Amid cries from the jilted Ellison family about a \u201ctainted\u201d sale process and indie producers and theater owners of the \u201cdeath of Hollywood,\u201d Melissa Otto, Head of Research at S&P Global Visible Alpha, sees a different game being played. Otto said she thinks the tech angle of the industry is being overlooked. <\/p>\n
\u201cI think there\u2019s this much bigger conversation that is being missed,\u201d she said: Google and its TPU chips.<\/p>\n
A key question for the future of entertainment, Otto told Fortune<\/em>, is control over premium video at massive scale in an era when generative AI will increasingly create, remix, and personalize moving images.? (Otto called it the \u201cvideo corpus\u201d that will train and power the next generation of AI models.)? Over the long term, Otto added, that is a key part of the mystery behind why Netflix, long a builder rather than a buyer, would make Hollywood history by taking out one of its biggest rivals and one of the town\u2019s prestige legacy studios. <\/p>\n Co-CEO Greg Peters was asked a blunt question about that same thing this morning on the call with analysts about the historic merger. Rich Greenfield of LightShed Partners cited Peters\u2019 own previous statement at a Bloomberg conference about how there\u2019s a long history of failed media mega-mergers, so he questioned: \u201cWhy is this going to end differently than every other media transaction essentially of this scale and history?\u201d<\/p>\n Peters, while clarifying his remarks at the conference were a bit more nuanced, acknowledged \u201chistorically, many of these mergers haven\u2019t worked, some have, but you really got to take a look at this on a case by case basis.\u201d Still, Peters argued most previous big deals showed a lack of understanding about the underlying business, and Netflix understands these assets and has a \u201cclear thesis about how the critical parts of Warner Brothers accelerate our progress.\u201d He also acknowledged Netflix isn\u2019t expert at doing large-scale M&A.<\/p>\n After all, this is expensive. \u201cWe are surprised that Netflix felt the need to spend $80bn+ and pay a premium for something Netflix disrupted,\u201d Barclays analysts wrote in reaction to the deal, \u201cand it is not clear what problem or opportunity Netflix is solving for that couldn\u2019t have been achieved organically.\u201d<\/p>\n In a statement emailed to Fortune<\/em>, Dave Novosel, a Gimme Credit senior bond analyst, said the deal looks expensive to him as well, with Netflix assuming nearly $11 billion of debt. <\/p>\n \u201cWhile the WBD assets bring an amazing amount of attractive content, NFLX is paying a steep EBITDA multiple of more than 25x, which seems extravagant,\u201d Novosel wrote. Once it reaches the advertised synergies, he added, the resulting multiple of closer to 15x seems more reasonable. While those are pending, \u201cthe huge amount of debt that Netflix will need to raise to fund the deal will take leverage to well more than 4x initially.\u201d Novosel wrote investors may need to be patient. Bloomberg\u2019s credit team, meanwhile, reported the $59 billion bridge loan being taken out to finance this deal is among the biggest in corporate history.<\/p>\n Here\u2019s what Otto sees happening in Northern California, far from Tinseltown, where the Warner deal is all anybody can talk about, and why Netflix took such a big swing.<\/p>\n Part of Netflix\u2019s thesis, according to Otto, is that it\u2019s a tech company at heart and it recognizes Google\u2019s rapid advancements in AI, particularly its advancements in TPU chips. <\/p>\n \u201cWhat TPU chips do really, really well is in the modality of video in generative AI,\u201d Otto said, as they essentially turn mathematical representations into moving pictures in much the same way GPUs revolutionized natural language AI by tokenizing and modeling text. Instead of ChatGPT and text, think Gemini 3 and YouTube videos.<\/p>\n Netflix already trails YouTube in total share of streaming time, with Bank of America Research recently citing Nielsen data showing YouTube held 28% of U.S. streaming, versus Netflix\u2019s 18%. Otto said this threatens to go up another notch when and if Google\u2019s TPU chips turbocharge content made with generative AI. <\/p>\n \u201cI\u2019m sure that it\u2019s feeding into the strategy,\u201d Otto said. \u201cIf I were Netflix and I knew that Google, one of their formidable competitors, had this chip technology and was essentially plowing billions and billions of dollars into developing the infrastructure so that they could carve out the corpus of the video modality in generative AI, I would want to build a moat around my business.\u201d<\/p>\n On the surface, Netflix is buying a legacy studio with a deep library, beloved franchises, and a global brand\u2014and paying up to do it. The combined streaming and studio business generates about $25 billion in revenue and roughly $4 billion to $5 billion in EBITDA, but margins on streaming remain thin, making the economics of the deal look tough in the near term. Executives have emphasized overlapping subscribers, obvious cost cuts and an expected $5.5 billion in efficiencies, the kind of \u201clow?hanging fruit\u201d that can occupy management for the next 12 to 24 months, Otto said.<\/p>\n But in a world where TPUs can make high?quality video \u201cbasically for free,\u201d any player lacking both the chips and the content could find itself outgunned as AI reshapes how entertainment is produced and consumed.? That makes Netflix\u2019s big splash for Batman, Harry Potter, and the like a different kind of moat, and a different kind of game than the classic Hollywood rivalries of yore. Otto said it was plausible generative AI entertainment could be seen as an extension of the recent IP wars that saw Hollywood deluged by floods of superhero movies and sequels, with Disney\u2019s Marvel Studios ushering in a computer generated revolution in the 21st century. \u201cI think that\u2019s not an outrageous assumption.\u201d<\/p>\n By absorbing Warner Bros., Netflix increases the volume and diversity of content it can feed into recommendation systems, experimentation and, eventually, its own AI?driven video tools. Otto also noted the deal potentially gives Netflix more exposure to advertising, an area in which Alphabet has dominated and where Warner Bros. still generates $6 billion\u2013$7 billion in ad revenue. While the ultimate destination of that ad talent remains unclear, as they may go to the spinco that includes WBD\u2019s cable assets such as CNN and TNT. (Netflix has only been active in ads since 2022, having been a premium subscription service since it pivoted from DVD rentals to streaming in the late 2000s.)<\/p>\n Imagine a world, Otto said, where you could create your own versions of the crime classic Columbo<\/em> starring an AI-generated version of legendary actor Peter Falk, who died in 2011. (Columbo<\/em> had several homes on TV on neither Warner Bros. nor Netflix, as it was first an NBC property in the 1970s, and then an ABC property from the late \u201980s onward.) \u201cIn this day and age, boy, wouldn\u2019t it be interesting?\u201d Otto asked rhetorically. <\/p>\n In many ways, she added, this moment is remarkable because Netflix may end up neither a subscription nor an advertising business, but an AI-based one that doesn\u2019t quite exist yet. \u201cIt\u2019s kind of exciting because it means that it\u2019s anybody\u2019s game,\u201d Otto said.<\/p>\n Otto also raised the spectre of TikTok, the social media giant partially under the control of Larry Ellison.<\/p>\n \u201cThey\u2019re a formidable competitor as well,\u201d she said. What\u2019s likely, she added, is the future will be unpredictable. The rise of AI \u201ccould provide some really amazing innovation over the next couple of years.\u201d She agreed it could create a bonanza for show business lawyers who wrangle over the rights of things like the likeness of Falk, which was a major issue in the recent Hollywood strikes. <\/p>\n \u201cThat may be the real story,\u201d she said.<\/p>\n [Disclosure: The author worked internally at Netflix from June 2024 through July 2025.]<\/em><\/p>\n<\/div>\n #Analyst #Netflixs #72B #bet #Warner #Bros #isnt #Death #Hollywood #Google<\/p>\n","protected":false},"excerpt":{"rendered":" Netflix\u2019s $72 billion play for… <\/p>\n","protected":false},"author":1,"featured_media":893,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[720,718,157,458,722,715,723,721,576,716,461,719,717,457],"_links":{"self":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts\/892"}],"collection":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=892"}],"version-history":[{"count":0,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/posts\/892\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=\/wp\/v2\/media\/893"}],"wp:attachment":[{"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/microvibenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Is the future of entertainment Northern or Southern California?<\/h2>\n
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