Hide overlay or make transparent on hover?

Hi, there - appreciate any help on this:

I’m looking to create a “spotlight” with a cursor that hides a faded out background video element (e.g. it is 90% opaque, then where the circular cursor “shines” it is fully transparent to see).

I’m familiar with setting up custom cursors, but am not sure if it’s possible to have an interaction that only occurs in a specific location (e.g. the circle), rather than the entire element at once. Is this possible?