Skydance promises $6 billion in cuts at Warner Bros, with $87 billion of debt to carry

Skydance on Monday laid out how it plans to wring $6 billion in savings from its purchase of Warner Bros Discovery, and said it will bundle HBO Max with Paramount+ early next year, according to Reuters. It is the first set of results from the combined company, which is led by CEO David Ellison and Co-CEO Ynon Kreiz. The Wall Street Journal also led with the cost target.

Where the $6 billion comes from

Reuters reports that the company expects to reach the full amount over three years, with 30% of it in the first year. That is about $1.8 billion by our arithmetic (30% of $6 billion). The breakdown given:

The three lines add to roughly $4.6 billion, which leaves about $1.4 billion of the $6 billion with no category in the coverage we read. That is our sum, not a figure the company reported, and the shareholder letter may explain it. A $1 billion cut equal to 20% of marketing also implies a marketing budget near $5 billion, again our inference.

The balance sheet behind the promise

Reuters says the acquisition left Skydance with $87 billion of gross debt and about $10 billion in cash. That is roughly $77 billion net, so the full $6 billion a year, once reached, would be about 7.8% of net debt. Our earlier reports track how the deal was financed: the $7.5 billion term loan and the junk-bond sale that drew $109 billion of orders.

The quarter itself is a partial picture. The $7 billion in Paramount revenue, up 5%, covers the three months to September, before the Warner purchase closed last month. Paramount+ revenue rose 21%. Skydance also said weak results from the Warner Bros film slate would cut fourth-quarter profit by up to $200 million, and it will give full-year guidance for the combined company only when it reports the December quarter.

Fewer numbers to check

Skydance said it will stop reporting quarterly subscriber figures, following Netflix. Reuters puts the combined HBO, HBO Max and Paramount+ audience at 203 million subscribers worldwide, which may be the last such number investors get on a regular schedule. After that, the company is asking to be judged on profit and engagement, measures it controls the definition of.

Who it hits

Cost cuts of this size land on people and vendors. The same day, Skydance replaced the heads of DC Studios, according to Reuters. For production-adjacent small businesses, such as caterers, equipment rental houses, post-production shops and ad agencies, a $1 billion marketing cut and a $2.2 billion overhead cut mean fewer and slower purchase orders. If a media company is a large share of your receivables, ask now about payment terms and think about how much you can carry if invoices stretch.

Sources: Reuters via Investing.com; WSJ (headline); Chronicle reporting. Totals marked as ours are our own arithmetic. This is market information, not investment advice.