The surge in Oracle’s stock came on the news of key AI contracts, including a huge deal with ChatGPT creator OpenAI, with which it is building Project Stargate, a vast network of data centres, in partnership with Japan’s powerful tech investor SoftBank Holdings. OpenAI is constructing data centres, Oracle is providing the computer infrastructure, and SoftBank is running the project, which could ultimately invest up to US$500 billion ($642 billion). As a business-focused software firm, Oracle may not be a household name like Microsoft, but it has changed the way organisations store and manage vast quantities of data.
To make sense of what is driving the surge, look no further than Oracle’s soaring “booked” revenues, or Remaining Performance Obligations (RPOs), which soared an annualised 359% to US$455 billion on four multi-billion AI deals with three different customers it signed in its fiscal first quarter ending August. The biggest of those deals — worth over US$30 billion — was with OpenAI. It also has significant cloud contracts from xAI, Meta Platform, Nvidia and others.
The AI ecosystem is growing at warp speed. Total global AI revenues will top US$780 billion in 2030 from US$43 billion this year. Citigroup’s tech strategist Heath Terry notes that three primary catalysts are driving that growth. First, infrastructure spending is forecast to surpass US$400 billion this year, which will help ease capacity constraints.
Secondly, agentic AI with verifiable reasoning chains and other advancements will enable broad enterprise adoption. And finally, AI’s ability to improve itself will likely further accelerate development.
See also: S&P 500 sees longest winning streak since May on AMD-OpenAI deal
Oracle is a latecomer to the cloud computing party. When Amazon and Microsoft began investing billions in cloud infrastructure, Ellison initially dismissed it. By the time Oracle itself entered the cloud arena, the two giants alongside Google owned the space. With AI, Oracle has a second chance. Ellison and his pal, Musk, have taken a different route to dominate the cloud. While they are far behind the giants, as the two richest men on the planet, they have access to almost limitless cash. All they need is enough Nvidia GPUs to power data centres. Last year, Ellison recounted to analysts how he and Musk begged Nvidia CEO Jensen Huang at Palo Alto’s Japanese restaurant Nobu for more Nvidia chips over dinner. They were willing to pay whatever it took. “Please take our money. We need you to take more of our money, please,” they told the chip behemoth’s CEO.
To pay for all its contracts, ChatGPT’s creator needs to raise tens of billions of dollars in debt and equity. Right now, OpenAI is a non-profit organisation with limited ability to raise funds for its growing needs. As part of its original partnership agreement with Microsoft, OpenAI needs to give the software giant 20% of its revenue until 2030. OpenAI projects it will share 8% of its revenue with Microsoft by the end of the decade, from just under 20% this year. The duo are currently negotiating a revised deal, and OpenAI is seeking to become a “for-profit” company.
On Sept 22, Nvidia announced it would provide US$100 billion of funding to OpenAI to help it build its own data centres and use Nvidia’s chips to power them. Nvidia will initially invest US$10 billion in OpenAI at US$500 billion valuation, giving it 2% stake in the AI start-up. ChatGPT creator has said it could spend up to US$450 billion to rent servers from cloud service providers like Microsoft and Oracle over the next five years. Nvidia is also trying to lease AI chips rather than buy them outright to lower its cost of compute.
See also: Wall Street is unfazed by Powell’s ‘highly valued’ stocks remark
Flamboyant Ellison co-founded Oracle in 1983 and sold its first software to the CIA. Known for his lavish lifestyle, including ownership of Lanai, the sixth-largest island in Hawaii, competing in the year-end Sydney-Hobart yacht race under treacherous and unpredictable storm conditions, as well as his attention-grabbing “bad boy” persona, Ellison, 81, has been a Silicon Valley icon for over 50 years. The colourful tech veteran has been divorced five times. The world only heard about his sixth wife, China-born Jolin Zhu, who is 47 years younger, late last year, when Wolverines, the football team of the University of Michigan — where Zhu obtained a degree in International Studies — thanked Ellison and his wife Jolin for donating US$10.5 million. Ellison has two kids — Hollywood studio owner David, 42, and movie producer Megan, 39, from his third wife, as well as four young kids from Jolin.
The son also rises
The day after Ellison briefly surpassed his pal Musk’s US$430 billion net worth, another Ellison was in the headlines. The Wall Street Journal reported that David — who in August completed the purchase of storied Hollywood studio Paramount from Shari Redstone for US$8 billion by merging it with his own Hollywood production firm Skydance — was preparing a bid to take over Warner Brothers Discovery (WBD).
By combining his newly merged Paramount Skydance (PSky) with giant WBD, David is trying to create a global media Goliath with unmatched scale and reach. WBD owns CNN, Discovery Channel, HBO Max, discovery+, Food Network, Cartoon Network, TNT, TBS, Travel Channel, Animal Planet and the Science Channel. PSky owns TV network CBS, streamer Paramount+, Nickelodeon, Paramount studios and its animation division, as well as Comedy Central and music channel MTV. It also controls top movie franchises such as Mission: Impossible, Star Trek and Top Gun.
The combo would unite Paramount+, which has 79 million global subscribers, with HBO Max, which boasts 125 million subscribers. PSky-WBD would account for 3.4% of total American TV viewers, still behind Amazon Prime Video’s 3.8%, Disney+ and its subsidiary Hulu’s 4.7%, as well as Netflix’s 8.8% but well ahead of NBCUniversal’s 2.1% share.
WBD has a market capitalisation of US$48 billion. If PSky is forced to pay a 20% premium, it would take the price tag to US$55 billion. As part of the Paramount takeover, Skydance and its investors, including the Ellison family, invested an additional US$6 billion, including US$1.5 billion to reduce debt. Paramount had US$11 billion in net debt, which has since been cut to under US$10 billion. WBD, meanwhile, carries US$31 billion in net debt. A combined entity would hold over US$40 billion in net debt.
To create a Hollywood Goliath, David will need a ton of cash from his dad. Ellison has a net worth of around US$388 billion, so he could easily afford to help out his son. He owns a 42% stake in Oracle. Ellison receives US$2.2 billion a year in dividend payments from Oracle every year. Even after a 20% dividend tax, just his annual cash flow of US$1.8 billion would be enough to pay interest on all the loans that Paramount and WBD have on their balance sheets.
PSky’s offer would be backed by the Ellison family, then rounded out with partners’ equity and financed debt. Wall Street analysts expect PSky to take the best parts of WBD and then sell off the remaining parts piece by piece to cut debt. NBCUniversal is spinning off Versant, which will include CNBC, MSNBC, the Golf Channel and other cable channels. Just weeks before the news of Ellison’s interest emerged, WBD announced it would soon split into two separate firms — Warner Brothers, which will have the studios and streaming business, including HBO, as well as Turner Classic Movies; and Discovery Global, which will control CNN, Discovery and TNT Sports.
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
Bundle now, unbundle later
The filmed entertainment business has undergone a dramatic transformation over the past 15 years as viewers have cut the cord with cable TV operators and switched to streamers such as Netflix, YouTubeTV, Disney+, AmazonPrime, AppleTV+ and studio-owned apps like WBD’s Max, Paramount+ and NBCUniversal’s Peacock. The cable firms bundled hundreds of channels and sold households a package for under US$100. Then came streaming, which in turn unleashed unbundling. Now we are seeing the rebundling of entertainment channels through a merger or combination of streamers.
There are only two ways to make money in the business: bundling and unbundling. Bundling involves packaging multiple products or services into a single offering, often at a higher price. Unbundling separates the components of a comprehensive package and sells them individually —typically at lower prices — to more targeted customer segments. Bundling often helps increase the value of a transaction by pushing slow-selling inventory out faster. Unbundling, on the other hand, is more attractive to customers who just want to pay only for what they need.
Winning the battle in entertainment was once all about content. Then it became all about scale. Now it is all about engagement. Netflix is the king of engagement. People go to Netflix, and its algorithm dishes out just the TV serial or the movie you want to watch. That’s why you stick to the additive Netflix app. Back in the days of cable TV, you used a remote to keep switching channels until you saw something you thought you might like.
Though he started as an actor and producer, David Ellison, as a Hollywood media mogul, is focused on live entertainment to complement the core filmed entertainment businesses that he now owns. The first major strategic move he made as the CEO of the combined PSky was acquiring exclusive US rights to Ultimate Fighting Championship under a seven-year streaming deal valued at about US$7.7 billion. One reason he is reportedly keen on a merger with WBD is its rights for ice hockey league NHL, as well as baseball league MLB and auto racing Nascar. Paramount itself has the rights to broadcast the American Football League NFL, as well as college football and golf events like The Masters.
Ellison’s real game, however, is to remake Hollywood completely. Making blockbuster movies is an expensive business. Take F1, the AppleTV movie about racing starring Brad Pitt. It cost around US$600 million to make. So far, it has raked in US$630 million at the box office. Despite being a huge hit, it is unlikely to make a huge profit. An average movie requires a crew of 250 to 300 people. With AI, you can cut costs and make cheaper movies with far smaller crews. Instead of 300 crew members, you might need a crew of just 30 or 40 people. ChatGPT creator OpenAI has a new animation movie, Critterz, under production with a budget of US$30 million. In contrast, Top Pixar movies like Elemental and Lightyear cost US$200 million each, while older hits like Ratatouille had a budget of US$150 million.
David Ellison is probably most keen on working with his Dad’s firm, Oracle, which hosts TikTok data in its servers outside China. The new US-China deal on TikTok US includes Oracle as a key shareholder. TikTok US will rebuild its own discovery algorithm as it separates from its Chinese parent. Access to the TikTok algorithm would make the PSky-WBD combo a formidable competitor to Netflix. If he can challenge Netflix and win, by producing better and cheaper content using AI and then hook the audience with TikTok’s algorithm, David Ellison will forge a legacy of his own rather as a Goliath than be derided as a nepobaby in Hollywood.
Assif Shameen is a technology and business writer based in North America
