Goldman Sachs analyzes "The Entertainment Industry in the AI Era": Unlimited Supply vs. Limited Attention

AI is fundamentally reshaping the value chain and profit pool of China's cultural and entertainment industry.

According to TrendFocus, Goldman Sachs pointed out in its latest research report that content supply is approaching unlimited while user attention remains limited. This core contradiction will profoundly change the industry landscape in the coming years and create significant differentiation among different tracks and players.

According to a Goldman Sachs report, the rapid evolution of AI multimodal technology has reduced content production costs by an average of 80% to 90% or more, and significantly shortened production cycles. Taking short dramas as an example, the output of short dramas and mini-series in the first eight months of 2026 expanded 13 times compared to the entire year of 2025; the number of new game (including mini-game) releases increased more than eightfold. At the same time, audience acceptance of AI-generated content is also rapidly increasing with improved quality—on the leading short drama platform Hongguo, over 90% of the episodes are now AI-generated.

Goldman Sachs believes that the explosive growth in content supply does not mean that all links in the industry chain will benefit. The report clearly points out that the value at the production and execution levels will be compressed, while the scarcity of top-tier IPs and creative assets will be further highlighted.

Supply explodes, attention becomes a scarce resource

The core argument of the Goldman Sachs report is that while the supply of content in the AI era is approaching unlimited, users' time and attention have not expanded accordingly.

From a technical perspective, AI video generation speed has surpassed human viewing speed—for example, the H3 Max model can generate a 5-second video in just 3 seconds. This breakthrough has shifted content production from a "scarcity-driven studio model" to an "infinite dynamic generation model." Goldman Sachs estimates that AI can reduce the production costs of animation, music, advertising videos, and short dramas by 80% to 95%; for complex interactive content such as games and long-form dramas, the cost reduction is also 30% to 70%. In terms of production cycles, AI increases the speed of content production by at least 5 to 10 times—a small team of 2 to 3 people can now complete the development of a small game in a week, whereas the same work used to take 3 to 6 months.

However, the unlimited expansion of supply is creating new problems. Goldman Sachs points out that as a large amount of homogeneous content floods the market at an unprecedented rate, the "shelf life" of content is actually shortening, user attention is becoming increasingly fragmented, and it is becoming more difficult for new IPs to break through.

Value chain restructuring: IP value increases, production layer value decreases.

Goldman Sachs categorizes the impact of AI on the entertainment industry value chain into three levels, with significant differences in the degree of benefit at each level.

The IP and creative layers are showing a divergent pattern. Top-tier, evergreen IPs are expected to extend their lifespan with the help of AI, as evidenced by the continued expansion of market share of Tencent's evergreen games such as "Honor of Kings" and "Justice Online" in 2026. However, at the same time, long-tail IPs face greater pressure to differentiate themselves, and new IPs are finding it increasingly difficult to gain user recognition in an environment of highly fragmented attention.

The value of the production and execution layers is being systematically compressed. The widespread adoption of AI tools has significantly diluted the added value of traditional production processes, with physical studios, actors, outsourcing agencies, and graphic designers being the hardest hit. Goldman Sachs points out that unless content can be successfully transformed into copyrighted, enduring intellectual property, competition will continue to become homogenized.

Content distribution platforms as a whole benefit, but there are also internal divisions. While short drama producers have seen significant cost reductions, they generally struggle to profit because they need to purchase traffic from platforms, which in turn benefit. In contrast, platforms whose core competitive advantage lies in their copyrighted content libraries—especially in the relatively weak copyright protection market of China—are seeing their competitive barriers eroded by the influx of AI-generated content.

New business models are emerging, but commercialization paths are still being explored.

In its report, Goldman Sachs outlined various emerging content formats spurred by AI video technology, arguing that these formats have genuine user demand, but their monetization methods are still in a dynamic evolution phase.

Dynamic interactive short dramas: Combining mobile vertical screen short dramas with real-time video generation, narrative content is dynamically generated based on real-time audience selections or emotional analysis, replacing traditional pre-rendered branching storylines.

Virtual anchors and AI-powered live-streaming e-commerce: Virtual idols and AI anchors are evolving from 2D/3D figures that rely on human motion capture into multimodal intelligent entities that can broadcast autonomously 24/7 and respond to audience comments and dynamically display products in real time.

Personalized virtual companionship: High-fidelity virtual characters provide one-on-one interactive experiences, with monetization models including pay-per-hour (such as video calls at $1 per minute) and subscriptions.

AI workflow orchestration platforms: Goldman Sachs views "orchestration layer" platforms that integrate multi-agent workflows, long narrative consistency management, and production pipelines as potential high-value capturers, with iQIYI's Nadou Pro being one of the representative cases.

Online Game: The Most Resilient Track

Goldman Sachs believes that online gaming is currently the most resilient sector among all vertical tracks in the entertainment industry. The benefits of AI in the gaming field are currently flowing more to leading, established publishers, as they are better positioned to leverage AI tools to extend the lifecycle of existing IPs and evergreen games; conversely, the number of successful new game IPs has decreased significantly since 2026.

Goldman Sachs considers Tencent a leader in AI-driven gaming. Its Hunyuan Games and Hunyuan 3D Models can generate high-quality 3D assets from multimodal inputs (text, images, sketches) within minutes and support the construction of interactive game prototypes.

NetEase is deeply focused on AI-native gameplay mechanisms, and through the Fuxi Lab, it is advancing directions such as autonomous NPCs driven by large language models and generative user-generated content (AI-UGC). Its games "Yan Yun Sixteen Sounds" and "Tianxia Mobile" have integrated multiple AI elements.

Goldman Sachs also upgraded XD Inc. to "buy," believing that its TapTap platform will benefit from a significant expansion in game supply. The narrative logic is expected to shift from being an "AI victim" in the first half of 2026 (due to rising AI computing costs and the dilution of advertising traffic by TapTak Maker) to an "AI beneficiary," especially in serving long-tail game developers with unique value.

Long-form video and music streaming: Short-term benefits, long-term pressure

Goldman Sachs is taking a cautious approach to long-form video platforms. In the near term, AI-generated content (AIGC) can accelerate content production and reduce procurement costs, and regulators are relatively supportive of AI content. However, in the long term, two core issues remain unresolved: first, whether users will continue to consume AI content on long-form video platforms (overall user time on such platforms has declined by about 50% in the past three years); and second, whether the proliferation of AI content will gradually weaken the competitive advantage of copyrighted dramas.

Goldman Sachs maintains a sell rating on Mango Excellent Media and a neutral rating on iQiyi, believing that both can benefit from short-term cost reductions, but will face long-term user competition pressure from short-drama platforms.

Regarding music streaming, Goldman Sachs points out that China's music production supply is currently in a state of relatively disorderly expansion. The protection boundary between copyrighted music libraries and AI-generated songs, as well as the shift in user preferences for AI music, are the core uncertainties. Tencent Music (Buy) faces pressure on short-term subscription revenue, while medium- to long-term growth will rely more on non-subscription revenue and improvements in the competitive landscape.

Two core risks: monetization and regulation

Goldman Sachs highlighted two major structural challenges facing the AI-driven entertainment industry in its report.

Monetization Challenges: While users can create unlimited content at near-zero cost, their willingness to pay may still be limited. For entertainment products, unlimited supply may also lead to "content fatigue"—more AI short dramas, virtual idols, and interactive stories do not automatically translate into longer viewing times or higher user spending.

Regulatory Pressure: AIGC businesses may face multiple overlapping constraints from AI regulations, privacy laws, consumer protection laws, advertising laws, and copyright regulations. The regulatory challenges are particularly pronounced for virtual idols, companion-type intelligent agents, interactive short dramas, and AI live streamers, as user engagement for these products is often built on emotional connections. Goldman Sachs notes that Chinese regulators have begun to strengthen their oversight of the short drama and long drama industries.

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