Roth Capital Partners' Rohit Kularni: Here's what OpenAI's Sora means for social media platforms

Key Concepts

• Sora: OpenAI's advanced AI model for generating realistic and imaginative videos from text instructions.
• AI-Generated Videos: Content created by artificial intelligence, posing a new challenge to traditional content creation.
• Core Value Proposition (Core Value Prop): The unique benefits and value a company offers to its customers and advertisers.
• Platform Stickiness: The ability of a social media platform to retain users and encourage high engagement and time spent.
• Ad Dollars: Revenue generated from advertising on social media platforms.
• Subscale Platforms: Social media platforms with a smaller user base and fewer resources compared to industry giants.

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The Threat of AI-Generated Video (Sora)

The emergence of AI-generated video, particularly from OpenAI's Sora, presents a significant disruption to the content creation landscape, threatening not only traditional Hollywood studios but also individual creators and social media platforms. Mr. Beast, who operates the most subscribed channel on YouTube, expressed concern in a recent post, stating, "When AI videos are just as good as normal videos, I wonder what that will do to YouTube and how it will impact the millions of creators currently making content for a living. Scary times." This sentiment highlights the potential for AI to fundamentally alter the economics and dynamics of online content.

Social Media Platforms' Strategic Response

Rohit Khilnani, Senior Research Analyst at Roth Capital Partners, explains that social media companies will approach this challenge by focusing on three core areas: improving user trust, increasing time spent on the platform, and translating these into ad dollars. Khilnani notes that Sora, with its ability to generate engaging and personalized content, "solves the first two problems improving trust amongst users and make make it more personalized." He emphasizes that the initial success of any platform hinges on user acquisition and trust, which Sora appears to address effectively. The speed at which Sora can scale and convert this engagement into advertising revenue remains to be seen.

Response of Large Platforms (Google, Meta, Amazon)

Major platforms like Google, Meta, and Amazon are expected to respond strategically in the short term, within the next 6 to 9 months. Their primary approach will involve strengthening their relationships with advertisers and creators, who are considered the "two big pillars of their fundamentals." This will be achieved by:

1. Providing more credits to advertisers: Incentivizing ad spending on their platforms.
2. Offering more incentives to creators: Encouraging creators to continue producing content for their platforms.
3. Developing and providing more tools to creators: Khilnani suggests these tools will likely "copy very, very, very quickly what Sora is offering to a normal creator," making their platforms "stickier." The goal is to create a higher barrier for new startups like Sora to overcome once these established platforms integrate similar AI capabilities and creator support.

Challenges for Tier-Two Platforms (Reddit, Twitter, Pinterest, Snapchat)

Platforms with less scale and technological capability, referred to as "tier two players" (e.g., Reddit, Twitter, Pinterest, Snapchat), face a more immediate and significant threat. Reddit, for instance, saw its stock down 5% on the day this news was discussed, indicating investor concern. These platforms "need to hunker down and figure out what's their core value prop to both consumers and to their advertisers." Khilnani likens this moment to the "TikTok moment" between 2019 and 2021, when TikTok rapidly gained eyeballs and time spent, disrupting the social media landscape. The next 12 to 18 months will be critical for these subscale platforms as they contend with the pressure of user attention shifting towards new AI-driven content.

Impact on Content Creators

The rise of AI-generated video will have a bifurcated impact on content creators:

• Creators at Greatest Risk: Those who operate on a "quasi part time basis" and earn "hundreds of dollars, maybe thousands of dollars every month" are most vulnerable. Their content, often less unique or creatively intensive, could be easily replicated or surpassed by AI.
• Professional Creators: Creators with "true creativity" are expected to "harness AI." Instead of being replaced, they will leverage AI tools to enhance their production, efficiency, and creative output, becoming "even more of an important contributor to these social media platforms." The implication is that AI will serve as an amplification tool for established creative talent.

Conclusion

The advent of AI-generated video, spearheaded by Sora, marks a transformative period for social media and content creation. While it presents a "scary" challenge, particularly for smaller creators and subscale platforms, it also forces established giants to innovate by enhancing user trust, engagement, and creator incentives. The industry is poised for a significant shift, reminiscent of TikTok's disruptive entry, where platforms must redefine their value propositions and creators must adapt by either leveraging AI or risking obsolescence.