Paramount-Skydance Merger: 5 Burning Questions About the Deal (2024)

Is Skydance Media the forward-looking entity that Paramount Global needs right now to save the company?

Ending months of M&A drama, Paramount Global and Skydance Media, David Ellison’s smaller media and production company, on Sunday announced a two-part transaction that will result in Skydance buying out Shari Redstone’s National Amusem*nts Inc. and then merging with Paramount — to form what the Skydance team for now is calling “New Paramount.” About $6 billion of the money to fund the deal is coming from the family of Oracle founder Larry Ellison (David’s father), with about $2 billion from Gerry Cardinale’s RedBird Capital Partners private-equity investment firm.

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The companies said they expect the deal to close by Sept. 30, 2025, pending regulatory clearances (analysts don’t expect any major hurdles there) and other conditions. Here are key questions that remain about the deal.

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Can Skydance Really Turn the New Paramount Into a Tech-Forward Entertainment Company?

Ellison, 41, styles himself as a blend of Hollywood filmmaker and technology visionary. At Skydance, he’s been the executive producer of hits including the “Mission: Impossible” films starring Tom Cruise and several “Star Trek” movies.

But he’s also dropped his tech bona fides in talking about the Paramount merger. “My first job was as a computer programmer at Oracle,” he reminded reporters Monday. In the presentation to Paramount investors, he recalled that he “had the privilege of being mentored by Steve Jobs and getting to watch him and build Pixar from the ground up,” and one of his slides was headed by a quote from John Lasseter, the Pixar veteran whom Ellison hired to run Skydance Animation: “The art challenges the technology, and the technology inspires the art.”

Jeff Shell, the chairman of RedBird Sports & Media (and ex-CEO of NBCUniversal) — who will become Ellison’s right-hand man at the newly merged entity — trumpeted Ellison as exactly the right person at the right time for this stage in Paramount’s history. “If you went into a lab and designed the perfect executive for the next-generation Hollywood company, you would literally spit out David Ellison because he not only can go to a table read, but he can go to the next room and code, too, and this business is heading towards a technology media hybrid and David’s perfect to lead it,” he said.

That of course remains to be seen. One of the objectives outlined by Ellison and the Skydance team was headlined “Transition New Paramount to a World-Class Media and Technology Enterprise.”

What does that mean? Per the bullet points, the new management will “rebuild [direct-to-consumer streaming] into a differentiated platform,” to boost viewer engagement time, reduce churn and “drive lifetime value”; tap into the “studio-in-the-cloud” model, with Ellison pointing to Skydance Animation’s partnership with (surprise!) Oracle; and generative AI, including using AI tools to “enhance creativity while driving production efficiencies.”

Whether any of this will prompt investors to value the New Paramount more like a tech-driven company (i.e. Netflix) — rather than a legacy media company heavily reliant on a crumbling TV business — is an open question, per MoffettNathanson analyst Robert Fishman: “Will rebuilding DTC into a differentiated platform, studio-in-the-cloud and leaning in on Generative AI be enough of a tech-forward strategy to lead to multiple expansion?”

Can the New Company Hit $2 Billion in Cost Cuts?

Shell said the Skydance team, working in conjunction with consulting firm Bain & Co., is targeting at least $2 billion in annualized cost cuts that can be made at the company. He indicated much of those cost cuts will come from its linear TV business: “We know that linear is challenged and declining. We like these businesses, particularly CBS. We think it is a very, very, very strong business with more reach than any other business… However, I think a lot of us in the business know, we got to run these businesses in a different way as they decline. And so we’ve spent a lot of the last few months really building a bottom-up plan. And our goal is to manage the businesses, particularly the linear businesses, for free cash flow generation.”

Some analysts think the cost synergies outlined for Skydance-Paramount are achievable. “We have no reason to doubt this level of savings, and we think the personnel redundancies that Paramount and Skydance have with their studios and production provide ample room to cut costs,” Matthew Dolgin, senior equity analyst at Morningstar, wrote in a July 9 research note.

Based on Skydance’s pro-forma 2025 forecast for the combined firm, the new incarnation of Paramount is valued at 8.2 times 2025 adjusted earnings before interest, taxes, depreciation and amortization — which is “about 1.5 turns higher than where Paramount had been trading a week ago, and still well below the 12.5 times at which Disney is currently trading,” Dolgin noted. “If Skydance can improve Paramount’s trajectory, we see more room for upside.”

But others on Wall Street wonder whether anticipated cost synergies, even if the new company can hit those targets, will translate into improved profitability. “How much [of the cost savings] will flow through to EBITDA?” MoffettNathanson’s Fishman asked in his Tuesday research note. He pointed out that despite better cost synergies at Warner Bros. Discovery, the David Zaslav-led company’s EBITDA “has underperformed.”

What Assets Could Paramount Sell Before the Skydance Deal Closes?

Paramount has initiated talks to sell BET to an investor group led by BET CEO Scott Mills, and the company is expected to seek buyers for the famous Paramount Pictures Studio lot in L.A. Last month, George Cheeks, CEO of CBS and one of the three co-CEOs heading Paramount Global, told employees that the company has hired bankers to evaluate asset sales. On Monday, Shell said the current management team is “talking about a couple of transactions that if they get the right price, will be supportive of us so on that for sure.”

Previously, there was speculation that the Skydance investor group would be open to selling CBS. But Ellison and Shell asserted that the broadcast network is part of their long-term strategy. CBS “is an unmatched asset and for a content producer like us,” Shell said Monday. “And so we will continue to fuel that reach and we’re really happy about not just CBS, but the whole ecosystem, the stations and the affiliates and everything that gives us that reach, and our plan is to continue to kind of fuel that because it will drive our content for decades in front of us.”

What Will Happen to Paramount+?

Ellison and the Skydance team sounded enthusiasm over Paramount+, as well as Pluto, the free, ad-supported streaming platform. What will their strategy be going forward? Shell said the New Paramount’s approach to streaming will be threefold: One, “we’re going to take a look at how much money we’re generating from our content and what content belongs where and what content we should license to ourselves and what content we should license to others”; two, exploring partnerships to create “the ultimate bundle”; and three, rebuilding the tech stack powering Paramount’s streaming services.

“We’ve had a bunch of inbound [inquiries] from a number of people about partnerships that could involve a partnership with another player or players. And so we will evaluate all that,” Shell told Paramount investors. One potential dance partner is Warner Bros. Discovery, which is open to exploring a combination of Max and Paramount+.

On the streaming front, Ellison said the combined Skydance-Paramount will work with unspecified “technological partners… that we do intend to bring into that.” Shell also mentioned that Paramount’s current management team has “come up with a plan potentially on the international business, which is likely to be executed between now and closing, which we also think will be quite compelling to the cash flow generation of the DTC segment.” Chris McCarthy, president and CEO, Showtime/MTV Entertainment Studios and Paramount Media Networks, at the June 25 town hall told employees that on the international front, “we are advancing talks with potential partners that will significantly transform the scale and economics of the service making it profitable and driving long-term value. This approach could also serve as a model for the U.S.”

What Will the Management Team Look Like?

Skydance said “New Paramount” will be led by Ellison as chairman and CEO, with Shell serving as president. But beyond that, there’s been no public discussion of the company’s leadership — including whether the current three co-CEOs will stay on in the newly merged company. Shari Redstone, who wasn’t on the Monday call with Paramount investors, will completely exit the business her family had been in for nearly four decades.

For now, the trio — Cheeks; Chris McCarthy, president and CEO, Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, president and CEO of Paramount Pictures and Nickelodeon — have told Paramount employees that “it’s business as usual” and that they’re proceeding with their three-part restructuring plan.

SEE ALSO: Paramount Global Deal With Skydance ‘May Not Be Sufficient to Stabilize the Credit Profile,’ Moody’s Says

Paramount-Skydance Merger: 5 Burning Questions About the Deal (2024)


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