Walt Disney is investing $1 billion in OpenAI and will let the startup use characters from Star Wars, Pixar and Marvel franchises in its Sora AI video generator, a deal that could reshape how Hollywood makes content.

The three-year partnership announced on Thursday is a pivotal step in Hollywood's embrace of generative artificial intelligence, sidestepping the industry's concerns about the impact of AI on creative jobs and intellectual property rights.

As part of the licensing deal, Sora and ChatGPT Images will start generating videos using licensed Disney characters such as Mickey Mouse, Cinderella and Mufasa, starting early next year. The agreement excludes any talent likenesses or voices.

"Through this collaboration with OpenAI we will thoughtfully and responsibly extend the reach of our storytelling through generative AI, while respecting and protecting creators and their works," Disney CEO Bob Iger said.

Hollywood's unions, which are monitoring the expanding use of generative AI, reacted cautiously to the deal.

Talks began long ago

Iger and OpenAI's Sam Altman began talking years ago, as they discussed ways to showcase the potential of generative AI, when combined with Disney's characters and stories, according to one person familiar with the talks.

Before the launch, OpenAI offered the studio early looks at its image-generation tool Sora, according to the source who requested anonymity to discuss the negotiations, adding that Disney found OpenAI willing to engage constructively in this dialogue.

Iger previewed part of the strategy during an investor call in November, saying AI would allow the company to provide Disney+ users with tools to create and consume user-generated content, mainly in short form.

As part of the agreement with OpenAI, a selection of the videos by users will be made available for streaming on Disney+, allowing the streaming platform to capitalize on the growing appeal for short-form video content.

The media conglomerate will also receive warrants to purchase additional equity in the ChatGPT maker.

The companies will use OpenAI's models to build new products and customer experiences, including for Disney+ subscribers, while Disney will deploy ChatGPT for its employees.

The deal also includes guardrails to protect against the characters being depicted in inappropriate situations. Disney also plans to use OpenAI's tools for its internal purposes to support film production as it looks to gain efficiency, the source said.

The partnership comes months after Creative Artists Agency, Hollywood's premier talent agency, criticized OpenAI for exposing artists to "significant risk" through Sora and questioned if creative professionals would be compensated for their work.

Animators to raise compensation concern

Danny Lin, president of the Animation Guild, said compensation for artists was a concern the union would raise.

While animators do not own the rights to Disney characters, "we're certainly the reason they exist and the reason that they have such earning potential," Lin said.

The Writers Guild of America said it would meet with Disney to find out how much of its members' labour would be used in user-generated videos.

"Disney’s announcement with OpenAI appears to sanction its theft of our work and cedes the value of what we create to a tech company that has built its business off our backs," WGA leaders said in a note to members.

SAG-AFTRA, which represents actors and other entertainment workers, said Disney and OpenAI contacted the union to offer assurances the deal would ensure the ethical and responsible use of the technology.

"The ongoing dialogue reflects a significant commitment to taking SAG-AFTRA members' concerns into account in the protective measures applied to image, likeness, voice, performance, and intellectual property rights generally," the union said in a statement.

Emarketer analyst Ross Benes, however, said unions' power was limited and "they will unlikely be able to stem the momentum of AI-produced media."

CNBC reported earlier in the day that Disney sent a cease and desist letter to Google alleging the company infringed its copyrights.

Disney and Comcast's Universal in June filed a copyright lawsuit against AI photo generation firm Midjourney for its use of the studios' best-known characters.