When Paramount Skydance completes its Acquired Warner Bros. Discovery Next week, the combined company will be renamed Skydance. CEO David Ellison announced the name on social media on the morning of October 2 and introduced it as a way to keep two traditional studios at the center of the company. “We never wanted the new corporate identity to diminish, change or obscure any of that,” he wrote.
Ellison said the goal with the name was to give the combined company its own identity while allowing Paramount, Warner Bros. and their brands to “continue to be in the spotlight.” He wrote that both studios have unique identities and legacies that have connected with audiences for generations.
The deal is expected to close on Tuesday, October 6, after which Ellison and Mattel CEO Ynon Kreiz will serve as co-executives. The news caps a busy week for Allison. On October 1, he announced that CNN CEO Mark Thompson would remain at the helm of News First According to the Wall Street Journal. Ellison’s announcement came a day after Paramount shares suffered their biggest one-day drop since December after selling $52 billion in bonds.
Ellison opened with a line that could double as an investor pitch: “What was once the top is now just the beginning.” At least in the streaming world, Warner Bros. Discovery Channel didn’t peak until recently. As the fall TV season begins and advertisers finalize fourth-quarter budgets, WBD is delivering streaming profits that Wall Street has demanded for years, just like handing them to Ellison in a deal worth more than $110 billion.
In the second quarter, WBD’s streaming business Revenue exceeds US$3 billion It rose 10% for the first time. Excluding currency effects, streaming media adjusted EBITDA grew 63% to $512 million. Meanwhile, linear TV continues to shrink.
For David Zaslav, who is nearing the end of a multi-year turnaround, these numbers may be the clearest evidence yet that his strategy is working. They also increase the value of the goods Allison buys. On the earnings call, Zaslav called the results a “strong and impressive business transformation.” He pointed out that as recently as 2022, HBO’s streaming business, which mainly operates only in the United States, suffered losses of more than $2 billion.
How did Zaslav get here?
When Zaslav took over after exploring a merger with WarnerMedia, he was tasked with stopping the cash burn and proving that high-profile programming could support a profitable streaming service. In three steps he was there.
First is international expansion. This year, HBO Max launched in Germany, Italy, the UK and Ireland through a partnership with Sky. WBD said user acquisition progress in the UK and Germany exceeded internal targets. It aims to have more than 150 million subscribers by the end of the year, but it no longer reports subscriber numbers.
The second is distribution. Zaslav reversed WarnerMedia Time’s decision to exclude HBO Max from Amazon’s reseller market, an exit that reportedly resulted in the loss of about 5 million subscribers. He returned the service to Prime Video Channels in 2022 and added additional distribution partners. Excluding the impact of currency exchange rates, streaming distribution revenue increased by 11% this quarter.
The third one is bundling. These include the Disney+/Hulu/HBO Max package launching in July 2024 and publisher agreements such as Verizon. On the same conference call, streaming head JB Perrette said the bundle is producing meaningful improvements in churn, with WBD anticipating 2026 to be its best retention rate ever.
Season 4 Advertising Test
Advertising is the weakness. Total advertising revenue fell 22%, primarily due to the NBA’s failure. Excluding currency effects, streaming ad revenue grew 8%, driven by growth in cheaper ad-supported tiers. But streaming ad revenue last quarter was $306 million, accounting for only about one-tenth of the division’s revenue. Linear advertising still brought in $1.43 billion in revenue.
On a second-quarter conference call, Warner Bros. Discovery Chief Financial Officer Gunnar Weidenfels said visibility for the remainder of the year will be limited due to soft international advertising markets and the FIFA World Cup, which draws summer spending. As linearity erodes, streaming ads will have to carry more of the load, and season four is when WBD has to prove they can do it.
What the Allisons inherited
Ellison said the merger was not about rewriting history, but about “equipping these iconic studios with a more powerful engine.” When the deal closes on Tuesday, the engine will include more than just a movie studio and a shrinking cable footprint. Skydance will gain access to a profitable streaming business, a rich global franchise library and a still-expanding international rollout.
It’s a battle to get there. The deal passed federal scrutiny, but a coalition of 12 state attorneys general, led by California, filed a lawsuit to block it. On September 21, they Promise in exchange for settlement That failed to achieve the divestment some officials had hoped for. Those commitments include releasing at least 30 movies per year and establishing a five-member journalists’ committee within 180 days of closing to oversee the editorial independence of CNN and CBS News. During a hearing on September 24, U.S. District Judge Araceli Martínez-Olguín Points of law challenged The consent order was issued but no ruling was made, saying a decision would be made “in due course”. Martinez-Holguin approves settlement Wednesday, September 30, to clear the way for the closure.
Delays are costly. Paramount was unable to tap debt markets while the lawsuit was pending, and borrowing costs climbed as inflation concerns pushed yields higher. Under the terms of the deal, the company will be fined $7 million for each day after September 30. According to Bloomberg, on September 30, Paramount sold $52 billion in bonds and loans to fund the acquisition, the largest acquisition in Hollywood history.
Within a few hours, Investors lost more than $100 millionAccording to Bloomberg. The company’s dollar-denominated eight-year junk bonds were trading at about 96 cents on Oct. 1 after selling at par the day before. The cost of insuring Paramount against a default hit a 17-year high, and the company’s stock price fell 9.6%, its biggest one-day drop since December this year. By the close, some of the debt had cut losses.
Demand has also turned out to be weaker than advertised. Orders for investment-grade bonds peaked at nearly $109 billion. Bond prices subsequently fell to about $80 billion and more than half the demand for long-term bonds disappeared as underwriters Bank of America and Citigroup cut the premiums they offered. Fund managers who ended up holding more debt than expected complained to their banks. One trader told Bank of America that it shouldn’t sell bonds that were falling immediately. Paramount Chief Financial Officer Dennis Cinelli told Bloomberg the sell-off was a “one-day move in the market.”
In terms of equity, the Ellison family has committed to invest US$47 billion, of which David’s father and Oracle co-founder Larry Ellison personally guaranteed more than US$40 billion. About $24 billion came from three Middle Eastern sovereign wealth funds, and foreign investors will ultimately own nearly half of the combined company, according to regulatory filings.
Ellison wrote that Skydance will pursue its ambitious goals “with passion, imagination and a willingness to take smart risks” and will bring the stories of both studios to a wider audience around the world. What he does on HBO Max will be the first real test of that. He has said he plans to merge it with Paramount+ into one service. Zaslav sets the benchmark for how profitable the legacy media companies’ streaming businesses will be, and the Ellison family will determine the outcome.
