Why David Ellison Thinks He Can Win at Warner Bros.

Today I speak with Peter Kafka, chief correspondent of Business Insider and host of Channels podcast, about the massive Warner Bros.-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 Bros. Discovery officially closed the day Peter and I spoke.

There are big ambitions here, but the reality is that the Warner acquisition never goes well for anyone. AOL failed, AT&T failed, and Discovery failed – although it managed to move those assets to Skydance. So I wanted to ask Peter if he thought the Ellisons and Skydance had a real chance of succeeding where so many companies before them had failed.

Okay: Peter Kafka on Warner Bros. and Skydance. Here we go.

This interview has been lightly edited for length and clarity.

Peter Kafka, you are the chief correspondent for Business Insider and you are the host of the Channels podcast, our sister podcast here on the Vox Media podcast network. Welcome back to Decoder.

Thank you for inviting me. It’s once again the big media day!

A great media day. It’s an auspicious day, as my parents would say. It’s the day the Warner-Paramount merger closes. We all call it Warner Mount, but I’m told this company will do it instead. just be called Skydance.

Every time I see the word Skydance, I assume it’s a foreign company, which may be true in some way.

Another way to look at it is that there are iconic names in Hollywood. Paramount is such an iconic name that Viacom became Paramount years ago. Warner Bros. is a legendary studio. Let’s get rid of these names. Let’s add Skydance, which no one has ever heard of.

Let’s start at the beginning. There was Paramount. There is Warner Bros. The deal is closed today. This will all be a new company called Skydance. Is Skydance just a holding company? Are we, as consumers, supposed to know this thing exists?

I think in the short term you’ll still be thinking about companies like Paramount, Warner Bros. and HBO as brands you know, but it will be one company. They’re going to merge everything. They’ll probably merge the streaming services, Paramount and HBO, into one thing, not right away, but eventually. So I think Skydance will be a name that consumers will probably be familiar with at some point.

I just have to ask: what are the chances that HBO Max will be rebranded as Skydance again?

There will probably be some branding stuff. Not yet. In the short term, because this is still a cable TV company, there are actually some limits to what these companies can do with their brands and services. And they’re not going to say, “We’re going to mix all this together.” »

But there will probably be a mega streaming service, and maybe you can get HBO separately, or maybe you can only get HBO or just Paramount. Still, it will be a thing and a movie studio. It’s all going to be mixed up, and it’s all going to be directed by David Ellison.

David Ellison is just the latest to believe he can buy Warner Bros. and achieve something good. I’ve joked many times on this show that maybe the only antitrust policy this country needs is to make it illegal to buy Warner Bros., and that would just solve a lot of problems. Why does he think he will succeed?

Well, his father is the eighth richest man in the world, so that’s no small thing.

This Oracle stock is tied to a bunch of AI stuff. It goes up and down.

We can talk about it. But first, that means he literally has the money to buy this, and second, it’s a public company in name only. David Ellison and Larry Ellison, his father, effectively control this company. They don’t really need to worry so much about shareholders. Debt is another problem.

And he is 43 years old. He has a long track record backed by tens of billions of dollars of his father’s money to take his chances. And like you said, he won’t be the first to do this. The list of failures is long. I think maybe that’s attractive to guys like him. It’s like, “Everyone’s stupid. I’m the smart guy who’s going to figure it out.”

“Everyone is stupid and I’m smarter than everyone” is very appealing. But this long list of failures, if you look at it, they are all shaped according to this idea. We’re going to take iconic Warner Bros. content, we’re going to marry it with new distribution, we’re going to cut the overhead, the costs and the decadence of Hollywood. Where does the new revenue come from?

There are no plans for new revenue. There is no announcement plan new income. At present it is decreasing; this reduces costs. It is by merging these two companies that we will save $6 billion over the next three years. We promise that most of that won’t come from layoffs, but a lot of it will come from layoffs.

These are companies that have experienced many rounds of layoffs before. And you could say there’s probably not much to remove. I think you could reasonably say: look, if you combine two big streaming operations, two big studio operations, there are probably things (to be cut). You can probably sell real estate. You probably don’t need all the frameworks you currently have. There are savings there. But how to grow? No idea. And no one really said it.

Growth is necessary here for several reasons. First, yes, there will be shareholders; people will watch it. There’s David Ellison’s ego. Then there is the debt. This deal is being exploited to the max, right?

Eighty billion dollars (of debt). Eight zero. More important than the number is why David Ellison was able to buy Warner Bros. was that the last owner could not meet the debt he incurred to buy the business. And that was only $43 billion or $50 billion, depending on who was counting. This is David Zaslav, the former CEO of Warner Bros. Discovery, who spent his entire tenure running this company telling Wall Street that, yes, he was going to reduce debt, and that was his main goal, and debt, debt, debt, reduce, reduce, reduce.

I mean, he did reduce some of his debt, but he never convinced Wall Street that he had a growth plan. Wall Street gave up on this company years ago, which is why when David Ellison decided to buy it, the stock was worth like seven dollars or something. Eventually I bought it for, you know, several times more.

And now David Zaslav is considered – or he considers himself – a genius for selling the company for such a high price. We could also say, as someone told me yesterday, that some kind of unicorn showed up and allowed David Zaslav to get out of the situation he had put himself in.

I don’t know who the next unicorn of this company will be if David Ellison decides at some point, “Ugh, actually, that’s a lot of debt and a lot of pain. I don’t want to do this anymore.”

I want to come back to this because I have a bit of a conspiracy theory. This is somewhat supported by the attitude of some players here, but we’ll come back to that. Even the previous owner, AT&T, what’s remarkable is that AT&T was the… Somewhere in that chain of ownership, AT&T owned Warner.

They couldn’t manage these assets. Their plan was to distribute Warner content to AT&T phones, which never made sense. But he was a more aggressive owner.

It wasn’t really their plan either. Their plan was: “Hey, Netflix is ​​a really valuable company. The stock is really high. We’re this boring telecom company. Our stock isn’t moving. What if we owned a (version of) Netflix? I bet Wall Street would suddenly reward us as a high-flying tech company.” And Wall Street didn’t do it.

A few years later, AT&T said, “Uh, oh yeah, no, we’re out of there.” » And yes, they had said a lot of things about mobile, connectivity, ads and targeting, and none of it came to fruition.

I’ll 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. The judge in that case, in the appeals court opinion, wrote: “This is a visionary agreement.” And I thought, “We’re doomed.” » For example, I don’t know what’s going on in our justice system.

I want a Vision deal. How can I get one?

I don’t know. I said to myself, “I have no idea what this is.” »

So we have a lot of debt. The FCC had to waive the cap on foreign ownership. There is 49 percent of Gulf money in this company. Then there is the Oracle. I always wondered why would anyone trade which is like an AI stock to a media stock, especially right now.

But the AI ​​business is a little shakier than before. Oracle was punished a bit for this deal. What do you think? Is it an effective safety net?

I don’t know if Oracle was punished for this deal. I mean, a year ago, Larry Ellison’s net worth was double what it is today. And you might say, “Well, it was just a weird AI glitch. » It is still a very popular company. He is still the eighth richest man in the world thanks to his holdings in Oracle.

Wall Street is now a little nervous that Larry Ellison’s source of wealth is Oracle. It borrows from Oracle. He supported the deal with Warner Bros. pledging to provide $40 or $50 billion if needed. And there’s a question: Not only is Oracle somehow intertwined with this new media company, but Oracle is also entirely dependent on an AI company, OpenAI, for its new plan.

So late in his life – Larry Ellison is 82 years old – he decided to put all his…