The Journal. - Disney’s Big AI Dilemma

Episode Date: August 6, 2025

Disney is grappling with how to push forward into a new AI era without losing control of its valuable intellectual property. WSJ’s Jessica Toonkel takes us inside the company's complicated relationship with AI and its race to figure out how to leverage the new technology for maximum gain – without putting too much at risk. Jessica Mendoza hosts. Further Listening: - The Download That Led to a Massive Hack at Disney - Disney Gets Into Gambling - Why Florida is Fighting with Walt Disney World Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Aloha, everyone from beautiful Hawaii. Standing on a beach with palm trees swaying behind him, the actor Dwayne the Rock Johnson made an announcement. We are so excited and happy to announce that a live action reimagining of Moana is in the works. The video came out in April 23, and in it, Johnson revealed that he would be reprising his role as Maui, in the live-action version of Disney's animated hit, Moana. Kidding. Hey, hey's going to be in it, but of course, Maui will be in it too. But behind the scenes, Disney was planning something that didn't make the announcement.

Disney was looking at, is there a way we could do certain shots without having Dwayne Johnson be here every single time? My colleague Jessica Tonkel covers media and entertainment. Because, you know, when you're filming a movie, there's a lot of waiting around. that can also be expensive for everyone. Time is money. Dwayne Johnson's a big star. And so the idea was, what if we could take his face

and put it on his stunt double, who's also his cousin, and use that for a few shots. Johnson approved the idea. But in order to create these essentially deep fakes of Johnson's face, Disney turned to a third-party AI company. And as discussions started,

a big issue came up. The question was, was, would Disney own that final product? Whatever was created from Dwayne Johnson's face on his cousin's body, would they still own that imagery? Why was Disney so fixated on that question? Because Disney is its characters, and if they lose control and ownership of those,

they risk a lot. Disney, more than any other company, has the most to lose. After 18 months, of negotiations, Disney decided not to move forward with using AI footage in the film. The saga captured the conflict that Disney is facing when it comes to embracing AI. It's a bit of a fundamental challenge for Disney because I don't think Disney wants to be seen as not ahead of things and not being aggressive in embracing new technologies. They don't want to be seen as backward-looking.

At the same time, they have to be super cautious. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, August 6. Coming up on the show, Disney wants to keep control of its most valuable assets and use more AI. Can it do both? Get to Toronto's main venues like Budweiser Stage and the new Roger Stadium with Go Transit. Thanks to Go Transit's special online e-ticket fairs, a $10 one-day weekend pass offers unlimited travel on any weekend day or holiday anywhere along the Go Network. And the weekday group passes offer the same weekday travel flexibility across the network, starting at $30 for two people and up to $60 for a group of five.

Buy your online go-pass ahead of the show at go-transit.com slash tickets. Disney is known for creating classic and beloved characters and fiercely guarding that intellectual property. Well, think about it. Disney has a hundred-year history of some of the most iconic characters in the world, right? We have Cinderella, you have Buzz Lightyear, you have Princess Bell, you have Donald Duck, like these are characters that are known globally and have known through generations and generations. Like, if they can't continue owning those, what is Disney?

But the media landscape is changing rapidly, as more people look beyond traditional film and TV for content. That's eaten into studios' profits. And companies like Disney are already trying to use AI as a way to help cut costs. That was the idea behind making an AI version of the Rock in the Moana Live Action movie. Disney puts out some of the most expensive movies in the world. That is happening at the time that fewer people are going to movie theaters. They need to find ways to cut costs and grow revenue and profits. So if they can figure out a way to use AI around the edges and things, that will help them make movies much cheaper.

But also maybe they're able to put out more movies because they're not spending as much on a single film. And when you say use AI on the edges, what are the kinds of things Disney is envisioning? Some of that is work you do before you're actually shooting the movie, like just things on set when you're trying to figure out what goes where and what a scene will look like. That could be done by AI rather than have people drawing out what things will look like and having actors stand around.

Like there's a lot of that pre-work that you don't need, and the same thing with the special effects. And you're seeing this already where you can just make the special effects team's job faster. Some of the grunt work where they have to, like, do all this stuff to make one thing move across the screen, they could just use a tool and it would happen much faster. Disney has already started turning to AI as it diversifies its business, particularly in gaming. Last year, the company took a $1.5 billion stake in Epic Games, the owner of the popular online game, Fortnite. Disney had already licensed some of its Marvel and Star Wars characters to Fortnite,

and fans loved it. So earlier this year, Disney and Epic experimented with generative AI to up the ante for fans. They created an AI-generated Darth Vader within Fortnite that gamers could chat with for a few days. Darth, do you realize I'm your son, Luke Skywalker? The Skywalker line, always so eager to announce itself. This AI Darth Vader was trained on the voice

of the late actor James Earl Jones, who voiced the character in the original Star Wars trilogy. So how did it go? Unfortunately, the gamers figured out a way to get the Darth Vader to curse. Of course. Like, within minutes. Epic Games fixed the cursing issue within half an hour. But this kind of slip-up is exactly why Disney keeps such a tight grip on its characters

and has traditionally been wary of trying these kinds of experiments. Because they would have been worried about the bad publicity associated with it wouldn't be worth the good publicity. right? So yes, we might have gotten a lot of people to talk to Darth Vader, but oh my God, everyone saw this happen and this is terrible. But that wasn't how Disney responded this time. On June 3rd, not long after the incident took place, a Disney executive who heads up the company's gaming division took to the stage at an epic games event and talked about the AI-generated Darth Vader. He called it a historic moment for video games. This experimental feature offers a glimpse into the future showing how Disney

and Epic are responsibly embracing emerging technologies to expand the boundaries of storytelling and reimagine what's possible in gameplay. The president of Epic Games said the company is committed to innovation, storytelling, and consumer engagement, and that it's excited about its future with Disney. Ultimately, Jessica says, the company's considered the experiment a win. They had like 10 million people, I think it was, that had a conversation with the Star Theater, and it was all over social media. I think Disney now recognizes that we need to do these kinds of things,

even if that might happen, because this is the future of entertainment. Even though Disney has become more willing to push boundaries with AI, it's still moving carefully with the technology. The company has set up all kinds of guardrails internally, including requiring employees to get permission before putting corporate content into an AI tool. You would need to submit that to an AI committee at Disney, who would have to approve you using whatever tool you wanted to use.

And, you know, some people I'd spoken to not that long ago, it would take some time to get that approval. Now they've gotten it down to like 48 hours. But that just speaks to how cautious they're being. But even as Disney tries to control it, AI is spreading like wildfire, and it's changing the shape of the entertainment industry. That's next.

In June, Disney took a major step in trying to protect its copyrighted material from being used by generative AI, and it was joined in the effort by a longtime competitor, Universal Studios. Two major studios have sued an AI startup claiming it as, quote, blatantly copied famous movie characters. The two studios filed a joint lawsuit against Mid Journey, an artificial intelligence provider that let's users generate images from text prompts. And they are alleging that they basically are stealing their characters, and they have about 100 images in the lawsuit where they show examples of how the AI company

is stealing their characters without their consent. So the issue is that Mid Journey, like most generative AI, has been trained on content that includes Disney IP. Right, that is exactly it. And in a lot of those, what they're spitting out, you will see, Darth Vader or other Disney or, in this case, universal characters like minions and things like that. So there's not a lot of regulation around all of this right now. Disney said in its lawsuit that Mid Journey ignored earlier requests to cease violating their intellectual property rights.

It called Mid Journey, quote, the quintessential copyright freewriter and a bottomless pit of plagiarism. Mid Journey has not yet responded to the lawsuit. What would be the ideal outcome for Disney and Universal? Well, definitely that no AI provider could do anything where it would output their IP. Gotcha. And at what point is the lawsuit in its journey? And what would the implications be? So we are in early days of this lawsuit.

They just filed it several weeks ago. But I think what the lawsuit speaks to, it's a bigger question. And the bigger question is becoming this brewing battle between Silicon Valley and Hollywood in that companies like Meta, Google, OpenAI have been arguing to the Trump administration that all copyrighted material, we should have access to all of it to train our models. And we need it because the companies in China are training off of it. And if you want us to compete with the companies in China, this is what we need. Hollywood companies and, you know, the CEO of Disney Bob Eiger and his general counsel met with administration officials a few months ago and said, like, no, if you start taking all of our content and letting it feed these models, you lose what America's great for, which is the

creativity and all the things we do. So this is the core battle. I mean, the Mid-Journey lawsuit is one piece of that, but that is really what's at stake here, is what can. Can you or can you not, can these models train on? And it's not just the ownership of the content that AI is training on that's at issue. The people who are making that content are also worried. Actors, writers, artists, and other creatives have been raising concerns for years about losing their jobs to AI. Disagreements about the technology were part of what shut down Hollywood for months in

2023, costing the industry billions. Fran Dresher is the president of the labor union representing performers, broadcasters, and recording artists. She gave a speech at the time. If we don't stand tall right now, we are all going to be in trouble. We are all going to be in jeopardy of being replaced by machines. Eventually, studios and unions did make a deal, one that included worker protections when it came to AI, including getting consent and paying some creatives when AI is being used. But it was a long and costly negotiation for the industry. And with a new round of contract talks, set to begin next year, Disney and other studios are reluctant to make any moves related to

AI that might upset unions. Disney considers itself, especially Bob Iger, tries to be very talent-friendly. They want to be seen as a friend to the actors and the writers. So they don't want to be seen in any way as doing anything that would replace their jobs. So how is Disney dealing with the concerns from workers and union leaders this time around? Has anything changed? I mean, they have protections in place now. I do think that it's going to be interesting to see as those conversations start, like not the loud conversations, but the quiet conversations between the sides will start soon. It'll be interesting because, you know, a few years ago, the writers and the actors definitely had, I would argue they had the public support and they had

leverage. I think as these tools get better and as there's more pressure on the Hollywood companies to make money. It'll be interesting to see how that plays out. What would be at stake if Disney's not able to figure out how to walk that line between pushing forward on AI and protecting their IP? I mean, I would argue that the worst case scenario is that they lose ownership of some element of some character. I think that would be part for Disney if it came out one day that like, oh my God, Open AI owns this version of Darth Vader. How much money might they lose if they lose a character like Darth Vader? I mean, think about these characters.

They're on posters. They're on lunchboxes. They are in movies. They're in TV shows. Like, they're on T-shirts. Like, think about all the different revenue streams that come from a character. I think the heart of it is, on some level, Disney is like every other Hollywood company in that they're trying to figure out how to embrace these technologies.

They recognize this is the future. But at the same time, they also want to protect themselves. I think they're going to be super cautious because they have the most to lose. But the days of AI being thought of as a bad word in Hollywood are over. That's all for today, Wednesday, August 6th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode from Connor Hart, Amrith Ram Kumar, and Eric Schwartzell.

Thanks for listening. See you tomorrow.