritt So if I make Iron Man dances with Darth Vader and it goes viral, that's Disney's. I might benefit from it. I might not. But Disney gets to keep it and Disney owns it. ([Time 0:06:30](https://share.snipd.com/snip/c6856d13-4fa3-4f35-93ea-2a2f280b5a9b)) - **User Creations Become Disney Property** - Disney retains permanent rights to anything created in Sora that includes their characters, effectively owning viral fan creations. - Tom Merritt and Andy Beach warn creators that viral mashups could legally belong to Disney. Transcript: Andy Beach They own it right from the beginning. Tom Merritt Yeah. And the first thing I thought of was that Bob Iger had talked about Disney Plus incorporating generated video into Disney Plus in the future. Andy Beach With him absolutely alluding to this deal without being able to say more about it at that time. But this solves sort of a number of different problems in many ways for Disney. It kind of solves problems for both. It gives a big name property for OpenAI. And they also now, you said this and we'll just sort of call it out, but Disney now is now a customer of OpenAI in a major way. All their employees will have access to use a sort of Disney-blessed version of ChatGPT internally for the work that they are doing across all different lines of business. But it also now gives Disney a way to point back and say, oh, yeah, no, we have an AI initiative. It's a partnership that we're doing with our investment in OpenAI. And here's the sandbox that we have blessed. They don't have to run the sandbox. They don't have to go build it, maintain it. They are getting all of that effectively for free in a way because it'll be on open AI to make sure that happens, but they get the right to take any of the output from it and use it in any way They choose, which is a fantastic deal for them. ([Time 0:08:54](https://share.snipd.com/snip/16e08e3b-b95c-4f63-8c9a-5b387afde0c6)) - **Carrot And Baseball Bat Strategy** - Disney sued Google via a cease-and-desist the day after the OpenAI deal, framing Google as infringing by training on Disney content. - Andy Beach interprets this as negotiation theatre: reward OpenAI, pressure rivals into deals. Transcript: Tom Merritt They have also been striking deals with publishers to avoid getting sued for alleged copyright infringements. This is a big one. When you talk about copyright, you talk about Disney. The fact that the United States has such a long copyright period is because Disney spearheaded extending it for so long. So this, like you said earlier, is landing a whale. And interestingly, from Disney's point of view, it has struck a one year exclusive with OpenAI for this particular deal. And then the next day sent a cease and desist to Google saying you are infringing because you trained on our intellectual property without our permission. And Google now doesn't have the option of doing the same deal as OpenAI to resolve it. What did you make of that move? Andy Beach It was, again, it was almost part of the classic play here. It was sort of give with one hand, slap with the other. Like we saw this, this was not carrot and stick. It was like carrot and baseball bat in many ways. Because, yeah, you're absolutely right. Like the very next day, there was a variety piece and a bunch of different areas where Disney lawyers, the mouse has amazing lawyers, accused Google of copyright infringement on a massive Scale. That's the way that it was framed in everything. And they called Google a virtual vending machine for Disney content that included examples of Darth Vader, Frozen, and Lion King across a variety of properties, being able to be represented Inside of Gemini-trained models. So this is absolutely them sort of putting out there a strategy that says, will absolutely make deals and we know how to work with AI. It comes at a cost. Here are the costs that are that are associated with it. And by the way, if you don't hear here is the reaction you will get from our legal teams to shut you down. So it is it is completely negotiation in many ways on Disney's part to say, we now have this deal. ([Time 0:14:33](https://share.snipd.com/snip/068d32c5-c8ae-4e9e-983b-ffaba4b98e5b)) - **Watch The Exclusivity Window Closely** - Expect Disney to reuse this deal structure with other platforms after the exclusivity window ends and they assess performance. - Andy Beach advises watching the year's outcomes to judge who captured the true upside. Transcript: Andy Beach And during the exclusivity window, because exclusivity only says you can't move forward and announce anything. It doesn't mean you can't be planning. And so they probably have an exact date and time that they know that the deal is open to further negotiations and they can talk and make plans in any run up to that that they want. So I'm absolutely sure they will rinse and repeat a version of this deal. What we'll be telling is how well the deal performs this year. In other words, who got the real upside out of this? Did OpenAI really get it? And there's nothing that other than some cheaper deals on GPT licenses and some equity in the company that they get out of it? Or do they actually get meaningful content and other new ideas that they want to go pursue? And is that something that they want to bring into the mix with other properties? So it'll be driven by how well this performs, but you do have to suspect when, when, again, the numbers are sort of this big that, that there's going to be a lot of effort made on both sides, On both parties part to, to make it a, a well-received deal at the end of the day, which leaves Disney the room to go rinse, repeat and do this again. ([Time 0:17:14](https://share.snipd.com/snip/48aa67de-18a5-4b19-b594-e8a340981974)) - **Business Deals Outrace Legal Rulings** - Deals between studios and AI firms will likely outpace court decisions on training and copyright, shaping industry norms first. - Andy Beach says payments and licenses will become a de facto requirement for using valuable studio IP. Transcript: Andy Beach Definitely doesn't, this is a case of sort of business, like being ahead of courts in many ways. There is no way that we have settled or solved copyright as a legal issue. That will still move through the courts and we will have conversations about whether training on copyright, copyright rights without permission is going to be legal or not. In practice, what we are seeing, though, is that deals will always move faster than legal and judges and courts. So if we get to a model where big IP owners, similar to Disney, know that a license is required for the valuable IP that they have, it will accelerate the conversations and it will basically Be something that tech companies that are training models know has to be part of the plan from the beginning for what they are doing. ([Time 0:21:37](https://share.snipd.com/snip/5b346a45-894c-4373-8565-71b804052a41)) - **A New Gold Standard For IP Deals** - The Disney–OpenAI deal sets a likely gold standard for studio-level IP licensing to AI companies. - Andy Beach predicts other studios will now explore similar large-scale deals. Transcript: Andy Beach I think so. It's, it's probably too early to say sure, but I do feel like the fact that this is the like part of why this was such news in the industry was not just the names that are associated. It is the first big deal on scale for intellectual property like this. We've seen deals about newspapers and their archives and Reddit and their, but it was also text-based, more or less, for where it was going. Even the stock image deals that have been done didn't quite touch this because there is something special about the IP property of a studio. And this is the first one of those. So I feel like we will now, over the next year, we will see others exploring, at least in conversation publicly, what their similar IP property is worth and valued by the AI models and The AI model makers that are out there. So we will likely see more of these deals now that we have one as sort of a gold standard to go by. ([Time 0:25:43](https://share.snipd.com/snip/a7f6bb85-1df6-4785-a2d6-934dcb9981bb))