The Paramount-Warner combination, now named Skydance, closed yesterday, and began trading on the stock market. And now comes the hard part for CEO David Ellison, which is creating a successful media company with $79 billion of debt and declining linear cable networks providing most of the cash flow. Will it be a viable business? That’s what I’m going to explore. Whether it works has a lot of implications for media and the structure of corporate power in America.

It’s important to note that while the Warner-Paramount deal was controversial, we’re now in a different moment. Even deal opponents now want it to become a profitable company, because the ecosystem of Hollywood relies on it. NBCUniversal Chair Donna Langley had panned the merger: “I think it is bad. I think it’s bad for everything.” But, she now wants it to work. “Volume matters, and if we if we essentially lose a studio — which is I know not the stated plan and goal — but if we lose a studio, it’s bad.” Everyone from Ben Affleck to Tom Cruise to the Ankler’s Richard Rushfield wants it to succeed.

Without the 30+ movies Ellison has promised, movie theaters will not have enough content to stay in business. And then all movie theater distributors die. It’s a lot like the auto bailouts in 2008, when Ford lobbied for a bailout of rivals GM and Chrysler, simply because they all used the same parts subcontractors, who would not stay in business if they lost such big customers. Skydance is now too big to fail.

And yet, the transition is not promising. Consider the two things that David Ellison did after buying Warner Discovery. He organized mass layoffs, and he gave himself and his entire executive team a big raise. Specifically, Ellison awarded himself a $150 million bonus upon closing the purchase, even though he doesn’t need the money, and has accomplished absolutely nothing except saddling two historic movie studios with $80 billion in debt.

His legal consigliere, Makan Delrahim, received $25 million, and his operating officer Andrew Brandon-Gordon got $38 million. To do the layoffs, he hired Mattel CEO Ynon Kreiz, and paid him $46.5 million. That’s all on top of the massive $550 million payout to former Warner CEO David Zaslav, which was negotiated as part of the deal.

Amid that backdrop of endless zeros for executives, the layoffs will be significant, and Kreiz and Ellison sent a memo on the “difficult decisions” ahead. That’s a crushing blow to morale, since it says very explicitly, “we’re not all in it together.” Every employee at Skydance has essentially been told to act like a mercenary and to extract as much as he or she can while he or she can.

Even Wall Street is unhappy, with the stock falling roughly 10% since the deal closed, and the bonds downgraded to junk status, which has nearly fostered a revolt among investors.

The details of what happened in the bond market are complicated and not particularly important. The short story is that at the last minute, the Ellison’s worsened the terms for bond investors. As a result, those investors wound up with unexpected losses, and are now angry about it. Here’s Bloomberg:

Just hours after Paramount Skydance Corp. issued $52 billion of debt to fund the biggest Hollywood buyout ever, investors were nursing more than $100 million of losses, triggering a flurry of angry calls from money managers to Wall Street banks that underwrote the debt.

The company’s junk bonds were among the hardest hit in initial trading, with the eight-year US dollar notes changing hands at about 96 cents on the dollar on Thursday after selling for 100 cents on Wednesday. The loans and high-grade bonds broadly weakened as well, and the cost of betting against the company’s credit surged to a 17-year high.

I’m not sympathetic to money managers, but large corporations are political machines by nature. The erosion of Wall Street support is not good for Ellison’s position long-term.

After the deal closed, Ellison sought about calming the chattering class. For conservatives, Ellison had Donald Trump praise the deal. For liberals, Ellison assured that Mark Thompson would remain the head of CNN and added board member Laurene Powell Jobs, the widow of Steve Jobs and the owner of The Atlantic. For business leaders, he put Bobby Kotick, formerly of Activision, on the board. For politicos, he made Tony Blair a board advisor. Skydance also did some aggressive PR and got the Wall Street Journal to report breathlessly on the takeover attempt, which is framed as a risky gambit going against the establishment instead of the orgy of corruption it obviously was.

Jobs is a notable person to have on the board for two reasons. The first is that she’s a Democratic California billionaire who was reportedly behind the rise of Kamala Harris, and an opinion leader who owns a major news outlet. The second is that the Clayton Act bars having someone sit on the board of rival firms. And The Atlantic is clearly a competitor to CNN and CBS. So the very constitution of the board is illegal, though, as we know, the rule of law doesn’t apply to the powerful. Anyone could bring a case against her position or send a letter on it, and she’d have to step down. But I’m not holding my breath.

Ultimately, Ellison has conquered the legal and political obstacles to controlling a large chunk of Hollywood and the media. And he did so because his father is Larry Ellison, the owner of Oracle, who is worth $200 billion. But we know all that, the question now is whether he can make this enterprise deliver on its financial goals. Media mergers, especially those involving Warner, rarely work.

So what’s the strategy? Well, it’s something of a math problem. Most of the cash flow from Skydance comes from the linear cable networks, things like CNN, the Food Network, and so forth. But those revenues are declining rapidly as streamers continue to expand their share of viewership. They’ll gain some leverage by having a third of Pay-TV channels, like Showtime and HBO, so there’s another short-term boost. They’ll also have more scale to negotiate higher rental rates with movie theaters, and yeah, I know that the consent decree said they wouldn’t, but that is adorable. Ask any movie theater to articulate a “standard” compensation structure between the studios and the theaters, and they’ll confirm it varies wildly from film to film, even at the same studio. We might see some angry theater owners, or they’ll swallow their anger out of desperation, but there will be no reckoning from enforcers or the courts. And Skydance will crush talent, including writers and above- and below-the fold creatives, because doing so is a necessity of success.

Even if they succeed at all of that, there are other risks, most notably the NFL contract they desperately need to maintain their TV cash flow and grow and retain streaming subscribers, and that contract can be renegotiated by the league in a way that causes real pain. If I were a deep-pocketed rival to Ellison, and I wanted to crush him, bidding up the price of NFL streaming rights could do it.

All that said, let’s say that Ellison pulls these levers, keeps the NFL, and does layoffs. What’s left? The main strategy is to use linear TV cash flow — which has solid but, again, diminishing returns — to pay down debt as quickly as possible, while the newer business, notably streaming, begins showing greater revenue. Ellison has said he wants to build his streaming business into a competitor to Netflix, combining the existing Paramount+ and HBO Max platforms into one service, with pricing power and more content. The rationale here is that streaming is a scale business. The more subscribers you have, the easier it is to create content, since the cost of financing that content is shared across a bigger base of customers.

This strategy sounds appealing. So why is Wall Street skeptical? Let’s look at the numbers. Late last year, Paramount+ had 78.9 million subscribers, with Warner’s HBO Max and Discovery+ at 131.6 million. That’s roughly 210 million subscribers globally between both platforms, compared to 325 million for Netflix. Only 35.8 million Paramount Plus subscribers are in the high-priced U.S. market, as are only 27.1 million HBO Max subscribers.

But you can’t just add those numbers up to 210 million, because roughly a quarter of HBO Max subscribers also have Paramount+, and vice versa. If you combine them, and lose no subscribers except overlaps, then you’re talking about a global service of 150-60 million or so subscribers, with 55 million of those in the U.S. So combining the two streamers into one would require increasing subscription prices, or the average revenue per user (ARPU), simply to maintain current revenue flows.

Subscription prices are notoriously sticky, but some percentage of subscribers will balk at the price increase and cancel their subscriptions, and the higher the number of cancellations, the higher the price increase or ARPU will need to be. On top of that, some subscribers will cancel simply because their alignment between subscription price and value was tethered to the brand and legacy of HBO Max, which they will no longer be subscribing to. And that makes sense; HBO Max is a relatively niche player, perhaps the only remaining iconic TV brand left. Jamming it together with Paramount+ into a general purpose streamer, which will mean paying more for a bunch of bundled content they don’t see value in, will cause prestige TV subscribers to drop off.

So first you’re talking about losing a lot of cash flow because of the subscriber overlap and added risk of cancellations. The question is whether it can bring in more revenue per subscriber than it loses from overlapping subscribers and cancellations. Skydance can raise prices, which it will no doubt do. All of the streamers are doing that. They’ll also nudge more subscribers into ad-supported tiers, which streamers have been doing for years because ad-supported tiers are overall more lucrative than non-ad supported tiers. Streamers have already begun learning that lesson from linear TV, even if it feels like a degradation of the streaming experience for those unwilling to pay an exorbitant amount per month to avoid it. Another way to sneak in revenue is with more video-on-demand on top of the baseline subscription, basically the Amazon Prime and Apple TV model of licensing content that can be rented for a per-watch fee.

Can Skydance actually combine the two streaming services and not lose a ton of subscribers? Obviously not, based on the overlap alone. So Skydance will make streaming more extractive and annoying. It will be another case of enshittification.

But that’s not a long term strategy for growth, and ultimately the question is this: Can Ellison actually make good content? The way streamers grow is by having great content. That’s not a question of producing one or two good movies or limited series; it’s a question of whether he can constantly churn out dozens of them. We've established already that the 30-film commitment is a distribution commitment, not a commitment to actually make 30 films, but even if Skydance can shirk the responsibility to actually produce good films merely by acting as a distributor, that doesn’t solve for how to grow or retain subscribers with must-see content.

I’ll tell you why Hollywood is skeptical. Among other changes, Ellison fired Warner heads Michael De Luca and Pamela Abdy. These people are sharks, but they are very good at making money in the film business. In 2025, Warner had a banner year, both critically and financially, with A Minecraft Movie, Superman, Weapons, Sinners and One Battle After Another. Aside from violating the implicit pledge he made to keep the two studios separate, it’s just a big risk to get rid of a team that has delivered. He’s bringing in his own experienced team, with Ellison himself overseeing the ‘creative vision.’

How good is Ellison? On the bright side, he loves movies. But then, in 2006, he wasted $60 million to produce the movie Flyboys, casting himself as the star. It earned back just $17 million. Watch the below clip and you’ll see a lot of cringe. Hopefully, Ellison has matured since then, but the view in Hollywood is that he doesn’t have the golden touch necessary to make Skydance work. Oh, and even if he is able to put out a great and large slate of movies, in terms of competitive dynamics, it may still fail. Paramount will have to keep licensing its existing library to its rivals like Netflix and Amazon, since it can’t forego the cash it is paid for that right now. So Paramount+ may not even benefit from the content mill it is generating.

Believe it or not, I hope that Skydance is a viable going concern. Having enough volume for theaters is critical to keeping the movie business going. That said, if I had to guess, I think it will end up going bankrupt in the next few years, or at the very least, renegotiate with its lenders. The Ellisons are thuggish, they don’t like to pay suppliers, and bondholders are just another supplier.

But fundamentally, the failure here is moral more than anything else. This merger is risky and difficult, and it will require the entire town of Hollywood to pull together to make it work. People will have to stretch. That one person remaining in the marketing department after his entire team was laid off will have to do the work of five, and theater owners will have to defer cash flow to support a studio. That can only happen if people believe it’s worth it, that they are doing something for more than themselves.

That’s why it’s such a bad sign that Ellison granted himself a huge bonus upon completing the deal, and paid out $50 million for a guy who knows nothing about movies and a lot about firing people. It just shows that there’s no future here. Even if Skydance works, it just means more extraction for Ellison and his crew. That will not be easily reported, because CNN and CBS are now under the control of the company, the owner of The Atlantic is literally on the board, trade publications in Hollywood are controlled by one studio-friendly monopoly, and the Wall Street Journal has declined in quality to the point where it is frequently penning heroic CEO tomes. Trump loves the deal, and much of the Democratic establishment in California pushed the deal through, so they don’t want to be embarrassed.

That said, the opposition was real, and big, and loud. People will remember how Ellison forced this merger through. More politics are unavoidable; the industry is already trying to get a Federal film tax credit through, and it’s going to be impossible for the status of CNN not to be a high-profile media topic. Moreover, there is going to be significant energy around reforming streaming, since the costs are outrageous, and the vertical integration questions are significant. Then there’s the Trump corruption, with this merger being a high-profile example of it for aspiring politicians.

Ultimately, for Skydance, cash flow is what matters. And it’s hard to see this highly leveraged merger working out the way Ellison hopes. If it blows up, add this to the many examples of why we need a real rewrite of the social contract. It’s pretty obvious to everyone except the financial class that American corporations are not piggy banks to be smashed for the benefit of an elite few. Or at least, it should be.

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cheers,

Matt Stoller