In recent years, the advertising industry has been buzzing with excitement about the potential of artificial intelligence (AI) to transform everything from targeted marketing to creative production. However, a new trend is emerging that has industry leaders taking a more cautious approach: AI is increasingly being cited as a financial risk in the annual reports and financial filings of some of the world’s biggest advertisers.
According to a recent study by Arize AI, 56% of Fortune 500 companies have identified AI as a financial risk in the past year, a significant jump from just 10% in 2022. This growing concern is reflected in filings with the Securities & Exchange Commission (SEC), where companies are disclosing potential pitfalls associated with AI, particularly in areas like legal uncertainty and intellectual property rights.
The Legal Quagmire of Generative AI
One of the primary concerns for media companies is the legal ambiguity surrounding generative AI. As Jason Lopatecki, CEO of Arize AI, explains, "Legal uncertainty around intellectual property as it relates to generative AI is a commonly cited concern." This uncertainty is prompting companies to tread carefully, balancing the potential benefits of AI with the risks of legal entanglements.
For instance, Warner Bros. Discovery has highlighted the uncertainty around how new technologies, such as generative AI, could impact their intellectual property rights. Similarly, Disney has raised alarms about the unsettled rules governing new technology developments, warning that these could disrupt their existing business models and revenue streams.
Balancing Innovation with Risk Mitigation
Despite these concerns, AI is not without its advantages. Many companies acknowledge the operational efficiencies and innovative potential that AI brings. However, the challenge lies in harnessing these benefits while mitigating the associated risks.
JPMorgan Chase & Co., for example, takes a cautious approach to AI. Melissa Bonnick, the executive director and head of programmatic at JPMorgan, noted during a keynote presentation that the company avoids open-source AI projects, preferring to develop in-house solutions. This allows them to maintain control over updates and ensure the security of their systems.
This cautious approach reflects a broader trend among large enterprises, where the focus is on maintaining agility and safety. As developers push for AI-driven services, companies are prioritizing measures to protect their interests and those of their clients.
The Broader Implications of AI Risk
The risks associated with AI extend beyond legal and operational concerns. Regulatory issues are also coming to the forefront, with a recent KPMG survey revealing that 54% of senior business leaders expect AI regulation to increase organizational costs. Key areas of focus for risk mitigation include cybersecurity and data quality, with many companies considering these issues to be of high significance.
Moreover, the energy consumption required by AI is becoming an increasingly pressing concern. High-performance AI chips, such as Nvidia's B100, consume vast amounts of power, which could pose challenges for companies striving to achieve carbon-neutral status. This is particularly relevant as companies like Microsoft, backed by Bill Gates, invest in new types of nuclear energy to meet the growing energy demands of AI.
The Opportunity in Risk
While the risks associated with AI are undeniable, they also present opportunities for companies to innovate and adapt. As Arize AI’s study suggests, some companies are already leveraging AI outside of the risk-factor section in their reports, recognizing its potential to accelerate innovation and drive operational efficiencies.
The key to navigating this new landscape lies in balancing caution with creativity. By acknowledging the risks and implementing robust mitigation strategies, companies can position themselves to reap the benefits of AI while safeguarding their future.
As the industry continues to evolve, one thing is clear: AI is here to stay, and its impact will only grow. The challenge for advertisers and media companies will be to harness its potential while navigating the complexities and risks that come with it. In doing so, they can not only protect their interests but also lead the way in an increasingly AI-driven world.
This article was based on stats in MediaPost here.