OpenAI shuts down “Sora” - What does it mean for the markets?

OpenAI, one of the leading representatives and symbols of the AI revolution, made its video-generation model, Sora, available to the general public about six months ago. The model, as many might have thought, was groundbreaking: even attentive observers were often “fooled” by the material it generated. Many saw it as the beginning of a difficult period, if not the end, for “conventional” cinema and many media industries. Yesterday, however, OpenAI announced that the time of the popular application has come to an end. What went wrong, and who could profit from it?

The details and the exact, real reasons behind OpenAI’s decision are not known. The prevailing view among journalists and many analysts in the LLM industry seems to be that the model was simply too unprofitable and/or not effective enough, and that the company is at a point where compute power and financial/human resources are needed much more elsewhere.

The financial resources in question also appear to be increasingly constrained. OpenAI is a private company, so a reliable analysis of its financials isn’t possible; however, Reuters reports that the company is offering private credit firms a return on capital of 17.5%. Such a high rate of return suggests the company may currently have serious difficulties attracting capital, which, it is worth remembering, it continues to burn at an alarming pace.

Shutting down Sora obviously signals trouble for AI-focused companies, but who might benefit from this shift in sentiment? It could be the companies most “punished” in valuations by a revolution that has not yet arrived, or firms able to identify the weaknesses of the technology.
If capital and consumers turn away from Video AI, the biggest beneficiaries could be large, traditional players that had the most to lose. The best examples here are Disney, Netflix, and Paramount.

Source: Bloomberg Finance Lp.

DIS.US, PSKY.US, NFLX.US (D1)

Media companies have suffered significant sell-offs amid fears about AI and the quality of their long-term strategies. After declines from recent highs in the double-digit range, a return to the upper bounds of the consolidation range may be possible. Source: xStation5.

Disney, as a global conglomerate, did not want to risk being left out of the revolution, even if it wasn’t fully convinced by it. Disney signed a cooperation agreement with OpenAI, granting it a license to its IP. By shutting down Sora, however, OpenAI is indirectly admitting that the cooperation with Disney turned out to be unproductive. Disney’s case shows that even with one of the most important assets of conventional publishers on its side, legally acquired intellectual property, a video-AI initiative can fail.

This could support the valuations of companies such as Netflix or Paramount. AI threatened the “premium” models of streaming platforms on several fronts, but the end of Sora means that the business “moat” of large distributors and producers remains insurmountable for engineers and programmers.