OpenAI backtracks
OpenAI’s decision to scale back its ambitious corporate reorganization has drawn lots of scrutiny, including what the plan means for artificial intelligence safety, potential profits for investors and an ongoing fight with Elon Musk.
What’s emerging is that in some ways, how OpenAI operates isn’t changing much. But there are still plenty of questions about the future of the consequential A.I. developer.
The latest: OpenAI announced a smaller-scale change to its famously complex structure. Remember that it was founded as a nonprofit. But in 2019, it set up a for-profit subsidiary to start raising money from investors to finance its eye-wateringly expensive A.I. research. Then last year, the company moved to turn itself into a for-profit entity in which the nonprofit held a stake but didn’t have control.
Now, OpenAI plans to turn its for-profit subsidiary into a public benefit corporation, which would still be controlled by the nonprofit, though the size of its stake remains undetermined. (Got all that?) Sam Altman, its C.E.O., said on Monday that the revised plan still gives his start-up “a more understandable structure to do the things that a company like us has to do.”
What does this mean for investors in OpenAI? Remember that they have collectively poured nearly $64 billion into the A.I. lab, valuing it at $300 billion. In some ways, little has changed, some are saying privately: They’re still keeping a piece of the company, and in fact will benefit from a planned removal of caps on the profits they can take from the business.
Altman also argued on Monday that the move essentially fulfills a requirement embedded in a recent deal with SoftBank: Become a for-profit entity by year end, or forfeit $10 billion of a planned $30 billion investment by the Japanese tech giant.
What about Microsoft? The tech giant remains perhaps the most crucial of OpenAI’s backers, as both a huge investor and a tech partner that services the bulk of its computing needs. Bloomberg reports, citing sources, that Microsoft is currently the only investor OpenAI is negotiating its reorganization with, and that the software titan hasn’t yet signed off.
Increasing strains between the two sides don’t help.
Does the move satisfy critics of OpenAI’s earlier plan? They include A.I. experts who worried that turning the company into a profit-minded business would incentivize it to forego safety for money.
They also included the attorneys general of California and Delaware, the states where OpenAI is based and where it’s legally incorporated, who worried that the company would no longer put the public interest first. They also worried about whether the nonprofit’s stake in the for-profit entity would be fairly valued.
The state attorneys general said on Monday that they’re reviewing the new plan.
There’s one critic who clearly isn’t happy: Elon Musk, who co-founded OpenAI but has since filed multiple suits to stop the for-profit conversion. (The company has argued that Musk, who has since founded a rival, xAI, is trying to impede a competitor.) A lawyer for Musk said OpenAI’s new plan was “a transparent dodge that fails to address the core issues.”
Altman dismissed concerns about Musk on Monday: “We’re all obsessed with our mission,” he said. “You’re all obsessed with Elon.”
HERE’S WHAT’S HAPPENING
Ford says that President Trump’s tariffs could cost it $1.5 billion this year. But the company, which makes most of its vehicles in the U.S., said it’s less affected by Trump’s 25 percent tariffs on auto parts than other carmakers. Its stock is down sharply in premarket trading, along with other automakers. General Motors said last week that the levies would increase costs by up to $5 billion this year. Ford joined European carmakers including Mercedes-Benz and Stellantis in scrapping its forecast, citing uncertainty over tariffs.
Trump’s crypto empire is complicating new sector-friendly legislation. The GENIUS Act, which seeks to establish guidelines for so-called stablecoins, has run into opposition from Democratic senators who argue that it could directly benefit the Trump family’s digital currency business, citing reporting by The Times. Elsewhere, a group of traders made a nearly $100 million profit by buying a memecoin linked to Melania Trump minutes before it was made public in January, according to The Financial Times.
The Trump administration escalates its feud with Harvard. Federal officials have disqualified the university from future research grants, in another tactic seemingly meant to bring the school back to the negotiating table over additional oversight. Relatedly, officials in France and Brussels are trying to profit from Trump’s clashes with academia by offering huge financial incentives to lure U.S. scientists to Europe to pursue their work.
Deliveroo shares jump on a $3.9 billion sale to DoorDash. The transaction would let DoorDash, a giant in the U.S. food delivery industry, expand further into Europe and the Middle East. Separately, Wonder, the owner of Grubhub, has closed a funding round that values it at more than $7 billion, Bloomberg reports.
Trump’s tariffs come for services
President Trump’s threat to extend tariffs to Hollywood represents a new front in his global trade war.
Almost all his levies have thus far focused on manufactured goods, from toys to steel. But the proposed 100 percent tariff on films produced outside the United States targets services, which represents more than 70 percent of the country’s G.D.P. and is the main growth engine of the U.S. economy. The jumbo sector enjoys a trade surplus.
Questions are swirling about Trump’s idea. “Is it just movies shown in U.S. theaters, or does it include movies streamed over Netflix/Disney+, or original movies released on regular Pay-TV? Or could he be referring to content creation incentives broadly?” Jeff Wlodarczak, the head of Pivotal Research, wrote in an email to DealBook.
Trump’s legal authority also appears murky. He wrote on Truth Social that a tariff is necessary because Hollywood is being “devastated,” calling the situation a “National Security threat.” Filmmaking, he said, is “messaging and propaganda!”
Trump plans to meet industry leaders. “I want to make sure they’re happy with it, because we’re all about jobs,” he said on Monday in the Oval Office.
One thing is clear: It would hurt Hollywood’s bottom line. Shooting in the U.S. is expensive. Union rules require relatively high-cost skilled labor, and film studios have taken advantage of tax breaks overseas. (Labor groups have complained about losing work to international crews.) U.S. productions with budgets over $40 million fell 26 percent last year compared with two years ago, according to data cited in The Wall Street Journal from research group ProdPro.
In an effort to keep productions in the U.S., 38 states have given more than $25 billion in tax incentives. Gov. Gavin Newsom of California yesterday proposed a $7.5 billion tax credit for Hollywood, and called on Trump to work with him on the plan. Some have criticized these initiatives as money-losing deals for taxpayers.
The economics of the media industry were already scrambled. Video apps, podcasts and the internet more broadly have taken audiences away from traditional outlets. Streaming now dominates Hollywood, but its margins are slim compared to the fat profits the traditional pay-TV industry provided for decades. Production budgets have thinned.
Netflix could take a 20 percent hit to its profits, Jason Bazinet, a Citigroup analyst, wrote in a research note, adding that in a worst-case scenario, the tariffs could cost the streaming giant an additional $3 billion a year.
Production companies were already under pressure from plummeting ticket sales, which have dropped 22 percent since 2019, according to figures from eMarketer.
Who else could it hurt? Canada, Britain, Australia and New Zealand have emerged as popular filming locations for Hollywood productions. Officials in Australia and New Zealand vowed to support their film industries in the face of Trump’s latest tariff gambit.
That raises the possibility of retaliation. If Trump’s tariffs cut into international TV and film growth, could other countries retaliate? In April, China limited the number of U.S. films allowed into the country when Trump announced his broader tariff plan in April.
Hollywood relies on overseas markets for more than three-quarters of its box office revenue.
Who was in the room? The actor Jon Voight, one of Trump’s Hollywood advisers, discussed creating federal incentives to keep productions in the U.S., according to The Journal.
“The newly imposed U.S. trade tariffs on European products are causing European consumers to think twice about what’s in their shopping cart.”
— The European Central Bank, which published new research showing how President Trump’s tariff threats have prompted E.U. consumers to shun American products, with potentially long-lasting consequences for U.S. companies. In one sign of that shift, sales of Teslas continued to plunge in Europe last month.
Seen and heard, Milken edition
Much of the public commentary on Monday coming out of the Milken Institute Global Conference in Los Angeles, an annual West Coast pilgrimage for Wall Street and Silicon Valley, was focused on President Trump’s trade war.
Here are some of the most notable statements from day one:
“Tariffs are engineered to encourage companies like yours to invest directly in the United States.”
— Treasury Secretary Scott Bessent told the C.E.O.s and investors in attendance that Trump’s economic agenda — including planned tax cuts and deregulation — would bolster growth in the long run.
“We have done damage to the U.S. brand — the brand for stability, predictability, regularity. … I see us moving from what was hyper-exceptionalism to merely exceptional.”
— Marc Rowan, C.E.O. of Apollo Global Management, said that the fallout from the tariff fight has forced his firm to shift its investment focus away from “growthy and venture-y” companies to more established businesses.
“If it is 10 percent, most of the clients we talk to say, ‘Yeah we can absorb that.’ If it is 25 percent, not so much.”
— Jane Fraser, C.E.O. of Citigroup, said that many of the lender’s clients can withstand tariffs that aren’t excessive. But she added that many said that trade uncertainty has forced them to pause some investment and hiring.
“The right thing, in my view, is we pause on China. Let’s give it a little more time. Maybe it’s 180 days.”
— Bill Ackman, the billionaire investor, called for a timeout in the trade war. He told Andrew that a six-month halt would repair damage to the U.S. economy, especially to small businesses, and would improve the chances of the White House striking a deal with Beijing.
DEALBOOK WANTS TO HEAR FROM YOU
We’d like to know how the tariffs are affecting your business. Have you changed suppliers? Negotiated lower prices? Paused investments or hiring? Made plans to move manufacturing to the U.S.? Or have the tariffs helped your business? Please let us know what you’re doing.
THE SPEED READ
Deals
Politics, policy and regulation
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The Trump administration has adopted the same position as the Biden White House in asking a federal judge to dismiss a lawsuit seeking to restrict access to the abortion pill mifepristone. (NYT)
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Defense Secretary Pete Hegseth reportedly used multiple Signal chat groups to communicate official Pentagon business. He has also ordered a 20 percent cut to the military’s senior ranks. (WSJ, NYT)
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