Will Skydance and Warner Bros. both thrive in the gaming landscape?

Today, I’m diving into a conversation with Peter Kafka, a prominent voice in the gaming and tech space, about the massive merger between Warner Bros. and Paramount, which has now rebranded itself as Skydance. This new entity is under the ownership of David Ellison, son of Oracle’s CEO, Larry Ellison, and the acquisition deal officially wrapped up on the day we spoke.

While there are lofty aspirations tied to this merger, history shows that taking over Warner Bros. has often led to trouble for previous owners. AOL, AT&T, and Discovery all faced significant challenges, although Discovery managed to offload these assets to Skydance. I wanted to get Peter’s take on whether the Ellisons and Skydance can break the cycle of failure that has plagued others before them.

Let’s jump into it: Peter Kafka on Warner Bros. and Skydance.

Peter, it’s great to have you back! It’s a big day in media!

Absolutely! Today marks the closing of the Warner-Paramount merger, which we’ve been calling Warner Mount, but it seems the new name is Skydance.

Skydance! Every time I hear that name, I think it sounds like it could be a foreign entity, which might not be too far off.

When you think about it, Paramount and Warner Bros. are iconic names in Hollywood. Paramount even rebranded itself years ago, and Warner Bros. is legendary. Now, we’re tossing those names aside for Skydance, which many people might not even recognize.

Let’s break it down. We had Paramount and Warner Bros., and now they’re merging into Skydance. Is Skydance just a shell company? Should consumers even care about its existence?

In the short term, people will still associate with brands like Paramount, Warner Bros., and HBO, but they’re all becoming part of one entity. Eventually, they’ll likely combine their streaming services, Paramount and HBO, into a single platform. So, Skydance will likely become a name consumers recognize over time.

What are the odds that HBO Max will be rebranded as Skydance?

There will probably be some branding changes, but not immediately. Since this is still a cable TV company, there are limits on how they can rebrand their services. They won’t outright say they’re merging everything, but it’s likely we’ll see one major streaming service. You might still access HBO separately, but ultimately, it’s all going to be consolidated under one umbrella, managed by David Ellison.

David Ellison is the latest to think he can turn Warner Bros. around. I’ve joked that maybe the only antitrust law we need is to make it illegal to buy Warner Bros. Why does he believe he can succeed?

Well, his father is the eighth richest man in the world, which gives him a significant advantage.

That Oracle stock is tied up in various AI ventures, fluctuating quite a bit.

We can discuss that, but it means he has the financial backing to make this purchase. Plus, this is a public company in name only; David and Larry Ellison effectively control it. They don’t have to worry too much about equity shareholders, although debt is a different story.

At 43, he has a long runway, supported by his father’s wealth, to take a shot at this. He’s not the first to try, and there’s a long list of failures. Maybe he thinks, “Everyone else has failed; I’m the one who can make it work.”

That mindset is appealing, but the history of failures is shaped by the same idea: taking iconic Warner Bros. content, pairing it with new distribution, and cutting Hollywood’s excess. But where’s the new revenue going to come from?

There’s no clear plan for new revenue. Right now, they’re focused on cutting costs. They promise to save $6 billion over the next three years through the merger, but a lot of that will come from layoffs.

These companies have already gone through multiple rounds of layoffs. You could argue there’s not much left to cut. However, combining two large streaming and studio operations likely means there are still areas to trim. But how do they grow? That’s still unclear, and no one has articulated a solid plan.

Growth is essential for several reasons: shareholders will be watching, David Ellison’s ego is at stake, and there’s the looming debt. This deal is heavily leveraged, right?

Eighty billion dollars in debt. The key point is that David Ellison was able to buy Warner Bros. because the previous owner couldn’t manage the debt they took on, which was around $43 to $50 billion. David Zaslav, the former CEO of Warner Bros. Discovery, spent his time assuring Wall Street he would reduce that debt, but he never convinced them he had a growth plan. Wall Street gave up on the company years ago, which is why when David Ellison decided to buy it, the stock was around seven bucks.

Now, Zaslav is seen as a genius for selling the company at such a high price, but some argue he just got lucky.

I’m curious about the next potential “unicorn” for this company if David Ellison decides the debt and challenges are too much to handle.

Let’s circle back to that. Even AT&T, which owned Warner at one point, struggled with these assets. Their plan was to distribute Warner content through AT&T phones, which was a flawed strategy.

Their real goal was to emulate Netflix, thinking owning a version of it would elevate their stock. But Wall Street didn’t buy it.

Within a couple of years, AT&T realized they were in over their heads and backed out. They had grand plans for mobile connectivity and targeted ads, but none of that materialized.

I remember covering their antitrust case when they sought approval for that deal. They convinced the judge they had a vision for the future, and I thought, “We’re doomed.”

I want a vision deal! How do I get one of those?

I have no idea!

So, we’re dealing with a mountain of debt. The FCC had to waive the cap on foreign ownership, and there’s a significant investment from the Gulf. I’ve always wondered why anyone would trade what amounts to an AI stock for a media stock, especially now.

The AI trade is shakier than it was before. Oracle has faced some backlash over this deal. What’s your take? Is that a solid safety net?

I’m not sure Oracle was punished for this deal. A year ago, Larry Ellison’s net worth was double what it is now, which could be attributed to a temporary AI surge. He remains a highly valued figure and is still the eighth richest man in the world due to his Oracle holdings.

Wall Street is a bit uneasy about Larry Ellison’s wealth being tied to Oracle. He’s using Oracle to back the Warner Bros. deal, pledging $40 to $50 billion if needed. There’s a concern that Oracle is closely tied to this new media venture while also relying heavily on OpenAI for its future plans.

At 82, Larry Ellison is banking on AI and OpenAI, while also using some of that wealth to support his son’s media ambitions. It’s a risky situation.

I’ve noticed my social media feeds are flooded with content that skirts copyright issues. Instagram seems to have a high tolerance for copyright infringement, with deepfake memes and other questionable content.

By the way, you’ve figured out the Instagram and Reels algorithm! You should consider becoming an influencer.

I try to understand the platforms that could potentially harm me, especially for my daughter’s sake.

AI is making it incredibly easy to appropriate IP from movie studios. I recently saw a video of Heath Ledger’s Joker and Christian Bale’s Batman doing a Justin Bieber song, and then I was bombarded with similar content.

That’s the OpenAI dilemma. They could undermine the very foundations that make Warner Bros.’ IP valuable, and that’s a significant issue.

It might be simpler than that. The value of your library diminishes if people can take it without compensation. The bigger challenge for David Ellison and anyone in media is capturing people’s attention.

This company is burdened with $80 billion in debt, producing expensive entertainment, while anyone can create content that grabs attention for a few seconds on platforms like Instagram and TikTok. This flood of content, whether it infringes on copyright or not, is what David Ellison and others in media must contend with, as younger audiences might prefer that over the original Batman movie.

This is the existential crisis not just for Skydance, but for every media company today.

But the Skydance acquisition is funded by Oracle’s OpenAI deal. If OpenAI succeeds to the extent that the Ellison family remains wealthy, they could profit from widespread IP theft, creating a product that allows anyone to make a movie for virtually nothing, rendering Warner Bros. obsolete.

You might be onto something! The value of Skydance hinges on its existing library and its ability to produce new content, which may become less valuable over time. There’s a counterargument that, despite decades of music theft, the industry adapted and found ways to monetize music effectively.

Perhaps there’s a way to navigate this, but we don’t have the answers yet.

This deal comes with its own set of constraints. To settle an antitrust lawsuit from California and other states, they agreed to produce 30 films per year or pay $30 million for each film they miss. After two years, that number increases to 32 films, and if they fail to meet that, they’ll have to sell their 49 percent stake in Miramax.

That’s a significant constraint! They need to produce a lot of films, and they currently don’t have that capacity. How will they cut costs to increase production?

The math suggests that combining the two studios could get them close to that 30-film target. To be clear, this isn’t just a constraint from California; it’s something David Ellison has been advocating for a long time.

David Ellison has shown he can get California and global regulators to agree to his terms. I don’t think they’ll be limited by regulations, but rather by financial realities and whether they can reduce debt quickly enough to satisfy bondholders.

I’m curious about the math. The market for 30 films per year isn’t growing at a rate that supports that, and if they need to pay down debt, the first step would be to stop producing content that isn’t selling.

There’s some creative accounting involved. What constitutes a movie? Does it have to be released in theaters? They might find loopholes to fulfill that obligation. But for now, I don’t see that as their primary concern.

Let’s touch on California briefly. I received an email from a reader pointing out that I often call out Republicans by name but only refer to California. So, I’ll say it seems like Governor Gavin Newsom and Attorney General Rob Bonta caved here. Ellison threatened to relocate, and they blinked, which didn’t sit well with other states involved in the lawsuit. What’s the settlement? Does it have any real impact?

Not really. It’s mostly what David Ellison was already proposing, without any of the structural remedies Bonta was demanding. He had insisted that behavioral remedies wouldn’t suffice, but he ultimately caved and held a press conference claiming it was a good deal. It was a tough moment for him, especially since he was seen as a rising star in California politics.

There’s very little in this settlement. Paramount didn’t concede anything to make this deal happen. It’s a classic case of a company threatening to leave unless they get what they want, similar to how sports teams negotiate for new stadiums.

David Ellison’s narrative to Hollywood has been about his love for movies and the industry, but recently he shifted to threatening to leave for Tennessee, which is a tough contradiction to reconcile.

Once he secured the settlement, he quickly reverted to expressing his love for LA, claiming he never intended to leave.

It seems they approached this with the mindset of saying whatever was necessary to finalize the deal, and once it was done, they could return to their previous narrative without scrutiny.

And he might be right about that.

As a side note, Peter is a Vikings fan, and I’m a Packers fan. I don’t believe the Bears will move to Indiana, but we’re witnessing that situation unfold.

That’s an interesting comparison. The Minnesota North Stars no longer exist; they became the Dallas Stars. Minnesota went without hockey for years, so sometimes these threats do materialize.

Speaking of Minnesota, who knew you could go 4-0 without a quarterback?

Let’s pivot to the NFL for a moment. Last time you were on, you mentioned that CBS exists primarily to sell the NFL to the American public.

There’s a change of control clause in the NFL deal with CBS. They could raise rates or entice Amazon, Apple, or Google to swoop in and potentially disrupt CBS’s business. Does that seem like a real threat?

Not really. CBS will do whatever it takes to keep the NFL; it’s essential for them. The NFL understands this dynamic. They appreciate broadcast TV, and if they were to leave that space, it could become a national political issue.

It’s hard to imagine the NFL abandoning broadcast TV, and since CBS needs it so desperately, they’ll pay whatever is necessary.

Let’s discuss the structure of this deal. You’ve got a profile of Skydance’s new co-CEO, Ynon Kreiz, who previously led Mattel.

There’s a lot of overlap here, as he left Mattel to join Skydance. The CEO of Condé Nast, Roger Lynch, is moving to Mattel, and we’ll see who takes over at Condé Nast. It’s a web of connections.

I met Ynon Kreiz when he was running Maker Studios during the YouTube MCN era. He sold that company to Disney, which was a significant move at the time, but it ultimately didn’t pan out well for Disney.

Kreiz was brought in to stabilize Maker Studios, which was chaotic, and he succeeded in selling it off. The MCN era ended when YouTube decided to eliminate them, which is another theme we’ll touch on.

Ynon has a strong media background. He ran Endemol when it was a major player in TV production and worked with Haim Saban, who many might remember from the Mighty Morphin Power Rangers.

He was instrumental in the Barbie movie deal, which became a massive success. However, he also cut a significant portion of Mattel’s workforce shortly after taking the helm, which is part of his reputation.

I’ve spoken to several people recently, and he seems to be a tough character. Some say he’s a teddy bear once you get to know him, but those who get laid off by him probably wouldn’t agree.

Interestingly, while Ynon Kreiz is co-CEO of Skydance, David Ellison is the sole CEO. This creates a dynamic where David Ellison and his father ultimately control the company.

David Ellison likely wants to maintain a public image while delegating the tough decisions to Ynon Kreiz, who will handle the more challenging aspects of the business.

Ellison’s primary goal has been to align himself with Hollywood’s elite, particularly figures like Tom Cruise. This merger seems to be a means to facilitate that connection.

I’d give David Ellison more credit than that. His main achievement at Skydance has been building a relationship with Tom Cruise, which has been central to the company’s success.

That’s the essence of a producer’s role: packaging projects and securing talent. David Ellison has excelled in that area, particularly with Tom Cruise, which has propelled his career.

There’s probably a thesis to be written about the personality traits of someone who accepts a co-CEO title without another co-CEO.

I’ve thought about that, especially with the recent shuffle involving Roger Lynch moving to Mattel. For a brief moment, there was uncertainty about Ynon Kreiz’s next move, but it became clear he wouldn’t accept a demotion.

Being co-CEO isn’t a demotion, and running a major media conglomerate is a significant achievement. Plus, he’s set to earn $50 million this year, which helps ease any concerns about status.

He’s effectively the COO of Skydance, just with a different title to make it sound more prestigious.

There’s more restructuring to consider. With two movie studios and James Gunn successfully running DC, how will they resolve conflicts? Will they choose one team over the other?

They’ve already made decisions regarding streaming. Cindy Holland, who was pivotal in Netflix’s original programming, was brought in by David Ellison to run the streaming service. Meanwhile, Casey Bloys, who runs HBO, has made it clear he doesn’t want to share power.

It seems David Ellison will favor one side, and he’s likely to make those calls. The Warner Bros. studio, which was thriving last year, is now facing challenges, including a major flop with Tom Cruise’s latest film.

David Ellison isn’t focused on art films; he’s more aligned with blockbuster franchises. The idea of merging CNN and CBS has been discussed for years, but they’ve wisely decided to keep them separate for now to avoid political backlash.

They might also be cautious about the recent challenges at CBS, especially with Bari Weiss’s leadership. Mark Thompson will continue to run CNN, but Ynon Kreiz will still have influence over budget cuts and other decisions.

While the leadership of individual studios matters, the overarching concern is the debt that looms over everything. Everyone will need to work on reducing that debt.

Bari Weiss’s approach at CBS was to increase trust by adopting a more conservative stance, but that strategy hasn’t yielded positive results. Ratings have plummeted, leading to calls for her dismissal.

I don’t see that happening, though, as there are midterm elections approaching, and they need to navigate both sides of the political spectrum.

I think the Ellisons are not particularly political, but they do care about certain issues, like Israel. Bari Weiss shares that concern, which may explain why they’re hesitant to let her go.

Despite the turmoil at CBS, it’s unclear if she’s done a worse job than her predecessors. The media landscape is in decline, and while she may exacerbate the situation, it’s not solely her fault.

I’ve noticed that TikTok users often blame specific individuals for their dissatisfaction with news content, which is concerning.

That reflects a broader issue of trust in media, which is influenced by social media and the narratives pushed by influencers.

The media makes mistakes, but the erosion of trust is also driven by influencers who claim to reveal hidden truths while reading mainstream news articles.

The long-standing narrative from Republicans about media bias has also contributed to this decline in trust. If one party consistently pushes that message, it becomes ingrained in public perception.

If I had to identify the two biggest threats to the businesses David Ellison now oversees, I’d say they are AI and social media. These are also significant investments for the Ellison family. Is this all part of a larger strategy, or is there a plan to leverage TikTok for marketing?

I don’t think they have a clear plan. David Ellison has been portrayed as a tech-savvy producer, but there’s no evidence of a comprehensive strategy beyond cost-cutting.

He’s not ideologically driven, and while he might react to content on TikTok, it’s unclear how much influence he has over the platform.

The potential for TikTok content to be integrated into the new Paramount HBO streaming service is high.

Other major media companies have envied the cost structure of user-generated content platforms. YouTube pays creators very little, and that model is disrupting the industry.

YouTube does pay creators, but the average creator often sees minimal returns.

The business model of platforms like TikTok and Reels is appealing because they don’t pay for content, which is a significant advantage.

Disney has considered incorporating creator videos into Disney+, and other companies are exploring similar ideas. The concept of integrating TikTok content into a streaming service is intriguing.

However, it may be more complicated than it seems.

Media companies often follow trends, and while vertical video is popular, what people really want is unlimited free content, which TikTok provides without compensation.

Paramount, Peacock, and Disney are not in the business of acquiring free content; they still pay for their productions and care about their brand integrity.

That’s the fundamental challenge for media companies: transitioning into platforms. Can they become platforms, or should they focus on producing high-quality content that people value?

Netflix seems to be moving in a more platform-oriented direction, but I doubt it will be successful.

Do you see a closer relationship forming between Skydance and TikTok? These are all family-run companies, but they’re not closely aligned right now.

I’m not sure TikTok is interested in catering to the Ellisons. TikTok is still primarily run by ByteDance, and their focus may not align with making Larry Ellison happy.

I’m curious because I’ve noticed Meta aggressively promoting its AI agent across its platforms. OpenAI has also been buying ads on Meta, which gives them a structural advantage.

If I were running a movie studio and needed to release 30 films a year, I’d want to leverage TikTok’s reach for marketing.

Meta is currently winning the microdrama wars in the U.S. They’re not in the microdrama business themselves but are capitalizing on the advertising opportunities.

They’re benefiting from both ad revenue and user-generated content, which is a lucrative position to be in.

If only Meta would focus on its core businesses instead of getting caught up in AI agents. That’s a topic for another discussion.

To wrap up, let’s revisit the conspiracy theory I mentioned earlier. There was a bidding war, and David Zaslav initially planned to split Discovery and sell the cable networks. Netflix was interested in Warner and was the announced winner for a brief period until David Ellison’s regulatory maneuvering changed the game.

They won the deal in December but backed out by February.

David Ellison has a knack for reopening doors. He made it happen.

As Logan Roy said, “Congratulations on saying the biggest number.”

No one has successfully acquired Warner. You could argue that Netflix’s involvement only inflated the price, leading to unsustainable debt. In the end, Ted Sarandos might find himself waiting to buy Warner Bros. assets at a bargain price.

Do you think that’s a possibility?

I believe Netflix and others will be ready to scoop up projects that Ynon Kreiz decides to cancel. This is a common occurrence in media, where new leadership often discards previous projects in favor of fresh ideas.

I don’t think Ted Sarandos was playing a long game here. They thought it was a good move, but Wall Street pushed back against the idea of spending $80 billion on this deal.

Eventually, Sarandos acknowledged the concerns and backed off.

He seems genuinely disappointed about missing out on this deal, but I don’t think it was part of a grand strategy.

An aggressive Netflix could be beneficial for Hollywood, as it might steer them away from a trend of low-quality content.

The challenge for Netflix is that they’ve been successful by focusing on a single model. Now, they’re diversifying into advertising, sports, games, and podcasts, which complicates their operations.

As they expand, ensuring quality across all these new ventures will become increasingly difficult.

We’ve been at this for about 45 minutes, and I still don’t see how David Ellison will generate more revenue than last year. Have you reached any conclusions?

We’re recording this on Tuesday morning, and there’s a press conference scheduled for Tuesday night. If we revisit this on Wednesday, we might have more answers, but then again, we might not.

Ynon will be there, ready to take on the challenges ahead.

It’ll be interesting to see how he navigates this role. Hollywood often looks for someone to blame for its troubles, and that narrative can shift quickly.

Sometimes it’s a company like Netflix, or a figure like Jason Kilar, who was once seen as a savior but later became a target of criticism.

In a few months, there will likely be a new name associated with this company’s challenges.

We’ll keep an eye on this situation and check in regularly. Thanks for joining me, Peter!