“I think there’s this much bigger conversation that is being missed,” she said: Google and its TPU chips.
Peters, while clarifying his remarks at the conference were a bit more nuanced, acknowledged: “Historically, many of these mergers haven’t worked. Some have, but you really got to take a look at this on a case by case basis.” Still, Peters argued, most previous big deals showed a lack of understanding about the underlying business, while Netflix understands these assets and has a clear thesis about how the critical parts of Warner Bros. will accelerate its progress. He also acknowledged Netflix isn’t expert at doing large-scale M&A.
In a statement emailed to Fortune, 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.
Here’s 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.
Part of Netflix’s thesis, according to Otto, is that it’s a tech company at heart, and it recognizes Google’s rapid advancements in AI, particularly its advancements in TPU chips.
“I’m sure that it’s feeding into the strategy,” Otto said. “If 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.”
On the surface, Netflix is buying a legacy studio with a deep library, beloved franchises, and a global brand—and 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 “low‑hanging fruit” that can occupy management for the next 12 to 24 months, Otto said.
But in a world where TPUs can make high‑quality video “basically for free,” 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’s 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’s Marvel Studios ushering in a computer generated revolution in the 21st century. “I think that’s not an outrageous assumption.”
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 to $7 billion in ad revenue. The ultimate destination of that ad talent remains unclear, though, as it may go to the spinoff that includes WBD’s 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.)
Imagine a world, Otto said, where you could create your own versions of the crime classic Columbo starring an AI-generated version of legendary actor Peter Falk, who died in 2011. (Columbo 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 ’80s onward.) “In this day and age, boy, wouldn’t it be interesting?” Otto asked rhetorically.
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’t quite exist yet. “It’s kind of exciting because it means that it’s anybody’s game,” Otto said.
Otto also raised the specter of TikTok, the social media giant partially under the control of Larry Ellison.
“That may be the real story,” she said.
Disclosure: The author worked internally at Netflix from June 2024 through July 2025.
