Skydance targets $6 billion in savings by merging operations

Skydance announced a plan to generate at least $6 billion in cost savings over the next three years by merging the operations of Paramount Skydance and Warner Bros. Discovery. The company stated in a letter to shareholders on Monday that it will eliminate duplicative spending across an expense base exceeding $50 billion. This restructuring aims to reduce overhead by combining two global streaming services, two film and television studio groups, and two television portfolios.

The savings will come from several specific areas. Skydance projects at least $2.2 billion in reductions by eliminating redundant back-office and corporate functions. This includes removing management layers, increasing the use of artificial intelligence, and shrinking its office footprint. Another $1 billion will come from streamlining marketing and promotional spending. The company expects $1.4 billion in savings from unifying its streaming businesses and broadcast architecture, while a final $1.4 billion will result from optimizing third-party spend and consolidating purchasing decisions into a single group.

Cost-cutting measures have already begun. Last month, Skydance offered voluntary buyouts to employees before conducting official layoffs. The company also adopted a policy requiring employees to be in the office five days per week. Last week, eight executives departed the organization, with four coming from Warner Bros. and four from Paramount. Skydance noted that its previous efficiency program at Paramount is on track to achieve over $2.7 billion in run-rate efficiencies by the end of 2026.

The company plans to take the first step toward merging the Paramount+ and HBO Max streaming services into a single platform early next year. It will offer a bundle of the services at a lower price point. Co-CEO Ynon Kreiz told investors during the earnings call that the company is looking for ways to optimize its content budget, which exceeds $30 billion annually. Kreiz said, "As one company, we can make smarter choices about how we distribute and monetize both new content and library content."

Co-CEO and chairman David Ellison said the company will utilize AI to speed up production and decrease the costs of making films. Ellison stated, "We think these tools will help unlock more original storytelling by being able to make the budget more digestible to be able to take that amount of risk." Skydance also reported a $200 million headwind in the fourth quarter from theatrical underperformances at the Warner Bros. studio related to titles that have already launched and upcoming releases.

Third-quarter results for the legacy Paramount Skydance company showed revenue of $7.03 billion, which was roughly in line with StreetAccount estimates of $7.04 billion. Adjusted earnings before interest, taxes, depreciation, and amortization reached $1 billion, surpassing StreetAccount estimates of $913.5 million. Adjusted earnings per share were 45 cents. The results do not include the impact of the Warner Bros. Discovery acquisition, which closed after the end of the third quarter.

Skydance detailed the business units of the combined entity, including studios, direct-to-consumer, and TV. The company said it will provide full-year guidance during its fourth-quarter earnings report early next year. In a note to shareholders, Skydance said it will provide guidance on an annual basis to prioritize long-term value creation. The company will continue to provide quarterly updates with forward-looking commentary where applicable.