Even members of the US Congress are pushing back against Call of Duty: Black Ops 7's AI use

US Congressman Ro Khanna is advocating for AI regulation, prompted by Activision Blizzard's use of AI in Call of Duty: Black Ops 7, to address concerns over job displacement, ensure artists share in profits, and potentially tax mass displacement. This regulatory push highlights growing scrutiny as generative AI adoption accelerates across the video game industry, exemplified by Square Enix's plan to replace 70% of QA work with AI, signaling potential future operational and labor cost implications for developers.

Analysis

US Congressman Ro Khanna is advocating for AI regulation, specifically targeting job displacement and profit sharing for artists, in response to Activision Blizzard's (a Microsoft subsidiary) use of AI in Call of Duty: Black Ops 7. This political scrutiny, driven by negative fan reception to AI-generated content, highlights growing legislative interest in the economic and labor implications of generative AI.

The broader video game industry is rapidly adopting generative AI, with Square Enix planning to replace 70% of its QA work and over half of Japanese developers already utilizing AI. This widespread integration, also noted by Embracer and Microsoft, signals a significant industry shift towards operational efficiency and potential cost reductions through automation.

While AI adoption promises efficiencies, the negative fan reaction to CoD: Black Ops 7's AI use and the proposed regulations, including potential taxes on displacement, introduce reputational and financial risks for companies like Activision Blizzard and Microsoft. The "mildly negative" sentiment and "uncertain" tone reflect the market's apprehension regarding the balance between innovation, public perception, and regulatory oversight.

Key Decisions for Investors

• Monitor legislative developments regarding AI regulation, particularly proposals for job displacement taxes and profit-sharing mandates, which could impact technology and entertainment sector profitability.
• Evaluate companies' AI adoption strategies for potential operational efficiencies versus reputational risks and consumer backlash, especially in creative industries like gaming.
• Assess the long-term implications of widespread AI integration on labor costs and intellectual property rights within the video game industry, considering its potential to disrupt traditional development models.