How David Ellison Plans to Mash Two Major Studios Into One

14:49Rich Greenfield:Can they actually slow it? When you saw what happened with Warner, obviously, it ran away and got far worse, far faster than they ever expected. And I think that's going to be the question. So when you say six or 16, what really the question is, is how fast is the core business eroding and how much in order to sort of right size the leverage? How much do they have to cut and how fast? Discovery couldn't do it fast enough. And that's why numbers just kept sinking, right? Like they could not cut fast enough. It's hard to cut at a huge rate. Like it's hard to run a business slashing costs, firing people.

15:26Rich Greenfield:Like it is not easy. It seems like it will be larger than 6 billion,

15:31Matt Belloni:given the$79 billion in debt, which is an amazing number to even say. And the fact that they -

15:38Rich Greenfield:But look at the movie business. I mean, look, the movie business -

15:40Matt Belloni:But that's not where they're cutting, apparently. 15 films per studio? The question now is, as you go to 15 theatrical movies and then, you know, in theory, if this closes 30 theatrical movies, I'd love your reaction.

15:53Rich Greenfield:But to me, it's never been more unpredictable. Tracking no longer seems to mean anything. The average movie seems to be or most movies seem to be underperforming. There's a few outliers that blow out expectations to the upside. But box office is running 25 percent below pre-pandemic. Attendance is down 50 percent from pre-pandemic. Like the movie business is in deep, the theatrical movie business is in deep trouble. And so trying to execute on 30 films in that environment, you know, it seems on the one hand, like it's this, it seems somewhat batshit crazy. But do you believe it is the question.

16:35Matt Belloni:Ellison's going to say whatever he needs to say now to get people in Hollywood to be okay with this and to get regulators off his back. Do you actually believe it?

16:42Rich Greenfield:I think it's, you know, the idea, I mean, 30 theatrical films would essentially be, would essentially mean you're going to have movies in theaters competing against yourself, right? Because there's, that's every other week putting out a movie. So you're literally going to, you know, movies stay in theaters three to four weeks on average, like in terms of decent amount of screens. Like you're literally competing against yourself. That seems a little, you know, far-fetched to believe.

17:07Matt Belloni:And we have an example with Fox where Dizzy paid a lot of lip service at the beginning and then ultimately Fox became a shell of itself.

17:14Rich Greenfield:I will say 30 films, though. Are we talking 30 wide release, meaning, you know, big pictures? Are we talking 10 or 15 more arthousey films? Probably not. Let's see. Let's see what actually occurs. I mean, my guess is there's a lot more nuance that that Ellison and his team are not getting into. I'd be really surprised if there were 30 Mission Impossible scale films over the course of a year.

17:39Matt Belloni:I mean, they don't have a specialty division, although Warners has now quasi started one. So there isn't like a searchlight or focus to pump out, you know, five to eight of those per year. Maybe they'll launch one. But Ellison seems to be focused on the intellectual property driven, you know, at least movies that could do a couple hundred million dollars in theaters. But again, those don't grow on trees. You have to either - It's hard.

18:05Rich Greenfield:It's actually harder than it's ever been, actually. I think that's what no one's talking about is this isn't a David Ellison problem. This is an industry problem. I mean, across the board, we're just not seeing movies perform. And even on the TV show side, like the amount of shows that are quote unquote breaking through, I think that's really what we want to see is how does paramount combined with warner do they just push these together i mean there's a there is a pretty decent overlap between these two services how do they bring them together is there they say less than netflix there is there is meaningfully less than netflix but there's still i mean there's still a substantial overlap and they are complimentary you know paramount plus

18:48Matt Belloni:has more of the populist kind of cbs style shows and hbo max specializes in premium and they say HBO should stay HBO. That's a quote from David Ellison this morning. And okay, what does that mean? Does that mean HBO is just going to continue putting out a few shows per year and focus on the quality? Are they going to go back to pumping out stuff for Max like they were and they still are in certain ways? Like, what does that actually mean?

19:16Rich Greenfield:They've really scaled back on Max. I mean, yes, the pit was sort of, you know, it comes from that world. But I mean, I think most of what you've seen, you know, the shows like Hacks And they've really scaled that back pretty dramatically. And so I would be surprised. I mean, look, David Ellison is in an execute. I mean, this is all a show me story and execution. I mean, there's no historical proof because Skydance was such a small company and they haven't had the time yet at Paramount to prove it. There's no historical basis to know whether they can do this or not. This is, I mean, any investor buying the stock today, you are making a bet that David Ellison can execute in a way that other executives in the space have felt.

19:59Matt Belloni:And he has no experience on his own of having done this.

20:02Rich Greenfield:Look, he's got wild ambition.

20:04Matt Belloni:And his father's money.

20:06Rich Greenfield:He's brought in some great executives around him. There's no doubt about it. He's definitely brought on and continues to hire from across the industry. So he's hiring interesting new people. He's definitely shaking things up. I mean, you know, whether that's on the revenue side with someone like Jay Ashkenazi, whether it's, you know, looking at Cindy Holland coming into streaming, how she works with Casey. I mean, I heard you and Lucas talking about it on Friday. I don't know how all of that works out.

20:32Matt Belloni:Well, the first thing is they got to resign him. Casey's deal is up in 2027 and they got to make sure he and his team stay. You know, it's tough. They've lost people. They lost Taylor Sheridan. they you know they they they're gonna have to stand up and say we are committing in these areas

20:50Rich Greenfield:i bet they will in hbo all of wall street wants to know is is 12 billion dollars of ebitda is 12 billion of ebitda in 2028 can it be 14 or 15 you know on its way higher or is it you know gonna are we gonna replicate what happened at warner brothers where that was the high water mark and they never were never able to actually grow it was always like there was like a bowling towel of excuses of why they didn't live up to expectations and that's what wall street's going

21:19Matt Belloni:to be focused on this episode is brought to you by the walt disney animation studio zootopia 2 now nominated for the academy award for best animated feature the hollywood reporter hails zootopia 2 knocks it out of the park with its dazzling visuals sophisticated humor and genuine an emotion for your consideration for best animated feature how do you merge this entity this these two entities together you and i are going to put on our mckinsey hats here and consult how if you were charged with taking six billion to 16 billion somewhere in the middle out of this

21:57Rich Greenfield:company how do you do it i mean look you have on on the linear television side you have dramatic overlap, right? I mean, there's people doing the exact same jobs all over the world. There is going to be, unfortunately, there's going to be substantial reductions.

22:13Matt Belloni:So anybody that is, I mean, they basically don't program these networks very much anymore. But anyone who's selling ads for the combined entity is instantly duplicative. Before they're all taken out by AI, but that's the seventh thing.

22:27Rich Greenfield:There's also subscriptions, Matt. There's a subscription team. There's a licensing team that licenses this content. I mean, you know, on the film side, there's people that book movies into theaters all around the world. I mean, there is a theatrical marketing.

22:40Matt Belloni:The distribution teams are all vulnerable. Marketing. Marketing as well. Although, you know. Technology. The marketing is, yeah, but the marketing is more attuned with the creative team. The marketing people are in those green light meetings and, you know, determining how they can sell a particular movie. I could see them wanting some distinct marketing people for each of these sides of the content production.

23:03Rich Greenfield:I mean, maybe the Warner team survives. In not all cases, will the Paramount team survive? Oh, well, that's the whole joke here

23:10Matt Belloni:is that the Paramount people are, that company's smaller than Warner Brothers. And if you look at the current situation in film, like you'd probably want to bet on the Warner side rather than on the Paramount side. Now, the deciding factor here could be that the Paramount people are all Ellison people now. So he probably has more confidence in the people that he's hired rather than these people that he's going to inherit. But who knows?

23:37Rich Greenfield:There are a lot of redundancies. So that's just step one is just the redundancies. Step two is running and marketing two streaming services obviously doesn't make sense. you've seen what Disney's done with Hulu, where Hulu still is something you can buy and add on, but they're essentially getting rid of Hulu as a separate app. They're getting Hulu. All of the infrastructure of Hulu is essentially being folded into Disney+.

24:04Matt Belloni:The point is you have to save costs on these two services now that can be marketed as one.

24:10Rich Greenfield:And you see what they did with Disney+. They effectively made it so that the bundled price was$1 more. And so they essentially sort of got you into buying a bundle of the two of them while they phased one out. I could imagine something like that. Like if you're an HBO and a Paramount Plus subscriber, it's only a dollar or two more. And you start to, you know, over the course of maybe 18 months or two years, you essentially combine them. And then, look, maybe there's still a premium version of HBO. I think it's unclear whether it'll all be part of the core service because they are very different in terms of the content.

24:52Rich Greenfield:And so I think it'll be interesting to see how they decide to do this. And do they literally, even if they combine them, are there different price points for different types of content?

25:01Matt Belloni:Okay. Where else do you cut? This is McKinsey. You got to do your best here. They're not paying you to pay lip service. You got to suggest smart cuts.

25:11Rich Greenfield:These are two big studios with two large development departments. That's where the creative comes from, though. Sure. But, you know, you don't need, in order to make projects, you're going to call that, right? You're going to take the best projects out of that development. You're not going to have the same overall deals with talent. You're going to pick the best ones.

25:35Matt Belloni:Oh, so you think that the talent overall deals and the talent spending will go down?

25:40Rich Greenfield:I mean, I would assume you're going to choose who is most important to your long-term franchise. When you take two huge organizations that do this, there has to be the ability to rationalize that. But look, all of this is at the same time you're doing all of this. I think we can both agree, Matt, both of these companies under-invested in technology and under-invested in marketing. Yeah. Like there was, and even actually underinvested in content. Like there was not enough to do with either of these platforms on their own.

26:15Matt Belloni:But that's a cost, you're adding cost here. Correct. Okay, but let's go to the cutting. So obviously if you are gonna have one platform, everybody associated with the Paramount platforms or the HBO platforms, whichever one they choose, the other side will just go away, right? I mean, Ellison has these grand plans to sprinkle his father's technology dust on this company and turn it into the best user interface, the best technology. So -

26:42Rich Greenfield:You're going to have one tech stack.

26:43Matt Belloni:Right. So all the HBO Max and Bleacher Report and Discovery Plus platform tech stack that has been developed over the past five years, that's all going away.

26:54Rich Greenfield:I think it is highly likely that that is going to disappear. Now, it's possible everything moves to that, but I would assume given Ellison's focus on rebuilding the tech of Paramount Plus, I would presume that the Warner Brothers tech moves over to Paramount's and you basically just literally obliterate that entire part of the company.

27:14Matt Belloni:So you saved a billion dollars and you fired thousands of people that work on that. So where do we go next?

27:20Rich Greenfield:Cloud savings. I mean, you think about the overall, like these companies are spending, there's a tremendous amount of infrastructure spending that they're both spending duplicatively. So, you know, look, I'm not gonna break it down point by point for you, but there is no doubt that the overall spending of these companies can come down, not just of these companies. Every company you look at in this space could bring down costs pretty dramatically. This transaction just gives you a lot of opportunities to remove the duplicate costs. The question is going to be, though, and I want to keep coming back to this and harp on it, how much of it is incremental?

27:54Rich Greenfield:Because they do have to increase spending in many areas. Like, you know, you mentioned, you know, it was, you look at the NFL costs, NFL costs are going up. They have to, you know, they just invested in UFC. They're investing with the Duffer brothers. They're investing.

28:10Matt Belloni:By the way, they confirmed my speculation from Friday that yes, they say they can put UFC on their new cable channels like TBS and keep those more relevant with their sports, which is smart.

28:22Rich Greenfield:You're going to see the UFC on HBO. I believe.

28:25Matt Belloni:Yeah. Makes sense. I want to get into five years from now, what is success here? Is it just staying alive? Is it just preventing another sale? What is going to cause David Ellison to be looked at in a positive light from his father in five years?

28:42Rich Greenfield:It's a little overly simplistic, but I think most people that I talk to in the investing world believe Disney has enough scale to be a survivor. but nobody believes disney's going to get sort of will evaporate i think there's plenty of people that believes paramount on its own or warner brothers on its own might evaporate especially paramount i think warner brothers because of hbo sort of everyone thought they could hang on even

29:08Matt Belloni:if they were smaller well they've been transitioning the licensing model to the hbo max model in all these different countries so they've been converting a bunch of subscribers and growing

29:18Rich Greenfield:But on the flip side, I think that wasn't the case with Disney. And so people would say, okay, Netflix is a survivor. Amazon's a survivor. Disney's a survivor. There's going to be one more. And so the question really, in terms of how we're going to judge whether this is successful or not, is do we look at this in four or five years and go, God, because of this merger, they were able to basically leapfrog into a position of being a survivor? Are they a player long-term in the streaming wars? Can they really compete with the bigger companies in the space? Because again, to your point, they're still sort of small, right?

29:58Rich Greenfield:Like they are not a huge player. They're a huge player from, you know, in terms of linear television footprint, they're now a huge player in terms of their -

30:06Matt Belloni:They are the number one distributor. But if you don't, and that's getting smaller, they are not.

30:11Rich Greenfield:correct so can they actually leapfrog into being a survivor in the streaming wars that's going to be what determines whether david ellison is a success or a failure in five years other than you know i guess from a zazloff standpoint selling the company made him successful but you know certainly from an operational standpoint let's not talk about david zazloff today i mean

30:33Matt Belloni:that's a whole separate thing i mean this fucking guy going to the new york times and bragging about how exciting this deal was and how thrilling and exhilarating it was when you are about to close a deal that is going to result in tens of thousands of people losing their job. Like, dude, read the effing room. Don't do that. Like who that, like, just don't do that.

30:55Rich Greenfield:But look, David Ellison's job is to grow shareholder value. So can he grow shareholder value over the course of the next five years? And I think what's going to be, unless he's selling and I don't think he's selling because I think he's 43 years old. He's going to do this for the next 40 years. So the definition of success for David Ellison Unless he has to sell, by the way.

31:15Matt Belloni:Unless the debt consumes him and daddy says, no more, son. And the Saudis are like, what did you do with our money? And these debt lenders are like, wait a second, you promised X and it's X minus 2 billion every year. Like then that's a problem.

31:32Rich Greenfield:But Disney stock is down over a decade. I mean, we can go stock by stock, but this has been a disaster. Can David Ellison actually grow shareholder value? I mean, you've got a stock at$13 today. They're investing more in this transaction at$16 when it closes. Will this stock be 20 in five years, 30 in five years, or 10 or lower? Like, that is going to be really what you determine whether he is successful.

31:56Matt Belloni:From your perspective, from a financial perspective.

31:58Rich Greenfield:From a, is he good at making movies or is he good for Hollywood jobs? I'll leave that to you and Lucas. But from the standpoint of Wall Street, can he make people money? Because right now, the tech companies, you know, Netflix has made people money. Obviously, Google with YouTube has made people money. All of the other companies, other than Zaslav, who sold, and Fox, which really narrowed it down by selling. Like, you think about the only two companies that have made money were through transactions and simplifying. Nobody else on the core space has made money over an extended period of time right now.

32:31Rich Greenfield:can David Ellison be in that category of actually investing and being willing to forward invest, which is not just gutting for cost savings, but really investing to build. And what I mean by build, meaning he has to make it so when Matt goes home and you're hanging out with your family at night, you go, hey, let's turn on whatever it's going to be called, WarnerMount, Paramount Plus, whatever the name of this thing is going to be called. Is it something that you turn to every single day. And look, we're moving into a world of AI where content creation is going to get easier. YouTube, which is already the dominant player in the space, is going to get far, far stronger over the course of the next five years.

33:10Rich Greenfield:What does that mean? How do you not lose share to YouTube and others over that period of time? And look, again, the beauty of Netflix is, and even with the transaction they were trying to do, they were never tied down. They never had to think one second about linear television. All of their energy was focused on streaming. Ellison has to skinny down the linear business and at the same time build for the future in streaming. That's the challenge that Iger's had. It's Josh DeMauro's challenge now in the new company. Like that is the challenge facing David Ellison is how do you balance these two and actually grow the net business over the course of the next five years?

33:52Matt Belloni:Well, I look forward to you cheerleading them on in cost cutting and consolidation while doing pull-ups. Thank you for joining us. Thank you. Okay, we are back with the call sheet. Craig, one thing we didn't really get into is the whole question of what this merged streaming service that Paramount is now going to own, that includes HBO Max and Paramount Plus, what are we going to call this service? Do you have thoughts? I think they should just call it HBO. I think they should kill Max. There should be no Paramount name attached because that doesn't mean anything. I think it should just be called HBO.

34:29Matt Belloni:Interesting you say that because obviously there's a long tortured history here. It was HBO. Then it became HBO Go and HBO Now when it was, you know, the old regime. Then the AT &T people created HBO Max. And then the Warner Discovery people said, oh, no, no, no, we don't need HBO Max anymore. We'll just call it Max. and then that didn't work and then they went back to hbo max which is where we are today and my prediction is is i actually think they are going to keep hbo max and fold paramount plus into hbo max yeah i mean what hbo the name hbo max does is it basically communicates it's hbo premium but also a bunch of fun other stuff like paramount shows and things like that So I understand that, but I do think HBO ultimately just sounds the best.

35:20Matt Belloni:It's a brand. Like, that was the whole problem with Max, is that there was not 50 years of brand identity to help sell the product. Now, obviously, the previous regime thought that that brand, HBO, was limiting as much as it was additive. And for a number of people, HBO is not for them. They do not like the HBO brand, that content, so they don't want it, even if there's a whole bunch of other stuff. That's why I think that they probably won't go with just HBO. The question is, do they lean into maybe another brand they have, like calling it CBS or calling it HBO CBS or something like that? I think that's too confusing.

35:58Matt Belloni:I think that they go with a brand that is out there, HBO Max, and then it becomes like Disney where there are tiles. There is a CBS tile. There is a MTV music tile. There is an HBO tile. So you can keep these sub-brands separate, but the overall product is HBO Max. What is the actual official name of this new company now? Is it Paramount? Is it Paramount Skydance? Is Warner Brothers involved in the title? Honestly, I don't believe they have decided yet. I've heard speculation it may be something like P.Sky Bros, which sounds like terrible. P.Sky Bros as the actual name of the company? Paramount Skydance is the current name of the company.

36:37Matt Belloni:Yes. But their stock ticker is P.Sky. Sure, but I'm not talking about that. And they keep referring it to that. People were making fun of the town hall where they kept saying Peace Guy. And they're like, what? What does urination have to do with this? But yes. So they may incorporate the Warner name or it may just be that everything becomes a subsidiary of a Skydance company. Like they say on the Paramount monikers, it's Paramount, a Skydance company or Paramount, a Paramount Skydance company. I don't know. The bottom line is, I don't know. When the Batman 2 comes out or the Batman 3 comes out.

37:10Matt Belloni:Yes. Will that be a Warner Brothers movie or will it be a Paramount Skydance movie? It will be a Warner Brothers label movie. Just like when the Alien movies come out, they come out under 20th Century Studios, which is the Fox label that Disney bought and they just dropped the Fox off of it. But ultimately, it's distributed by the Walt Disney Company, the Walt Disney Distribution Company. It will likely be that the Warner Brothers movies still have Warner Brothers as their moniker on it. It'll just say Warner Brothers, a Paramount Skydance Corporation, or a Peace Guy Bros Corporation, whatever they end up calling it.

37:47Matt Belloni:Well, it's all very exciting. Get excited for corporate branding, man. It's huge. But I do think my prediction, HBO Max, will stay. Okay, that's the show for today. I want to thank my guests, Rich Greenfield, producer Greg Horvath, our editor, John Jones. And I want to thank you. We'll see you a couple more times this week.