Eye On The Market – The Winter of Our Discontent: Generative AI Disrupts the Entertainment Industry Content Moat

Host: Michael Cembalest
Date: November 5, 2025

Episode Overview

In this episode, Michael Cembalest explores the seismic changes generative AI is bringing to the entertainment industry, with a focus on how these technologies are eroding the longstanding "content moat" that has traditionally protected legacy film and TV studios. He analyzes both the risks and opportunities posed to incumbents, underscores the rising dominance of new content platforms, and discusses what these shifts mean for investment in media and entertainment.

Key Discussion Points & Insights

Evolution of Media Disruption

• From Distribution to Creation:

  • The previous decade’s disruption centered on content distribution (e.g., streaming unbundling cable/satellite); the current and coming decade is about content creation disruption via generative AI.
  • "The prior decade was defined by disruption in content distribution and the next decade is going to be defined by disruption in content creation." (02:35)

• Netflix’s Rise & Legacy Decline:

  • Netflix offered streaming as a free add-on in 2007; now it’s Hollywood’s most powerful company.
  • Post-2018, big media company video profits fell nearly 40%, while Netflix booked billions in profits. (03:00-04:00)
  • Even as Netflix’s share of original content dipped in 2023, its dominance as a distribution platform persists through licensing from rivals.

• The Shrinking 'Video Pie':

  • Total combined revenue from TV, box office, home entertainment, and streaming has been flat since 2018; streaming’s gains are other formats’ losses, not new market creation. (05:45-06:30)

Crumbling of the Content Moat

• High Legacy Costs vs. Low-Barrier Platforms:

  • Blockbuster films still cost $100–150 million to produce, premium TV shows $25M+ per episode (07:00–07:40).
  • YouTube is now already ahead of Disney and Netflix in TV screen time, even excluding mobile. (08:30)

• Changing Consumption Patterns:

  • Viewership for legacy TV (excluding sports) among under-50s collapsed, especially ages 2–17 (down 80% since 2015).
  • Box office receipts/tickets remain well below 2019 levels; film lagged all other pandemic-affected sectors in recovery. (05:45–07:30)

Notable Quote:

"For people under the age of 50, just in the last 10 years, their viewing of legacy TV programming...has absolutely collapsed. And for the 2 to age 17 bracket...it's down over 80%."
—Michael Cembalest [06:15]

Democratization of Content Creation

• Creator Economy Growth:

  • Share of global media revenue going to creators doubled from 7% to 14% in recent years (09:45).
  • 300 million hours of video uploaded to YouTube annually vs. Hollywood’s 15,000 hours; even a tiny fraction of quality UGC creates real competition.
  • "It only takes a very tiny sliver of all this slop that's put on YouTube to create a video competitor challenge for Hollywood." (10:45)

• Music & Games:

  • Indie and unsigned artists now make up over 26% of Spotify streams, up from 13%.
  • Roblox’s user base is mostly based on millions of low-fidelity, user-designed games—a model for acceptance of less polished content. (11:40-12:40)

Breakthroughs in Generative AI

• Text-to-Image and Text-to-Video Advances:
  • Dramatic leaps from Midjourney (barely recognizable faces in 2022 to near-photorealism in 2024).
  • Fully AI-generated "actresses" like Tilly Norwood are emerging, seeking real representation. (13:20–14:00)
  • OpenAI’s Sora, Runway, Pika, and open-source models now produce strikingly realistic video cheaply (some at 10% the cost of prior leaders).
  • Quality is measured not just by visuals but motion, rationality, human interaction, clothing, etc.
  • "Closed" and open-source text-to-video competition growing rapidly; October 2025 leaderboards feature OpenAI and Google.

Notable Quote:

"...these new tools like Pika and Runway, stable diffusion and AI obviously with SORA are making it easier for new entrants to create really high quality content for digital and TV platforms."
—Michael Cembalest [13:50]

• Physics & Reasoning Limits:
  • Google DeepMind found video models are weak on true physical understanding (10–30% accuracy), but rapid improvement is expected (16:30).

Impacts on Traditional Studios

• Production Savings vs. Attention Deficit:

  • AI adoption yields 5–20% cost savings (more for SFX-driven genres); used for colorization, backgrounds, repetitive post-production.
  • LED “volume walls” combine real sets with AI-rendered backgrounds for lifelike scenes (17:50).
  • "Maybe the studios are able to shave 10 to 15% from their production costs...But if viewers continue to migrate away...that's going to be a challenge." (18:40)

• Social/Short-Form Video Dominance:

  • Digital video now surpasses legacy TV in adult attention; YouTube, TikTok, Instagram make up ~25% of total daily screen time—and more for younger audiences.

Memorable Moment:

"I have a TikTok account...these videos where people rescue these dogs in the rain...I'm a sucker for these videos...Rachel's convinced that these are all scams but I just can't help myself, and I donate lots of money to rescued TikTok dogs."
—Michael Cembalest [19:50]

Deflationary Effects of New Platforms

• Monetization per viewer drops with newer distribution models:
  • Legacy linear TV: $0.54/hour, Netflix: $0.37, YouTube: $0.19
  • CDs: $0.67/hour, Spotify: $0.06
  • "All of these things are deflationary as it relates to the amount of money that gets generated." (21:00)

Enduring Value of Storytelling and Libraries

• Despite headwinds, story-driven content and back-catalogs retain value:

  • Big acquisitions (Amazon’s $3.5B MGM library valuation, Disney’s $80B for Pixar/Marvel/Lucasfilm/Fox, etc.).
  • Lionsgate reported record library revenues amid operating losses.
  • Netflix rumored to be considering purchase of Warner Bros. for its content IP (e.g., Harry Potter, Game of Thrones). (21:30–22:10)
  • Share of movies doubled on Amazon Prime Video from 30% to 60% of streaming from 2022 to 2024.
  • Classic/legacy TV shows (“NCIS,” “Grey’s Anatomy,” “Gunsmoke,” etc.) still make the top-watched lists.

• "Storytelling still matters...When I looked at the ratio of worldwide box office receipts to the production budgets of these films, they were positive...there does still seem to be a market for this kind of thing." (22:20)

Notable Quotes & Memorable Moments

• On the explosive growth of user-generated content:
  “Hollywood put out about 15,000 hours of TV and film last year. There were 300 million hours of content uploaded to YouTube… Even if just 0.01% of all of that YouTube content were just as interesting to you as what Hollywood put out, that's twice as much content as Hollywood's annual output.” [10:00]
• On the pace of AI innovation:
  “The changes that are taking place here are very rapid…these programs are eclipsing the capabilities of what were the leading edge video generation models just a few months ago.” [15:00]
• On the enduring role of great stories:
  “Storytelling still matters…Amazon…valued MGM's film and TV library at three and a half billion dollars…Disney…paid over $80 billion for Pixar, Marvel, Lucasfilm and Fox…Private equity firms have been involved and there's been a lot of strategic acquisition.” [21:45]

Key Timestamps

• [02:35] – Shift from content distribution disruption to content creation disruption
• [03:00–05:00] – Netflix’s rise and legacy media financial pain
• [06:15] – Collapse of legacy TV viewership in under-50s
• [09:45] – Growth of creator share in global media revenue
• [10:00–11:40] – The scale of YouTube vs. Hollywood and changes in music/games
• [13:20–15:00] – Advances in generative AI for image and video
• [16:30] – Generative AI’s limits in understanding physics
• [17:50] – Use of AI and LED volume walls in production
• [18:40] – Audience migration as a threat to studios
• [19:50] – Cembalest’s TikTok dog rescue videos anecdote
• [21:00] – Deflationary impact on media monetization
• [21:45–22:40] – Enduring library value and wrap-up

Conclusion

Michael Cembalest delivers a compelling, often humorous assessment of generative AI’s disruption of Hollywood’s core business models. While transformative technology and new creator-driven platforms rapidly erode traditional moats, Cembalest notes the lasting premium on great storytelling and IP, as reflected in library valuations and viewership trends. The future, he says, is one of both challenge and adaptation for legacy content creators.

For further insights, check Michael’s personal "five-star films" recommendations via his Letterboxd account, linked in the episode’s PDF/download.