David Ellison is just the latest to believe that he can buy Warner Brothers and make something good happen.
There's a long list of failures. I think maybe that's appealing to guys like him. It's like everyone else is dumb. I'm the smart guy who's going to figure it out.
This whole thing from like start to finish is like one guy wants to hang out with Tom Cruise and he's going to manufacture a company that will allow him to do that.
That is what the job of producer is. You don't really do anything as a producer, to sort of package stuff, and he was able to be in the Tom Cruise business and that's what got him as far as he's been able to get so far, and that is his job. That was his job. Now he's got a different job. There's no plan for new revenue. There's no announced plan for new revenue. Right now it's shrink, cut costs. We promise that most of that's not going to come from layoffs, but a lot of it's going to come from layoffs.
Hello and welcome to Decoder. I'm Nilay Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today I'm talking with Peter Kafka, chief correspondent at Business Insider and host of the Channels podcast, about the gigantic Warner Brothers Paramount merger and the future of the company now simply called Skydance. Skydance is owned by David Ellison, son of Oracle CEO Larry Ellison, and its deal to acquire Warner Brothers Discovery officially closed the day Peter and I recorded this conversation.
Ellison and Skydance have obviously grand ambitions for Warner, but the reality is that acquiring Warner has never gone well for anyone. AOL failed to do anything with Warner. AT&T failed. Discovery failed, although it did succeed in flipping the assets to Skydance. So, I wanted to ask Peter if he thinks the Ellisons and Skydance have a real shot at succeeding, and there's so many other companies who have hit the rocks. It will probably not shock you to hear that Peter doesn't think Skydance has a clearer business plan than any of the last few companies that tried to make Warner Brothers a success, but he's got some really good guesses about what they might try next. On top of that, he just wrote a profile of new Skydance co-CEO Anil Khera for Business Insider. He has quite a lot of insight into what he might be tasked with doing at the new company. Before we get going, do me a favor and subscribe to Decoder on YouTube where we release new episodes every Monday and Thursday. Okay. Peter Kafka on Warner Brothers and Skydance. Here we go.
Peter Kafka, you're the chief correspondent at Business Insider. You're the host of the Channels podcast, our sister podcast here on the Vox Podcast Network. Welcome back to Decoder.
Thanks for having me. It's big media day again.
It's big media day. It's an auspicious day, as my parents would say. It is the day that the Warner Paramount merger closes. We've all been calling it Warner Mount, but I'm told this company will instead just be called Skydance.
Which is quite an eye. Every time I see the word Skydance, I assume it is for which maybe is probably true in this.
I mean, another way to think of it is there's iconic names in Hollywood. Paramount, such an iconic name that Viacom turned itself into Paramount years ago. Warner Brothers, legendary studio. Let's get rid of those names. Let's add Skydance, which no one's ever heard of.
Let's just start at the start. There was Paramount. There's Warner Brothers. The deal closes today. That is all going to be a new company called Skydance. Is Skydance just a holding company? Are we as consumers meant to know that this thing exists?
I think for the near term, you're still going to think of companies like Paramount and Warner Brothers and HBO as brands, you know, but this is going to be one company. They're going to merge everything together. They're likely going to merge the streaming services, Paramount and HBO, into a thing. Not right away, but eventually. So, I do think Skydance will be a name that consumers will probably know at some point.
I just have to ask, what are the chances that HBO Max will be rebranded yet again into Skydance?
There's probably going to be some branding stuff. Not again in the near term. There's actually some because this is still a cable TV company. There's actually some limits on what these guys can do with their brands and their services in the near term. And they won't come out and say, 'We're going to mush this stuff together.' But there's likely to be one mega streaming service, and maybe you can get HBO separately, or maybe you can only get HBO or only Paramount, but it's going to be one thing and one movie studio, and it's all going to get mushed together, and it's all going to be run by David Ellison. David Ellison is just the latest to believe that he can buy Warner Brothers and make something good happen.
I have joked many times on the show that maybe the only antitrust policy this country needs is to make it illegal to buy Warner Brothers, and that would just solve a lot of problems. Why does he think he will be successful?
Well, his dad's the eighth richest man in the world, so that's not nothing.
That Oracle stock is tied up in a bunch of AI stuff. It's moving up and down.
We can talk about that, but one, that means that he literally has the money to buy this, too. And two, that this is a public company kind of in name only. David Ellison and Larry Ellison, his father, control this company effectively. They don't really need to worry that much about shareholders, equity shareholders. Debt's a different issue. And he's 43. He's got a long run backed by tens of billions of dollars of his father's money to take a stab at this. And like you said, he will not be the first person to do this. So there's a long list of failures. I think maybe that's appealing to guys like him. Like everyone else is dumb. I'm the smart guy who's going to figure it out.
Everyone else is dumb and I'm smarter than everyone else is very appealing. But that long list of failures, if you just look at it, they're all shaped like this idea. We're going to take iconic Warner Brothers content. We're going to marry it to new distribution. We're going to reduce the overhead and costs and decadence of Hollywood. Where does new revenue come from?
There's no plan for new revenue. There's no announced plan for new revenue right now. It's right now it's shrink. It's cut costs. It's when we mush these two companies together, we're going to save $6 billion over the next 3 years. We promise that most of that's not going to come from layoffs, but a lot of it's going to come from layoffs. These are companies that have had many, many rounds of layoffs prior to this. And you could argue, well, there's probably not that much more to cut. I think reasonably you could say, look, if you combine two big streaming operations, two big studio operations, there probably is stuff you can probably sell off some real estate, you probably don't need all the executives you currently have. There's some savings there, but yeah, how you grow, no idea. And no one's really articulated that growth is required for a couple of reasons here. One, yes, there are going to be shareholders. People will be looking at it. There's David Ellison's ego. Then there's debt. This deal is levered to the max, right? There's
But more important than the number is the reason that David Ellison was able to buy Warner Brothers is that the last owner couldn't deal with the debt that he took on to buy the company. And that was a mere 43 or $50 billion depending on who was counting. This was David Zaslav, the former CEO of Warner Brothers Discovery, who spent his entire tenure running that company telling Wall Street that yes, he was going to get the debt down. And that was his main focus. Debt, debt, debt. Reduce, reduce, reduce. I mean, he did reduce some debt, but he never convinced Wall Street that he had a plan to grow. Wall Street gave up on this company years ago, which is why when David Ellison decided he wanted to buy it, the stock was like seven bucks or something like that. Eventually bought it for, you know, many, many times that. And now David Zaslav is considered, well, he considers himself a genius for selling the company at such a high price. You could also argue, as someone told me yesterday, like it's just a unicorn sort of manifested itself and allowed David Zaslav to exit this situation he'd put himself into. I don't know who the next unicorn will be for this company if David Ellison at some point decides actually this is a lot of debt and a lot of pain. I don't want to do this anymore.
I want to come to that because I have a little bit of a conspiracy theory that's a little bit supported by the attitudes of some of the players here. But we'll come back around. Even the previous owner, AT&T, which is remarkable that AT&T was in somewhere in this chain of ownership, AT&T owned Warner.
Yes,
they could not deal with these assets. Their plan was to distribute Warner content on AT&T phones, which never made any sense, but they were a more aggressive owner. It also wasn't really their plan. Their plan was, hey, Netflix is a really valuable company. That stock is very high. We're this boring telecoms company. Our stock is not moving. What if we owned a Netflix? I bet Wall Street would reward us as a high-flying tech company all of a sudden. And Wall Street didn't. And within a couple years, AT&T said, 'Oh, yeah, no, we're out of this.' And yes, they had said a bunch of stuff about mobile and connectivity and ads and targeting, and none of that ever went anywhere.
I will never forget covering their antitrust case when they had to get approval for that deal. They convinced the judge that they had a vision of the future and the judge in that case in the opinion, the appeals court opinion, wrote this is a vision deal and I thought we're doomed. Like I don't know what's going on in our
I want a vision deal. How do I get one of those?
I don't know. I was like I don't know what that is at all. So we have a lot of debt. We've got the FCC had to waive the cap on foreign ownership. There's 49% of money from the Gulf in this company. Then there's the Oracle of it. And I have always wondered why anyone would trade what amounts to an AI stock for a media stock, especially right now. But the AI trade is a little shakier than it was before. Oracle has been punished a little bit for this deal. What do you make of that? Is that an effective backstop?
I don't know if Oracle was punished for this deal. I mean, there was a period a year ago where Larry Ellison's net worth was double what it is now. And you could say, well, that was just a weird AI blip. It's still a very highly valued company. He is still the eighth richest man in the world because of his Oracle holdings. Wall Street is a little bit nervous now about the fact that Larry Ellison, his source of wealth is Oracle. He's borrowing from Oracle. He has backstopped the Warner Brothers deal by pledging to come up with 40 or 50 billion if he needs to. And there is a question of like, all right, not only is Oracle sort of intimately tied into this new media company, Oracle is also entirely dependent on one AI company, OpenAI, for its new plan. So late in life, Larry Ellison is 82 years old. He's decided he's kind of putting the entire company on AI and on OpenAI specifically. And while he's not doing that, he's going to use some of that money to fund his son's media empire. So, I don't know if it's rickety, but it's definitely a question mark.
I open Instagram. Right now my Instagram algorithm is crazy because I keep looking for Instagram's tolerance for copyright infringement and it is high. Instagram has basically unlimited tolerance for copyright infringement. Mark Zuckerberg is posting deep fake memes of himself doing rap videos. Now,
these are detailed. By the way, Nilay, you know who's figured out Instagram and Reels? Algo, I get so much of your front-facing video. You're very good at it. You should consider being an influencer. You have figured this out.
I try to deeply understand the things that are going to kill me. And so that's we're just looking at that one and I'm looking at my daughter. I'm like, I should know what's going on here. All this AI, it makes it impossibly cheap and easy to just take the IP from these movie studios. I watched a video last night of the Heath Ledger Joker and the Christian Bale Batman just doing a Justin Bieber video and then I was served 5,000 more videos like this.
that's the OpenAI business. They're going to destroy the creative foundations that make the IP valuable that Warner Brothers makes. And somewhere in there is a big problem that I can't quite figure out.
Yeah, I think it maybe is simpler than that. You're right. There's all kinds of copyright issues. The value of your library may be much less if someone can just take it without paying for you. But I think the bigger issue for David Ellison and anyone in the media business is what you really want is people's attention. You have this company saddled with $80 billion in debt because it makes all kinds of entertainment, really expensive movies, all this sort of stuff. And now anyone can make anything that will at least get your attention for a few seconds on Instagram and TikTok. And so there's this flood of stuff whether it's copyright infringing or not. It's just stuff that the David Ellisons of the world have to contend with because your daughter and my kids might easily watch that stuff rather than the original Batman movie. I think that is sort of the existential problem for Skydance, but every media company today.
But the Skydance purchase is being funded by the OpenAI deal, by Oracle money. OpenAI just took all this stuff like that. This is the thing I can't quite square is if OpenAI succeeds at the level that is necessary for the Ellison family to stay wealthy, then they will have massively profited from overwhelming IP theft and they will have a product that can make anyone a movie at any time for zero dollars, rendering Warner effectively useless.
Maybe you're right. Again, I think there is a core tension here and that the reason you say that Skydance is worth what it's worth is because of its existing library and its ability to make new stuff. And a lot of that may be much, much less valuable going forward. There's a counter that says, look, you know, people were stealing music for decades and somehow Spotify and the music industry figured out how to actually sell, you know, $120 worth of music a year to people who were only buying two CDs a year prior to that. So maybe there's a way to math yourself out of this, but we don't know yet. There's other constraints on this deal. This deal is actually marked by constraints and challenges in a particular way. The big one is that in order to settle the antitrust lawsuit filed by California and a bunch of other states, they agreed to put out 30 films a year or pay $30 million per film that they missed into healthcare and retirement funds managed by the unions. After two years, they have to go up to 32
movies a year. And if they don't hit that, they've got to sell their like 49% stake in Miramax. This is a pretty intense constraint, right? They've got to just make a bunch of movies. They do not make this many movies right now. So, how are you going to cost cut your way into making more movies?
I think the math there is we have these two studios. If you sort of totaled up what they were going to do already, it's close to 30. And to be clear, this is not really a constraint from California. This is a pledge that David Ellison was shouting from the rooftop for months and months and months. And if you want to, we can talk about the non-settlement he extracted from California. But this has been David Ellison's pitch for a long time. I think the main thing is David Ellison has proved that he can sort of get California and regulators around the world and definitely federal regulators in the Donald Trump era to go along with whatever he asked for. I don't think they're going to be constrained by regulation. I think they're going to be constrained by math and debt. And are you shaving that debt down fast enough to make bondholders happy?
I'm actually asking about math here. I do want to talk about the non-settlement, but the 30 films a year going up to 32. I don't know that there's a market for that. It's not like the box office is growing at the rate to support that. And if you need to pay down your debt, the first thing you would do is stop making things that people aren't buying.
I mean, there's some finagling, right? Like what is a movie? Does a movie have to be released in movie theaters? You know, is a piece of [__] that no one watches, is that a movie? And then again I think in that settlement in California they said literally like X number of movies have to be in a movie theater which means a lot of them don't. So who knows what they will use to fulfill that obligation. But for the near term I don't think that is going to be their primary problem.
Let's talk about California for one second. I actually got an email from a reader saying that I always call out Republicans by name but I only say California. I will say it appears Gavin Newsom and Rob Bonta totally caved here. Ellison threatened to move to Nashville or something and they blinked and I think the other states in that lawsuit were not happy that they blinked but they totally blinked. What is the settlement? Does it have any teeth at all?
No, it's all the stuff that David Ellison was already proposing. And none of the things that Rob Bonta, the attorney general of California, said he was demanding. He was saying we need structural remedies. I'm sure I don't need to tell a Decoder audience what a structural remedy is. He was like behavioral remedies are not adequate. It won't work. He was saying that up until the weekend that he caved and then he caved and he had this humiliating press conference where he had to stand up and say this is a good deal. I really believe in it. Apparently he was considered like a rising star in Democratic politics and California politics. I have not been exposed to him prior to that press conference, but it's very hard to imagine that guy has a—he doesn't seem to have a lot of juice. Anyway, enough about my political musings. There's very little in here. I don't think Paramount gave up a single thing actually to make this deal work.
You got it right. They said, 'We're going to leave if you don't give us what we want.' Anyone who's watched professional sports, who's rooted for a professional sports team knows how this goes. If you don't build me my new stadium, if you don't give me billions of dollars to refurbish my stadium, I'm going to leave. And sometimes those teams do leave. But most of the time they stay and they get what they want. And that seems to have been the Ellison playbook here. David Ellison's pitch to Hollywood for the last two years was like, I grew up here. I love movies. I love Hollywood. I love film. And then last few months was, I'm going to ditch this and go to Tennessee or wherever else and [__] Hollywood, which is kind of hard to square those two things. But the second he got that settlement, he was like, no, I love LA. I was never—
I think they looked at this from the start as this is we'll say and do whatever we need to make this deal get done and once it's done it'll all be behind us and we can go back to loving LA and no one's ever going to pay attention to this. And by the way, he might be right.
I do have to note that Peter is a Vikings fan. I'm a Packers fan. I do not believe the Bears are going to move to Indiana. We're literally watching this situation play out in front of us right now.
That's a wild one. I will say the Minnesota North Stars do no longer exist, they're the Dallas Stars, because Minnesota was without hockey for several years. So sometimes these guys actually do follow through and move the team.
Yeah. Speaking of Minnesota, who knew you don't need a quarterback to go 4-0. Throw that out there.
Let's talk about the NFL for one other second. That is the last time you were on the show, you pointed out that CBS broadcast television exists to sell the American people the NFL. That is the business. Speaking of math, of costs, there is a change of control clause in the NFL deal with CBS. They could come in there, they could raise rates, they could get Amazon or Apple or Google to throw a bunch of money on the table and basically tank this company. They could take CBS's business away. Does that feel like a meaningful threat right now?
No. I think CBS will pay whatever it needs to pay to keep the NFL. It is existential for them. I think the NFL knows that. But also, the NFL, as much as they like streaming stuff and streaming deals, they like broadcast TV, they like that distribution. It's also a political football, pun intended. If the NFL went away from broadcast television, I think that becomes an actual national political emergency. You'd actually have Republicans and Democrats united to sort of stop it or do something about it. It's very hard for me to believe that the NFL leaves broadcast TV and I think because CBS needs it so badly. I just think they'll pay whatever they need to pay.
Let's talk about the structure of the deal. I love talking about corporate structure on the show. As you know, you have a profile of the new co-CEO of Skydance, Anil Khera. He was most recently at Mattel. There's actually a lot of Peter in this story because he left Mattel to go run Skydance and the CEO of Condé Nast, Roger Lynch, is leaving Condé Nast to go to Mattel and we'll find out who the new CEO of Condé Nast will be. These are all Peter Kafka stories in—
