The deal terms (but far from closure) of the $8 billion Paramount Global-Skydance Media merger finally got signatures this week, ending a long and somewhat arduous negotiation that had more ups and downs than a theme-park rollercoaster. Ironically, Paramount doesn’t have a theme park yet, but we digress. Skydance will pay $2.4 billion for Shari Redstone-
controlled National Amusements and inject $4.5 billion in cash into Paramount, along with other financial gymnastics designed to shore up the balance sheet. Interestingly, the deal also revealed private Skydance’s equity value of $4.5 billion. Parties remain within the 45-day “go-shop” period, so there’s a small chance that a prospective past bidder or even a new one will shock the world with a plausible counterbid. Sony, which had been backed by Apollo Global Management, confirmed this week that it’s out for good. Will others bite? Skydance chief David Ellison would get a $400 million breakup fee for his trouble, a significant disincentive for Redstone to entertain counters. So, assuming the Paramount-Skydance deal will end up closing, this week’s merger analyst call gave Ellison a chance to outline his vision as he becomes Hollywood’s newest big studio honcho with the power to move, uh… mountains. Let’s dig in on that.
Ellison’s main pitch this week revolves around marrying tech and entertainment to reduce costs, enhance content, improve navigation, and otherwise modernize Paramount’s operations. To be sure, technology can do all of the above when well applied. But with so few details this week, Wall Street will likely keep Ellison and his minions under close scrutiny as he implements the plan. Ellison quoted his own Skydance Animation (and former Pixar) chief John Lasseter to argue that “the art challenges the technology, and the technology inspires the art” and said understanding that “symbiotic relationship… is essential to be able to meet this moment in time for storytelling.” But what does that mean? Investors will likely want details soon, considering that Paramount’s streaming business remains unprofitable, although Ellison told analysts he has no plans to shutter Paramount+ to focus on licensing IP as some have suggested. “Streaming is an incredibly important part of the business and very much the future of the business,” he said, noting the company must “creatively execute at the highest level” while forging “algorithmic engines” that match or exceed the tech of other streamers. Meanwhile, Paramount’s newly appointed President and former NBCUniversal exec Jeff Shell noted that “linear is going to keep declining” and “we’re realistic about that.” Again, no one disputes the decline of linear or the need to leverage technology. But a demand for details, along with measurable results, will likely be on investors’ wish list over the next several quarters.
Next? So much remains unclear, with executives still working out the details of how they will supercharge Paramount’s iconic brand and content to reach DTC profitability. But it’s obvious that Paramount, like others, will leverage both tech and also bundling, with Shell arguing that “eventually the streaming world is going to look very similar to the way that the multichannel world looked in the past.” He said people want a “nice EPG… so they can start watching something, as opposed to sorting their way through the muck of the way it’s delivered right now.” Few would argue with that premise, but it’s how to get there that will be interesting to watch unfold for Paramount and others. It seems no one has a choice. As Shell put it this week, “if you’re in that bundle, you’re going to win, and if you’re not in the bundle, you’re in real trouble.”
