Paramount Pictures

Source: Paramount Pictures

Paramount Pictures

Skydance founder and CEO David Ellison said on Monday that the merger with Paramount Global will result in a creative-tech hybrid media company, as his executive team said the transaction will involve $2bn in cost cuts.

Speaking to analysts one day after the on-again-off-again merger was finally confirmed on Sunday evening, Ellison outlined a vision to build a leading feature, television, animation, sports and games company, and rebuild the Paramount+ streaming platform. The Paramount Global stable includes Paramount Pictures, CBS, MTV, Nickelodeon, and Showtime.

Fourteen years after launching Skydance Media and growing it into a formidable feature co-financier with Paramount Pictures and a fast-rising animation studio, the son of billionaire Oracle founder Larry Ellison is on the verge of becoming a bona fide media mogul.

“We really want Paramount Pictures to be a creativity-first studio and the first stop for best in class storytellers,” said Ellison, who referenced the long-running co-financing partnership that he said has spawned 30 features including Top Gun: Maverick, four Mission: Impossible films and two Star Trek features, as well as collaborations with Hasbro on G.I. Joe and Transformers titles.

Ellison, an aerobatics pilot and former actor whose sister is Annapurna Pictures founder Megan Ellison, continued, “The first thing we need to do is double down on the core competency of storytelling across mediums… We believe it is essential for Paramount to expand its technological prowess to be both a media and tech enterprise.”

Jeff Shell, an executive at Skydance backer RedBird Capital and former NBCUniversal chief executive who will become president of the new company under CEO Ellison, noted the incoming executive team will take a more analytical approach to the feature slate.

Shell did not elaborate, leaving open the possibility of a slimmer pipeline in keeping with a trend that is emerging in the wake of last year’s Hollywood strikes that shut down studio and streamer production for nearly six months. That will not please the exhibition community as cinema owners struggle to attract audiences in the wake of the labour dispute and the pandemic.

Echoing comments by Ellison, Shell said animation would be an “anchor” in the Paramount feature slate. Last October Skydance Animation, run by former Pixar head John Lasseter, struck an exclusive, multi-year animation output deal with Netflix and its first film, Spellbound, will premiere on the service on November 22. A Paramount Global spokesperson had not come back to explain what will happen with animation developed at Paramount Pictures under the new-look Paramount Global.

Ellison said part of Spellbound was made using a cloud-based infrastructure which is being built with Oracle, and he intends to use this on all animation to move away from “on-premises” production and reduce costs. The company will use AI tools, he said, to “enhance creativity and drive efficiency”.

Ellison launched Skydance in 2010. The company employs 1,300 people and owns or co-owns all its film and television. It produces on average around six features a year and is making 10 television shows this year.

Prospective owners bullish on Paramount+

In what will have been a surprise for some on Wall Street who have advocated for a sale, Ellison and his corporate team sounded bullish on Paramount+, which reached 71m global members per Paramount Global’s Q1 earnings call in late April.

“Our intention is to rebuild the Paramount+ platform,” he said, “and [we] believe that with the technological prowess and relationships we have, we can expand our DTC [direct to consumer] business; we can improve our algorithmic [recommendation] engine to increase time spent on platform, reduce churn, and drive lifetime value for all of our shareholders; we can optimise the ad tech and improve the buyer side for transparency and audience reach.”

Executives will evaluate potential partnerships in the US and international arena and consider licencing deals with the goal of at least breaking even within 18 months of the deal closing. They will also explore asset sales at the company, which rejected offers for Showtime and BET Media Group under the tenure of previous Paramount Global CEO Bob Bakish. Sales discussions concerning BET have reportedly resumed with a potential buyer.

Shell added, “To be a winner in DTC [direct to consumer] means to be a winner in the ultimate bundle that’s coming.” He said bundling will present a more affordable offering to consumers and will resemble the multi-channel cable offerings of the past. The process has already begun, with the announcements of a Disney+, Hulu and Max bundle, and an ESPN, Fox and Warner Bros sports offering.

Linear television will continue to decline, Shell said, although he said networks like Paramount Global’s CBS will remain a strong business for another 10 or 20 years, although it will need to be run differently and will no longer be a revenue driver.

The merger is expected to close in Q3 2025, however it first needs to clear several hurdles. The current deal includes a 45-day “go-shop” period which allows Paramount Global board to consider other bids. Were the board to accept another offer, Skydance would receive a $400m break-up fee.

On the subject of regulatory approval, the current Joe Biden administration is likely to scrutinise the transaction closely, particularly as it involves network CBS and other local affiliates – a tightly regulated area. Were Trump to return to the White House after November’s elections, it is believed his government would regard mergers more favourably.

The transaction follows more than six months of negotiations between Skydance and Paramount Global, whose controlling shareholder Shari Redstone had been courting offers from Apollo and Sony and others. Last month it seemed the talks would amount to nothing as Redstone pulled out of what appeared to be a sure-fire deal with Skydance at the eleventh hour.

The $2bn in cuts includes the $500m previously identified by Paramount Global’s three co-CEOs George Cheeks, Chris McCarthy and Brian Robbins. The triumvirate, appointed in haste when former Bakish was fired in April was mostly quiet during Monday’s call with investors; they have the unenviable job of making cuts before the new leadership team officially assume their roles.

The $8bn merger deal sees Skydance and the Skydance Consortium (comprising the Ellison family and RedBird Capital) pay $2.4bn for National Amusements, which holds the Redstone family’s controlling stake in Paramount Global.

Skydance will use $1.5bn to pay down Paramount Global debt. The merger values Skydance at $4.75bn, and the new company at $28bn.

Paramount Global investors who own voting stock can sell their holdings at $23 per share, while owners of non-voting stock can sell at $15. Paramount Global stock dropped 5.3% on Monday to close at $11.18.

This article was modified on July 9 to reflect that the $2bn in cuts includes the $500m previously identified by the three current co-CEOs, and is not in addition to the $500m.