Netflix, Sea Change

We’re watching enormous change at Netflix. Thousands of job cuts. Ted Sarandos unhappy with media and platform performance. Chief Content Officer Bala Bajaria out after a decade; Film chief Dan Lin out as well. What are we witnessing? When we see Disney restructuring and buying Character.ai, what exactly is underway in media and entertainment?

Some of it is obvious: attention is more fragmented than ever with mobile and vertical taking over watchable minutes. Tastes are shifting faster. Subscription fatigue and price elasticity has its limits. But something fundamental is happening in the heart of the industry. Every firm, from Netflix to Disney, is grasping with what making and distributing media will look like in an AI-first world.

My view is that AI will restructure content creation and distribution so completely that we shouldn’t be thinking in terms of a single streaming service, format or a software platform but instead we should be thinking of how we take the best talent and stories and cast them into software, then bring them to life in many forms, across any screen with an audience. This isn’t how anybody in the media or tech world works today and it represents a new kind of firm that fuses completely media and software.

So the industry (and Netflix) changes aren’t about a bad movie or quarterly metric, they’re a fundamental rethinking of what and how these firms do work.

*The boundary of the firm* In 1937, Ronald Coase asked in The Nature of the Firm, why do firms exist at all? Coase wanted to understand how a firm knows what it does, where it ends and where it should partner, outsource or contract. In an efficient and industrialized market, no firm should do everything and Coase was looking for the equilibrium point for firms in functioning markets.

The reality is that markets don’t work that way anymore. First, today’s superstar firms are deeply vertically integrated and wield monopoly power in almost every category they operate in. We’ve long since stopped enforcing antitrust law in any meaningful way, at least in the United States. But more to the point with AI, if a machine can do almost anything quickly and cheaply, what exactly shouldn’t I do as a business owner? The answers to this question define what a firm is and isn’t.

*What is Netflix?* Is Netflix a technology company primarily concerned with making magical algorithms and personalization feeds that know your tastes, connecting you to a vast catalog of content?

Or is it a culture company, funding and producing great stories alongside the producers, agents, actors, writers, and directors who make it possible?

Netflix will say both. (By the way, so will Apple with Apple TV, or Amazon with Prime Video etc). This might have been true for the last ten to fifteen years, but today’s market is changing too fast to assume it will stay true.

‘Cast them in software’
AI will restructure content so deeply that we should start thinking of talent and stories as cast in software, then brought to life in many forms, across any screen, in ways we can’t yet imagine but look very interconnected and immersive.

Ben Affleck recently mused that one day you’ll be able to request a custom episode of Succession. That’s exactly right. Or generate Elvis songs in the style of Drake. Some of this is already available and it’s just the beginning.

Whatever comes, actors and writers will remain the most critical part of storytelling, be it on stage or in software. It’s and, not an or. Talent will also be cast into software and brought to life anywhere that 1’s and 0’s power a screen. Which is to say, everywhere.

This will force every company that makes and distributes media to rethink what kind of firm it is. How it resources and organizes itself. How it partners with the right talent. How it distributes that work fairly with credit and compensation flowing back to the people who made it. The outcome, I think, is obvious but the path to get there is not.

Disney seems to understand the enormity of the challenge ahead. CEO Josh D’Amaro is consolidating into a leaner, more tech-driven “One Disney” and names AI the long-term opportunity across the business, starting with content creation and production. Because in the future, talent and stories will be cast into software, and the engine underneath will render IP into whatever form a given screen or medium demands, including apps and experiences that blur the line with traditional passive, lean back content. This requires total reinvention.

Hollywood & Tech
This is a pivotal moment for the entertainment industry. It’s the first time in decades Hollywood can get front footed with the technology industry instead of feeling disrupted and lost. Why? Because without stories, without talent and without the magic of entertainment, the tech industry faces enormous challenges it can’t solve on its own. Consumer polls show people distrust and dislike the tech industry and its leaders. There is deep fatigue for new app or services (nobody wants a new social media app) and with the ability to code anything for free, we’re about to get much more software. The tech industry needs entertainment and storytelling to not only rehab it’s image, but acquire and retain customers. The new top of funnel starts with entertain, not awareness.

It’s important to recognize that artistic credit and compensation must be addressed. This applies to the input, or training, of these large models as well as output of new IP and licensing models for a future where consumers will be able to request and remix almost anything.

These are big questions. How will payments work when content is custom? How will synthetic performances differ from real ones? How will talent control its image, persona, and likeness? Big, but solvable. And when they are, I believe more people will be able to tell more stories, in more places, than ever before. The work now is to build that future so it empowers the people inside Disney as much as the independent artists just getting started.