Technology has always had a leading role in the entertainment industry, changing the way content is created, distributed and consumed – from turning black and white pictures to technicolor, and the gramophone to streaming music. Now, with generative artificial intelligence, technology’s impact is likely to be even more profound: Media companies can produce high-quality content faster and at lower costs, while curation and personalization are likely to increase audiences’ engagement.
Investors are watching closely, as these developments should open opportunities for industry leaders to achieve higher margins, explore new revenue streams and make changes in their capital allocation. At the same time, technology may also allow for new and smaller players to challenge the dominance of the biggest names in the industry.
“While we generally frame generative AI technology as an opportunity for today's entertainment market leaders, it can be a risk as well,” says Benjamin Swinburne, who leads equity research coverage of the Media & Entertainment, Telecom & Cable Services, and Communications Infrastructure industries at Morgan Stanley. “GenAI is available to both scaled incumbents and new entrants, so it’s not difficult to imagine that individuals could produce relatively professional quality output within the next five years.”
GenAI could also spur industry consolidation if major technology companies, which compete with entertainment companies for global consumer attention, use their AI capabilities, marketing tools, intellectual property portfolios and global distribution platforms to dominate the sector.
“The combination of an entertainment and technology asset portfolio under one corporate roof may be the media conglomerate of 2030,” Swinburne says.
Cutting Costs in TV and Film
Creating, producing and distributing content for TV, film, music, books or other forms of media usually involves substantial time and money. For example, a major studio recently took about five years and $250 million to produce and release a blockbuster animated movie. But Morgan Stanley Research estimates that major media companies could reduce their overall programming expenses by around 10% as they begin to test GenAI tools.
For TV and film production companies, whose content capital spending accounts for about 50% of total expenses, costs could fall as much as 30%. They can apply GenAI to activities such as script writing, production, editing, sound mixing and visual effects.
Animation is an area where there may be more opportunities for both product enhancement and cost reductions. For example, GenAI applications can quickly help with character design, syncing lips to recorded video, adding sound effects and dubbing the final film into a variety of languages.
“We expect that GenAI can meaningfully reduce the cost of production by replacing physical production with digital or virtual components,” Swinburne says. “These savings extend to pre- and post-production, reducing the need for re-shoots, the cost of script writing and editing, among other opportunities.”
Media and entertainment companies can then reinvest a large share of the savings in their own value chain, including marketing, talent and live sports rights.
“It’s a talent-driven business and, if there’s more money to be allocated, top talent would probably get paid more,” Swinburne says. “In this attention economy, in which mega media platforms are battling for consumer engagement, sports are unique and budgets for sports rights should increase as GenAI tools free up resources.”
Curating Music and Boosting Live Events
The cost of recording and distributing music has fallen significantly in the past years as technology has started offering capabilities previously available only at professional studios. GenAI is expanding those capabilities, allowing artists to produce high-quality recordings from their own homes and then to upload to streaming platforms.
As a result of that shift, music labels could benefit from a higher volume of songs and more chances of developing artists. But they will also face the challenge of a more fragmented audience.
Then enters GenAI with curation and personalization. Technology could help deliver the right track to the right consumer at the right time. That translates to more engagement, which supports consumer retention and higher pricing power.
At the same time, GenAI is driving additional demand for live experiences.
“Because AI changes how we communicate with each other digitally, it probably causes consumers to treasure ‘in-the-moment,’ communal experiences even more,” says Cameron Mansson-Perrone, who leads Music and Live Entertainment coverage at Morgan Stanley. “Also, as AI creates more consumer demand, it might lead to more financial incentive for artists to tour.”
