The RIAA Strikes Back!

Welcome back to the AI Geekly, by Brodie Woods, brought to you by usurper.ai. This week we bring you yet another week of fast-paced AI developments packaged neatly in a 5 minute(ish) read.

TL;DR Hey, I know this song; AI model family feud

This week we break-up the summer doldrums with tales of lawsuits and expectations surpassed. The music industry takes two AI music generation darlings to court over perceived copyright infringement where the tools can be used to create music very similar to artists’ protected intellectual property. A bit of a tricky case given that one doesn’t typically sue Adobe if someone uses its Photoshop tool (or Microsoft if someone uses Word) to recreate a protected work —the infringement is considered to be by the person recreating the work, not the company providing the tool that was used to create the infringing content. Next, we take a look at the curious case of AI model sales comparing the results of OpenAI’s efforts with partner Microsoft. The winner in this competition to date may surprise you… Read on below.

The AI Geekly Takes a Break

Unlike AI, humans need a break. For this reason, we will be pausing publication of the AI Geekly for the remainder of the month of July, coming back to your inboxes once again in August. We hope you all take the time to recharge your batteries this summer, get some much-needed rest, spend some time with family and friends, and even forget about AI for a little while. AI’s all around us and will become more ubiquitous in the coming months and years, so make sure to treasure this time, a simpler one and enjoy yourselves. As a wise man once said “Life moves pretty fast, if you don't stop and look around once in a while, you could miss it.”

Under Pressure
How similar is too similar in AI generated music?

What it is: This week, major record labels, including Universal Music Group, Sony Music Entertainment, and Warner Music Group, have filed lawsuits against AI music generators Suno and Udio for alleged copyright infringement. The lawsuits, coordinated by the powerful Recording Industry Association of America (RIAA), claim that these AI platforms have used copyrighted music without permission to train their models, potentially infringing on millions of songs —they undoubtedly have. The question, in our minds, is whether permission is needed in the first place.

What it means: The growing tension between copyright holders, creators, and AI technology companies has begun to boil over. The record labels are seeking damages of up to $150,000 per infringed work (the maximum under law), which could exceed hundreds of millions of dollars. These cases are a clear escalation in the ongoing debate about the use of copyrighted material to train AI models and the potential impact on the music industry's ecosystem. Consider this in the broader context of ongoing lawsuits against OpenAI, Microsoft and others by publishers and authors who accuse AI companies of infringing on their rights where the models can substantially reproduce copywritten works. —We expect to see more of these lawsuits across domains: music and text have already emerged as contentious issues, but video and code are likely to be litigated in the near future due to similar policies of training AI models on content without creator consent.

Why it matters: Depending on how these lawsuits shake out, it will set a precedent for how AI companies can (or cannot) use copyrighted material in their training data. At play are important questions about fair use, intellectual property rights, and the future of AI in creative industries. The outcome of these cases will have far-reaching repercussions for the development of AI music generation technologies and will determine how the music industry and AI companies collaborate (or compete!) in the future. For its part, the RIAA isn’t necessarily opposed to AI models being trained on their content, they simply want rightsholders to be compensated. Indeed, Alphabet/Google are already contracting with select artists and labels to create a Youtube music generator planned for release later this year.

All in the Family
OpenAI’s direct model sales surpass expectations

What it is: This week it emerged that OpenAI has surpassed Microsoft in AI model sales, generating over $1 billion in annualized revenue from its API business as of last March —somewhat of a coup, given OpenAI's relatively recent entry into the market and its initially small salesforce. The startup has successfully competed against its own partner, Microsoft's, Azure OpenAI Service, which only recently reached the $1 billion annualized revenue mark as of this week (keep in mind that OpenAI also takes a cut of MSFT’s sales, so this still leaves OAI well ahead). —We suspect that OAI’s annualized revenues a full three months later are yet higher still as the pace of GenAI adoption continues to accelerate.

What it means: The competition between OpenAI and Microsoft in AI model sales is intensifying, despite their partnership. OpenAI's success belies the growing demand for large language models among businesses and developers. Microsoft has responded by adjusting its pricing strategy and leveraging its ability to bundle services (great, another antitrust lawsuit in the making), while OpenAI continues to attract customers with early access to new models and customization support —customers seeking access to the newest models must contract directly with OpenAI else face material lag time with MSFT when waiting for the latest/greatest GPT (and sibling) models.

Why it matters: Even partners are competitors in the land of Generative AI. Perhaps what’s most impressive here is how this development demonstrates the potential for startups to compete effectively against tech giants. While it’s easier for OpenAI to nimbly adapt to market demands than it is for MSFT to turn the ship, as it were, the overall scale and embedded nature of MSFT as an incumbent can only carry the company so far. The importance of direct access to cutting-edge AI models for businesses seeking to implement AI solutions is clear and those companies who prefer such access over simpler integration into the MS Azure suite of services appear to be numerous given the figures.

One more thing: While we’ve often viewed the competition between Microsoft and OpenAI as a friendly one, we expect that capital markets will pay close attention to this ongoing family feud, rewarding the victor with better valuations, cheaper cost of capital and could perhaps begin to turn a flywheel that accelerates and perpetuates the adoption of the victor’s solution. Candidly, we’re a bit surprised that OAI has outperformed the MSFT behemoth to this extent. We would have assumed that the Azure integration would push a higher number of customers towards Microsoft’s offering. We suspect that the split may be between enterprise players who already live in the Azure ecosystem selecting the devil they know, Azure, whereas smaller players and enterprise who have aligned themselves with Amazon’s AWS or Google Cloud have elected to take the direct OpenAI channel. Until further granularity in customer bases is shared this thesis will be difficult to validate, but it stands to reason.

About the Author: Brodie Woods

As CEO of usurper.ai and with over 18 years of capital markets experience as a publishing equities analyst, an investment banker, a CTO, and an AI Strategist leading North American banks and boutiques, I bring a unique perspective to the AI Geekly. This viewpoint is informed by participation in two decades of capital market cycles from the front lines; publication of in-depth research for institutional audiences based on proprietary financial models; execution of hundreds of M&A and financing transactions; leadership roles in planning, implementing, and maintaining of the tech stack for a broker dealer; and, most recently, heading the AI strategy for the Capital Markets division of the eighth-largest commercial bank in North America.