From models to studios: how AI video investment is evolving

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From models to studios: how AI video investment is evolving Leah Hodgson Fri, June 26, 2026 at 11:24 AM EDT 5 min read GOOGL Chloe Ladwig/PitchBook News Billions of dollars are flowing into AI video generation, and the market is just getting started. In the past five years, investment in startups developing AI video and media tech has more than tripled, according to PitchBook data. Funding this year is already at its highest level yet, with $5.6 billion invested, up over 43% from 2025's annual total. Startups building video-generation models have captured most VC dollars, converging around a clutch of well-funded companies, including Runway and Luma AI . That race has not ended, and neither has the funding, but new parts of the market are beginning to draw more attention. This week's $75 million investment in indie film studio A24 by Google DeepMind is a clear example, with the two companies partnering to develop AI tools for filmmakers. Google gaining access to A24 's creatives and research signals that the market is opening up beyond just funding the best video-generation tool. "If you compare the state-of-the-art technology of today to that of three years ago, the difference is honestly mind-blowing," Ziv Reichert, partner at London-based VC firm LocalGlobe , said. "But we're still in the infancy, and there's so much more value to capture." A lot of value is going to accrue in the end product, not just the tooling or software layer. We're like the jeweler of the AI gold rush—we're not extracting the gold like OpenAI or developing the tools like generative speech startup ElevenLabs, but taking it and delivering a great product According to Reichert, competition among companies building video-generation tech is heating up, not just in Western markets. New models emerging from China are rivaling products in the US and Europe, and incumbents are also investing in developing their own AI capabilities. The technology is becoming easier to build, and the more options there are, the harder it is to be the go-to for creators. This market reality is prompting a bigger question: now that generating video is no longer the hard part, where does the value go? For an asset class historically closely tied to software, studios are not an obvious choice for VC investment, but they are gaining traction. A handful of AI-native or powered studios have emerged to take on Hollywood and are raising capital from investors. Californian studio Promise has raised funding from backers, including Andreessen Horowitz and Google's AI Futures Fund . VCs, including Atomico and LocalGlobe, invested in London-based Wonder 's $12 million round. "[AI video] has gone from frontier models to tooling, and the next wave is going to be in IP and distribution," Xavier Collins, co-founder and CEO of Wonder, said. "A lot of value is going to accrue in the end product, not just the tooling or software layer. We're like the jeweler of the AI gold rush—we're not extracting the gold like OpenAI or developing the tools like generative speech startup ElevenLabs , but taking it and delivering a great product. We are definitely out of the box for many VCs, but the ones who listened recognized the huge business potential." The investment case for AI film studios lies in intellectual property. A catalog of films and TV series gets recurring revenue through licensing, franchising and distribution deals. Catalogs appreciate over time as new distribution platforms and markets open up and buy content, generating passive income without additional production investment. AI is also expected to significantly reduce film budgets by automating workflows and cutting major expenses. Studios such as Wonder and Promise can deliver more content more quickly and cheaply than traditional studios, changing the economics of owning IP. It also makes AI-powered studios more appealing to brands, enabling them to produce ad campaigns on shorter timelines and at lower cost. Beyond content, investors are beginning to back a more fundamental shift in what video itself becomes, from something you watch to something you interact with. "In terms of future capabilities, I think we're going to see development veer out into interactive," LocalGlobe's Reichert said. "The ability to create unique, playable experiences is something I'm excited about." Last month, San Francisco-based Reactor raised $59 million in a round led by Lightspeed Venture Partners . The company is building an interactive video infrastructure that responds to user input in real time and is already working with customers across media and entertainment. Runway, one of the first companies to develop AI video generation, is making a similar bet about the direction of innovation. According to COO Michelle Kwon, the company is focusing on real-time video and immersive experiences, particularly through the lens of customized learning and customer service. It is also expanding into world models, where Kwon believes visual media is the key to unlocking the next generation of technology. "Expression and storytelling are foundations in video, but we see broader ambitions," she said. "The unprecedented growth of LLMs shows how transformational generative technology can be at its core and underscores how much more will be possible when we think about multimodality. To build a strong world model, you need to have a strong video-generation model." The question of where value accrues in a maturing AI video market may not have a single answer. Studios, infrastructure companies, and model builders are all placing different bets. Even within core video generation itself, there are opportunities for investors. Kwon from Runway, which also operates a VC fund, believes that in an increasingly competitive market, specialization will become a key feature of AI video. "Just like LLMs, there will be two or three big companies, and then we'll see more companies like [legal tech startups] Legora or Harvey, where they're building applications on top of the underlying general technology," she said. "I think we'll see more companies building for specific use cases like marketing or social media, rather than for industries. You can definitely still see big outcomes there." This article originally appeared on PitchBook News

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