Manhattan Beach Studios in Southern California is a pinnacle of revolutionary technology, home to both the “volume” screens where Jon Favreau filmed the “Mandalorian” franchise and Lightstorm Entertainment, where James Cameron has spent years bringing the Na’vi to life.
Tucked away at Stage 21 lies Innovative Dreams, an AI offshoot of director Jon Erwin’s Entertainment company Wonder Project. Here, chief operating officer Bryan Yee sips from a Diet Coke can as he showcases the soundstage housing Innovative Dreams’ crown jewel: a collection of LED screens where a team of AI artists weaves generative AI into productions. It’s not the first time the space has been shown to a journalist. But that it’s happened multiple times this year shows that three-quarters of the way into 2026, AI is no longer Hollywood’s ultimate bad word.
The term “AI” has emerged as an addendum to the Hays Code, the 20th-century guidelines dictating what studios should and shouldn’t include in their films. It’s spooked the worlds of corporate and art alike, especially after months of headlines over the potentially world-ending nature of AI models and warnings that progress needs to be paced. Americans are also increasingly believing the tech is doing more harm than good, according to a recent Gallup poll.
But much like the way studios and directors of the 1960s and ’70s embraced the once-taboo profanity and nudity, this year AI has found a new wave of advocates eager to go public. The technology turned up at marquee film festivals, including Tribeca, which premiered the AI-generated docudrama “Dreams of Violets.” Oscar winner Reese Witherspoon declared that “the AI revolution has begun,” and Martin Scorsese said filmmakers had to be “open to how [film] can evolve.” George Lucas was perhaps the most blunt in a July interview: “There’s nothing you can do about it.”
Part of what’s spurred this breakthrough involves creatives getting to know the technology. Some have found it additive to their projects: Veteran producer Ryan Kavanaugh says his firm, Acme Studios, lowered the cost of Doug Liman’s film “Bitcoin” from $200 million to $70 million with the use of AI. Below-the-line costs on “Bitcoin” were brought down from $130 million to $35 million. Others have experimented with AI features or used AI tools to help with things like audio syncing. Kathleen Kennedy, who served as the president of Lucasfilm from 2012 to 2026, helped organize a group of industry dignitaries to put together a framework for how Hollywood should talk about it.
From the AI-generated docudrama “Dreams of Violets”
Courtesy of Dreams of Violets
“When you have a set of tools that all of a sudden, ‘I can dream it, and I can create it, and I can show it to somebody,’ what you realize is that it heightens your creativity and did not diminish it at all,” Erwin says.
But even with such attitudinal strides, Pew Research shows that people’s fears about AI’s societal impact are high, and digital choirs hurl insults at any project featuring the tech. It’s led creatives to walk a tricky line between the wish to experiment with AI and the havoc disclosing its use can wreak.
“If the creative is great and it engages the audience on a different level than just ‘Hey, look at this thing that’s AI,’ the audience is going to understand it,” says Kathleen Grace, Lionsgate’s chief AI officer. “But it’s challenging when you lead with AI as the only hook.”
Some directors have gone all in. Oscar-winning director Steven Soderbergh sparked discourse earlier this year when he revealed how he used roughly 10 minutes of AI in his upcoming documentary “John Lennon: The Lost Interview.” He also disclosed his plans to use AI in his Wagner Moura-starring film about the Spanish-American War.
While Soderbergh recognizes AI remains a “very emotional subject,” he says the loudest voices raging against its use are those that haven’t bothered to engage with it at all. “I’ve seen the version of the John Lennon doc without that material, and I’ve seen the version with the material that we generated, and the version with that material is a better version of the movie,” Soderbergh says. “Here’s what’s really funny to me: If I told people that nine minutes and 40 seconds was VFX that took two and a half million dollars in two years, there would have been no debate at all. So what are we talking about?”
It’s a mindset that “Bourne Identity” director Liman brought to “Bitcoin,” an upcoming Casey Affleck and Gal Gadot-led picture tracing a man’s quest to prove he invented the controversial currency. The project recruited Acme, which specializes in “gray box” soundstages that host real humans while a team of 150 AI artists generates the location imagery and lighting.
Liman, according to Jed Weintrob, the CEO of Liman’s content studio 30 Ninjas, “likes to push the envelope” and thinks AI tools can be “real superchargers for storytellers.” “We’re creating a world that would be almost financially impossible to make without this technology,” he says.
Kavanaugh claims the industry shift toward embracing AI was caused by Liman’s decision to go public with his use of it. After the initial disclosure, Acme took several meetings with a mix of studios and filmmakers eager to understand how a project managed to dramatically lower costs. (Kavanaugh wouldn’t disclose the names of the group.)
After those meetings, Kavanaugh says, the creatives realized that “we’re not killing the art; we’re enhancing the art.“ He adds, “It’s making it more efficient. It’s creating better tool sets. And all of a sudden, we really saw a big shift … from people that we thought were going to be like, ‘No, we can’t do that,’ to ‘Well, can we use it in this show?’”
Still, such curiosity doesn’t mean all-encompassing acceptance — either by the industry or the audiences that sustain it. This summer alone saw the Academy of Motion Picture Arts and Sciences disqualify synthetic performers and AI-written scripts from awards consideration, while the Cannes Film Festival issued a blanket ban on AI-generated productions. When the Urbanworld Film Festival said in June it would accept AI-generated productions for its 30th edition, the Writers Guild of America ended its long-standing sponsorship. The move was consistent with the union’s concerns about the improper use of AI, but it was a choice Urbanworld CEO Stacy Spikes says risks creating a “very slippery slope” — after all, should anyone dictate what tools aspiring filmmakers can experiment with?
Actors have taken action against the harmful effects of AI. Soderbergh endorsed the Human Consent Foundation, a nonprofit cofounded by Cate Blanchett in June, that created a database where people are encouraged to register how their likenesses can or can’t be pulled by AI models. Blanchett told Variety at the time that while the registry may not revolutionize how people engage with AI, “the more people adopt it, the more chance it has of making a real impact.” She added, “We do have to start somewhere, because thoughtlessness is the enemy of creativity.”
Audiences have also revolted against AI’s intersection with Hollywood, criticizing the initially undisclosed use of the technology for a sequence in Eli Roth’s horror film “Ice Cream Man” and a marketing campaign featuring podcasting dogs for Warner Bros. Discovery’s “The End of Oak Street.”
Jeffrey Katzenberg, the veteran Hollywood executive who wrote a 2,377-word essay on X last month urging the film industry to work with Silicon Valley and responsibly adopt the technology, says he’s noticed a pervasive sense of “concern and fear” surrounding AI’s presence in Hollywood. The resistance mimics what he calls a pattern of averting “innovation and change.” But, he warns, “to resist technology is to risk irrelevance.”
Katzenberg is entering the fray himself, developing an AI animation studio that will serve as a vehicle for tools he thinks the industry can adopt. But he hopes to also create a project that could spur a true sentiment shift in the way “Toy Story,” created by his former studio Pixar, did for CGI in the ’90s. “We’ll all know when we see it,” Katzenberg says. “Tools are never the point. What matters is taste, creativity and imagination.”
For Hollywood to progress, Katzenberg says, it has to accept the wave of change — and progress — AI can bring. It’s part of the ethos of his AI animation studio, capitalizing on what he sees as “a true renaissance for Hollywood storytelling” and “a complete transformation of all forms of video creation.”
Walking the tightrope between acceptance and resistance puts studios, eager to save money with AI, in a bind. How do you greenlight original stories that may use AI when faced with audiences and creatives wary of the technology? “I don’t really know,” one AI-adopting studio executive admits.
But a lot of people’s consternation, the executive says, comes from how U.S. political leaders and tech executives are handling the messaging surrounding AI and fears around its impact on jobs, a factor those in Hollywood have little control over. “Right now, the political context of it would be “Well, gee, if you used AI, you displace people’s jobs. You would have hired 1,000 people rather than 100,’” the executive says. “Yeah, that’s probably true.” But, he claims, studios can now make 10 times as many projects due to the efficiency of AI. And more projects will ultimately amount to the same number of people working. No one can argue with the fact that the industry will benefit from having more stories to tell.
Hollywood’s next battle? Getting the AI-powered work produced by industry professionals to resonate with audiences, as opposed to the online video slop made by people without industry experience.
“The reality is the excellence that you see in cinematic storytelling is because there are creators, directors, filmmakers, costume designers, production designers,” the executive says. “They think very deeply [about] what that experience is going to be. The people creating the slop have not thought deeply about it.”