Earlier this month, when OpenAI CEO Sam Altman arrived in Los Angeles to attend a Vanity Fair Oscar after-party, his company was just weeks away from licensing the Sora video generation tool to major Hollywood studios.

After the tremendous success of ChatGPT, Sora was hyped as the next consumer-facing frontier technology in AI. This easy-to-use application allowed users to place themselves and their friends in various video scenes, whether dribbling like a member of the Harlem Globetrotters or dueling with Darth Vader from Star Wars.

Disney's then-CEO Bob Iger was also optimistic about its prospects, agreeing to let the company invest $1 billion in OpenAI and allowing characters from the studio's subsidiaries like Marvel and Pixar to appear in videos generated by Sora. Equally important, as the industry was generally worried about AI posing a threat to creative work, he attached Disney's valuable authoritative badge to this emerging technology.

Computational Burden

However, OpenAI abruptly decided to shut down Sora.

Disney executives were shocked by this, many only learning of the decision less than an hour before it was announced. What they did not know was that, in the months following its release, Sora had quietly become a significant burden for OpenAI, especially as the startup expedited its business focus ahead of its IPO.

At that time, OpenAI was just weeks away from completing a new AI model code-named "Spud," needing to free up more computational resources to support coding tools and enterprise products running on that model. AI chips are the most valuable resource for any top research lab, and at OpenAI, Sora consumed too many chip resources.

Moreover, Sora was not yet profitable, and every user stitching themselves into wartime newsreels or Hollywood chase scenes was draining limited computational resources.

Strategic Misjudgment

Today, Sora looks like an expensive strategic misjudgment, with key employees leading the project caught in the midst of a talent war sweeping through Silicon Valley.

Altman described the decision to shut down Sora as a difficult but necessary sacrifice for the company to achieve greater goals. In a memo to employees, he wrote that he was encouraged to see everyone willing to make "difficult trade-offs" for the company's benefit.

Altman

This decision put a shocking end to a project Altman had high hopes for. He had dreamed of making OpenAI a creative pioneer in the AI era through Sora and bringing in substantial new revenue for the company.

Two years ago, OpenAI first showcased Sora to the world, presenting breathtaking landscapes generated by the technology, reminiscent of Hayao Miyazaki's fantastical worlds or the surrealistic paintings of famous artist Salvador Dalí. When OpenAI launched the standalone Sora application to consumers last September, Altman compared it to the moment the company first released ChatGPT.

However, the application never became as popular as its developers envisioned; it was more like low-quality content churned out by AI rather than an astounding creative output. By the end of last year, its usage had plateaued.

Shortly after its launch, the global user count peaked at about 1 million but never hit that level again. According to data from AI research firm Similarweb, in the following months, the user count dropped to below 500,000.

An insider revealed that Sora was losing about $1 million daily. As OpenAI tightened its funding chain ahead of the IPO, company executives began looking at Sora with a more critical eye, and the results were unsatisfactory.

At the time, the OpenAI research team was about to begin training a new model aimed at supporting video generation features for ChatGPT. Unlike language models that learn from text, video models need to understand a whole dynamic world, thus their creation cost is significantly higher. After carefully calculating the required costs, OpenAI decided to cancel Sora.

OpenAI planned to shift its focus to creating a new "super app," which would integrate so-called AI agents capable of autonomously performing tasks for users, such as writing software, analyzing data, and booking travel. Products focusing on productivity are gradually gaining traction in the labor market, and OpenAI was currently falling behind its competitor Anthropic in the race for this market, which posed a threat to its leading position in the AI race.

Altman told employees that the Sora team would next focus on long-term strategic layouts like robotics.

An OpenAI spokesperson stated that the company was rigorously prioritizing computational resources based on areas that can bring the most long-term economic value. She said, “This cautious focus on where to allocate computational resources allows us to achieve growth, accelerate innovation, and provide services to businesses and developers more efficiently.”

Zuckerberg Poaching Talent

Sora was the brainchild of Tim Brooks and Bill Peebles. These two researchers became close friends while pursuing their PhDs at the University of California, Berkeley. Early in 2023, they joined OpenAI with the goal of building a model capable of generating high-quality video that simulates the physical world via text.

Sora was part of OpenAI's World Simulation team, led by Aditya Ramesh. This department operated independently from OpenAI's core research team, which was responsible for building the large language models supporting ChatGPT.

Last spring, Meta CEO Mark Zuckerberg launched an all-out talent-poaching campaign against OpenAI, personally contacting dozens of top researchers from OpenAI, luring them to join his new AI lab with hefty compensation packages. One of his targets was Peebles, who received an invitation and briefly considered joining Meta.

According to insiders, OpenAI successfully retained Peebles by raising his salary. Shortly after, his responsibilities on the Sora project expanded. Peebles was responsible for overseeing the training of the new video generation model and the development of the Sora consumer application.

Disney's AI Dream

Despite Sora losing $1 million a day, OpenAI had attempted to find a way to make Sora work. Last December, it announced a multi-year agreement with Disney to gain licensing rights to over 200 characters from the entertainment giant's movie library. As part of the agreement, Disney agreed to become a major client of OpenAI and invest $1 billion in the company.

Iger stated in an interview with CNBC that this deal provided Disney with an opportunity to be involved in the rapid evolution of AI and new media entertainment. Altman expressed hope that this collaboration would offer users a new way to express creativity through AI.

Disney's then-CEO Iger

For Disney, this agreement demonstrated that a viable business model existed for AI licensing around its intellectual property. Just a day before announcing the deal with OpenAI, Disney had sent a cease-and-desist notice to Google, accusing the tech giant of "massively infringing Disney's copyrights."

Cloud Service Solutions

In February of this year, Iger stated in a financial earnings call that short videos generated by Sora would soon appear on the streaming platform Disney+, which was preparing to launch a vertical video feed at that time. Insiders revealed that Disney was also in talks with OpenAI about implementing ChatGPT across the company.

In recent weeks, OpenAI began piloting a corporate version of Sora that would allow companies like Disney to use the tool in a secure manner. Disney had expected to launch this tool as early as this spring, allowing some Disney executives to use Sora for various tasks from marketing campaign design to special effects production without OpenAI accessing their work.

However, OpenAI had already been contemplating how to withdraw from the Sora project. The gap with competitor Anthropic was widening further, as Anthropic's recent technological advancements reignited concerns about AI potentially replacing traditional software and services, briefly triggering a sharp decline in software stocks. OpenAI realized it needed to allocate more resources to building these so-called productivity tools and began to lower priorities in certain areas.

After initially planning to continue offering video generation capabilities through ChatGPT, the company ultimately decided to shut Sora down completely.

Disney's $1 billion investment in OpenAI ultimately did not come to fruition, and the relationship between the two parties had effectively reached a standstill.

According to an insider, under the leadership of new CEO Josh D’Amaro, Disney is actively discussing how to apply other AI tools with more than a dozen partners.

Real-time Information Push

Disney stated in a press release, “As the emerging field of AI rapidly develops, we respect OpenAI’s decision to exit the video generation business and realign its priorities. We appreciate the constructive collaboration between the teams and the experiences gained from it.”

On Sora's X account, its team posted a message resembling a digital obituary: “To everyone who created, shared, and built a community around Sora: thank you.”