“AI companies are either in a position where they need to aggressively filter user prompts and model outputs to make sure that they don’t accidentally show Darth Vader, or strike deals with the rights holders to get permission to make videos and images of Darth Vader,” Sag told Fortune. “The licensing strategy is much more of a win-win.” 

The three-year agreement gives OpenAI the right to ingest hundreds of Disney-owned characters into Sora and ChatGPT Image. Disney will also receive equity warrants and become a major OpenAI customer, while deploying ChatGPT internally.

Sag said the deal itself will be a kind of “revenue-sharing.”

“OpenAI hasn’t figured out the revenue model,” Sag said. “So I think making this just an investment deal, in some ways, simplifies it. For Disney … [OpenAI] will figure out a way to make this profitable at some point, and [Disney will] get a cut of that.”

Why this deal matters: the ‘Snoopy problem’

For more than a year, the biggest legal threat to large-scale generative AI has centered on what Sag calls the “Snoopy problem”: It is extremely difficult to train powerful generative models without some degree of memorization, and copyrightable characters are uniquely vulnerable because copyright protects them in the abstract.

Sag was careful to outline a key distinction. AI companies aren’t licensing the right to train on copyrighted works; they’re licensing the right to create outputs that would otherwise be infringing.

That’s because the case for AI companies training their models on unlicensed content is “very strong,” Sag said. Two recent court rulings involving Anthropic and Meta have strengthened those arguments.  

The real stumbling block, Sag said, has always been outputs, not training. If a model can accidentally produce a frame that looks too much like Darth Vader, Homer Simpson, Snoopy, or Elsa, the fair use defense begins to fray.

“If you do get too much memorization, if that memorization finds its way into outputs, then your fair-use case begins to just crumble,” Sag said.

While it’s impossible to license enough text to train an LLM (“that would take a billion” deals, Sag said), it is possible to build image or video models entirely from licensed data if you have the right partners. This is why deals like Disney’s are crucial: They turn previously illegal outputs into legal ones, irrespective of whether the training process itself qualifies as fair use.

“The limiting principle is going to be essentially about whether—in their everyday operation—these models reproduce substantial portions of works from their training data,” Sag said.

The deal, Sag says, is also a hedge against Hollywood’s lawsuits. This announcement is “very bad” for Midjourney, who Disney is suing for copyright infringement, because it upholds OpenAI’s licensing deal as the “responsible” benchmark for AI firms. 

This is also a signal about the future of AI data

Beyond copyright risk, the deal exposes another trend: the drying up of high-quality, unlicensed data on the public internet.

In a blog post, Sag wrote:

“The low-hanging fruit of the public internet has been picked,” he wrote. “To get better, companies like OpenAI are going to need access to data that no one else has. Google has YouTube; OpenAI now has the Magic Kingdom.”

This is the core of what he calls the “data scarcity thesis.” OpenAI’s next leap in model quality may require exclusive content partnerships, as opposed to more scraping. 

“By entangling itself with the world’s premier IP holder, OpenAI makes itself indispensable to the very industry that threatened to sue it out of existence,” Sag wrote. 

AI and Hollywood have spent three years locked in a cold war over training data, likeness rights and infringement. With Disney’s $1 billion investment, that era appears to be ending.

“This is the template for the future,” Sag wrote. “We are moving away from total war between AI and content, toward a negotiated partition of the world.”

The two companies announced a three-year deal that would bring more than 200 characters to Sora with a period of exclusivity for part of the duration of the deal.

Disney CEO Bob Iger painted the team-up as Disney taking the next step in content with the newest technology and waived away concerns about whether the deal represents a threat to human creators.

“We’ve always viewed technological advances as opportunity, not threat,” Iger said. 

“It’s going to happen regardless, and we’d rather participate in the rather dramatic growth, rather than just watching it happen and essentially being disrupted by it,” he later added.

Iger also noted in an interview with CNBC that as part of the deal, Disney characters can be used in Sora videos, but it does not include rights to likeness or voices. 

“OpenAI is putting guardrails essentially around how these are used, so that really there’s nothing to be concerned about from a consumer perspective,” he said. “This will be a safe environment and a safe way for consumers to engage with our characters in a new way.”

Iger said the company would also feature some user-generated AI content from Sora on the Disney+ platform, which he said would be a great way to increase engagement with younger users.

Disney will receive warrants to buy additional equity in OpenAI as part of the deal and Iger said there would be future opportunities for the company to become an OpenAI customer including licensing from OpenAI. 

Starting last year, OpenAI started opening up Sora to more users and in September launched Sora 2, an upgraded version of the video generator catered more toward mobile. Controversy followed its September release because of the app’s ability to create convincing and realistic videos of people. In October, OpenAI paused AI-generated deepfake videos that featured civil rights leader Martin Luther King Jr. after his daughter, Bernice A. King complained they were being used in a “demeaning, disjointed” way.

Thursday’s deal also comes after Disney sent a cease-and-desist letter to Google for allegedly using its intellectual property to train its AI models and in its services without permission. The company has previously sent similar letters to other companies like Character.ai. Iger told CNBC that Character.ai corrected the issue shortly after and noted that with Google, “the ball is in their court,” and Disney would wait to see how they react to the claim.

Altman for his part said Sora users have longed to use Disney characters in their videos and said he hoped adding them to the platform could “unleash a sort of whole new way that people use this technology.”

“We have underestimated the amount of latent creativity in the world,” said Altman. “But if you lower the effort, skill, time required to create new things people very quickly are able to bring ideas to life.”

As if dragging a three-wheeled carry-on across the mileage of an international airport isn’t enough, the government wants you panting before your flight. This week, Transportation Secretary Sean Duffy and Health Secretary Robert F. Kennedy Jr. had a pull-up competition in the middle of Reagan National Airport’s Terminal 2 (not a metaphor) to announce the $1 billion in grants the administration plans to allocate toward healthy airport upgrades.