Skydance details $6 billion savings plan: Cost cuts and streaming merger

Skydance detailed its strategy to cut costs by at least $6 billion over the next three years in a shareholder letter released Monday. The company, formed by the combination of Paramount Skydance and Warner Bros. Discovery, aims to reduce duplicative spending across a combined expense base exceeding $50 billion. The plan involves merging two global streaming services, two film and TV studio groups, and two television portfolios.

The company projects at least $2.2 billion in savings from eliminating redundant back-office and corporate functions. This includes removing management layers, increasing the use of artificial intelligence, and rationalizing its office footprint. Skydance stated it is confident in achieving these reductions by applying a playbook that is currently on track to deliver over $2.7 billion in run-rate efficiencies for Paramount by the end of 2026.

Marketing and promotional spending will yield at least $1 billion in savings. The company plans to streamline these efforts to reduce overlap between the two legacy brands. Additionally, Skydance expects around $1.4 billion in savings from unifying its streaming businesses and broadcast architecture. This technical integration also involves consolidating back-end technology systems across the combined entity.

A further $1.4 billion in savings will come from optimizing third-party spend and consolidating purchasing decisions into a single centralized group. The company aims to eliminate overlapping expenses in this area. These measures are part of a broader effort to align the operational structures of the two previously separate companies.

Cost-cutting measures have already begun. Last month, Skydance offered voluntary buyouts to employees ahead of official layoffs. The company also adopted a policy requiring employees to work in the office five days per week. Eight executives departed last week, with four coming from Warner Bros. and four from Paramount.

Skydance stated it will take the first step toward merging the Paramount+ and HBO Max streaming services into a single platform early next year. The company will initially offer a bundle of the streaming services at a greater value to consumers. Co-CEO Ynon Kreiz told investors that the company is looking for ways to optimize its content budget, which exceeds $30 billion annually for shows and films.

Kreiz said the combined entity can make smarter choices about distributing and monetizing new and library content. Co-CEO and chairman David Ellison said the company will use AI to speed up production and decrease film-making costs. He noted that these tools can help unlock more original storytelling by making budgets more digestible for risk-taking projects.

The updates accompanied third-quarter results for the legacy Paramount Skydance company. Revenue reached $7.03 billion, which was roughly in line with StreetAccount estimates of $7.04 billion. Adjusted earnings before interest, taxes, depreciation, and amortization were $1 billion, topping StreetAccount estimates of $913.5 million.

Adjusted earnings per share came in at 45 cents, a figure not immediately comparable to StreetAccount estimates. The results do not include the impact of the Warner Bros. Discovery acquisition, which closed after the end of the third quarter. Skydance expects a $200 million headwind in the fourth quarter due to theatrical underperformances at the Warner Bros. studio related to already launched titles and upcoming releases.

The company said it will provide full-year guidance during its fourth-quarter earnings report early next year. It will provide guidance on an annual basis to prioritize long-term value creation, while continuing to offer quarterly updates with forward-looking commentary where applicable.