The streaming wars are taking an unexpected turn as free ad-supported services grow 10 times faster than paid platforms, prompting media giants to explore innovative solutions including AI-generated content. According to Nielsen data analyzed by Business Insider, YouTube, Tubi, and The Roku Channel have grown their viewership by 53% from December 2023 through November, while major paid streamers including Netflix, Disney+, Hulu, and HBO Max collectively grew only 5% during the same period.
The three free streamers now command nearly 18% of all watch time on US smart TVs, creating significant pressure on subscription-based services. Brandon Katz, a media analyst at Greenlight Analytics, notes that “for consumers, cost sensitivity is often a more important deciding factor than user experience,” as viewers prioritize saving money over avoiding advertisements.
This viewership gap presents serious challenges for paid streamers, as engagement directly correlates with subscriber retention and pricing power. Hernan Lopez, founder of media consulting firm Owl & Co., emphasizes that “engagement drives churn down,” making it crucial for platforms to maintain regular user activity. Highly engaged subscribers are also more receptive to price increases, which every major streaming service except Prime Video has implemented in the past 12 months.
Facing this “stream-flation” crisis, Disney is pioneering a groundbreaking AI strategy through a new partnership with OpenAI. The initiative will enable fans to create short AI-generated video clips featuring Disney characters like Mickey Mouse or Darth Vader, eventually integrated directly within the Disney+ app. This represents one of the first major implementations of generative AI video technology by a major entertainment company.
Meanwhile, Netflix is pursuing different engagement strategies, including video podcasts for “lean-back content” and gaming features to create daily user habits. The contrasting approaches highlight how streaming giants are experimenting with various technologies to combat the threat from free services and social media platforms like Instagram and TikTok. Despite these challenges, streaming remains increasingly profitable thanks to price hikes and growing ad-supported tiers, though the sustainability of this model depends on maintaining subscriber engagement in an increasingly competitive landscape.
Key Quotes
For consumers, cost sensitivity is often a more important deciding factor than user experience. Saving money outweighs the annoyance of terrible insurance commercials.
Brandon Katz, media analyst at Greenlight Analytics, explains why free ad-supported streamers are gaining market share, highlighting the economic pressures driving Disney and others to explore AI solutions for differentiation.
Engagement drives churn down. It’s not just about hours spent, but also the frequency that viewers return to an app and the breadth of content that they watch.
Hernan Lopez, founder of Owl & Co., articulates why Disney’s AI-generated content strategy aims to increase user interaction frequency, as higher engagement directly reduces subscription cancellations.
The goal is to offer customers enough attractive content that opening the app becomes a regular occurrence. At that habitual usage point, streamers are able to reasonably raise prices without fear of a mass exodus of customers.
Brandon Katz explains the business logic behind Disney’s AI initiative—creating habitual engagement that justifies premium pricing in an increasingly competitive streaming market.
Our Take
Disney’s OpenAI partnership represents a calculated gamble on generative AI as a competitive differentiator in the streaming wars. While Netflix pursues incremental engagement strategies through podcasts and games, Disney is leapfrogging into uncharted territory with AI-generated video creation. This bold move could either revolutionize fan engagement or backfire if audiences reject AI-generated content as inauthentic. The timing is strategic—as free streamers capture market share through cost advantages, Disney needs technological innovation to justify premium pricing. However, the initiative raises critical questions about quality control, brand protection, and potential backlash from creative professionals. If Disney successfully integrates AI content creation without diluting its brand equity, expect competitors to rapidly follow suit, potentially triggering an AI arms race in entertainment technology.
Why This Matters
Disney’s partnership with OpenAI marks a pivotal moment in entertainment’s AI transformation, representing the first major studio deployment of generative AI video technology for consumer-facing applications. This move signals that AI-generated content is transitioning from experimental to mainstream within the entertainment industry. The initiative addresses a critical business challenge: maintaining subscriber engagement amid rising costs and free alternatives. By enabling users to create personalized content with beloved characters, Disney is betting that AI-powered interactivity can drive the daily engagement necessary to justify subscription prices and reduce churn. This strategy could fundamentally reshape how audiences interact with intellectual property, moving from passive consumption to active co-creation. The broader implications extend beyond Disney—if successful, this model could accelerate AI adoption across the entertainment industry, potentially disrupting traditional content creation workflows while raising questions about creative authenticity, copyright, and the role of human creators in an AI-augmented future.