Can Skydance Escape Its $80 Billion Debt Burden?

Skydance CEO David Ellison is ready to go toe-to-toe with Netflix, Disney and the rest of Hollywood after closing the Paramount-Warner Bros. Discovery merger. But his greatest foe isn’t CEOs Ted Sarandos or Josh D’Amaro – it’s the nearly $80 billion in net debt that he will need to chip away at as soon as possible. Ellison and his co-CEO Ynon Kreiz have a multi-year plan to drive mid-single-digit revenue growth for the next three years and for the majority of its revenue and profits to come from its streaming and studios business by 2030. Skydance also plans to lower its leverage ratio — a measure of a company’s debt relative to its earnings — to 3 times in 2029 and increase free cash flow to more than $10 billion by 2030. That plan includes at least $12 billion in earnings before interest, taxes, depreciation and amortization (EBITDA), over $30 billion in annual content investment and $6 billion in merger cost savings (70% of which will be achieved within the first two years) within the next three years. The Ellison family has promised they will do anything it takes to reach its targets on time. “We’ve measured this incredibly carefully,” Ellison said during a media event last month. “We absolutely have the ability to manage the debt and de-lever while investing for growth.” But Skydance’s merger math doesn’t entirely check out for Wall Street, who warn the company faces significant execution risks, intense streaming competition and a deteriorating linear TV business, which accounts for approximately two-thirds of the company’s EBITDA. Credit rating firm Fitch places its debt-to-EBITDA ratio at 7.8 times – well above credit rating firms’ standard target of 2 to 3 times for media companies. Reducing the company’s debt load and lowering its leverage ratio is critical if Skydance wants to successfully transform all of the assets it acquired over the last two years into a true media machine. Failure to execute could lead to more drastic cuts and — what Hollywood fears — more severe layoffs. Either way, this financial hurdle will weigh on all decision-making – including creative risk-taking – with little room for error for the foreseeable future. “It’s a fine line you have to toe to get everything right to be able to grow your revenues, EBITDA and free cash flow,” Fitch Ratings analyst Wunmi Adekanmbi told TheWrap. “From our conversations with them and from just crunching the numbers, it is clear to us that this is not going to be organic deleveraging.” Added Moody’s senior vice president Jason Cuomo: “They need to either outperform or bridge the gap between what we’re projecting right now and what the committed levels are.” While it’s not impossible for Skydance to reach its financial goals within the three-year timeframe, experts told TheWrap more cost-cutting, raising more equity or even asset sales may be required to get there. But some of those moves can be disruptive to the business and make it more vulnerable to other headwinds outside of Skydance’s control. “The challenge here is they’re not doing this in a vacuum. They’re trying to upgrade the plane while it’s flying, so they could hit a rough spot. The entire industry could hit rough patches with cord-cutting or a recession,” S&P Global Ratings analyst Naveen Sarma said. “That makes it difficult for them or anybody to try to do an integration of this scale.” A Skydance spokesperson told TheWrap that the company has “significant scale and free cash flow generation” to support its strategic priorities and that it expects to “grow the company and its performance” after closing the merger. A cost-cutting and content investment balancing act Experts told TheWrap that the first two years of Skydance’s deleveraging will primarily come from realizing merger cost savings and growing earnings organically. When factoring in the interest on the debt and the cost of realizing the merger synergies, analysts expect the company to start out with negative free cash flow. “We don’t have them generating cash flow in ‘26 and ‘27. Only in ‘28 do they begin to generate cash flow,” Sarma said. “So the only way they can actually reduce leverage for the first two years is by growing EBITDA. If they can achieve those synergies and start generating cash flow in ‘28, that’s when they can really start to pay down the debt as cash flow grows.” Skydance plans to save money in areas including real estate, procurement, marketing, technology and through an unspecified number of layoffs (which is what Hollywood has been bracing for). In March, Ellison told CNBC that Paramount’s savings from procurement alone are “well in excess of five times” the company’s original projection of $50 million to $100 million. While Skydance is required to continue operating the Paramount and Warner Bros. studio lots for a period of five years, Qualia Legacy Advisors managing director Aaron Meyerson told TheWrap it could look to consolidate its other duplicated office space, which includes its two New York offices in Hudson Yards and Times Square, the Turner campus in Atlanta, the Discovery and Scripps offices and overlapping international hubs. Or it could look to do a sale-leaseback, which would allow them to raise cash without giving up the use of those properties. Skydance co-CEOs Ynon Kreiz and David Ellison hold a press conference following the Paramount-Warner Bros. Discovery merger closure on Oct. 6, 2026. (Credit: Nate Jensen for Skydance) Skydance could also merge ad sales, scheduling, research and back offices on the cable side and eliminate duplicate cloud, engineering and data spend on the streaming side by running Paramount+ and HBO Max as one platform, he said. Indeed, Ellison plans to combine Paramount+ and HBO Max into one streamer eventually, but has cautioned that the tech uplift necessary to pull it off means it’s probably a few years down the road. After that, Meyerson said the company could consolidate in areas including media buying, post-production and VFX vendors, insurance, equipment and stage rentals, music licensing, measurement and research. Experts added that there’s a “big bucket of costs” that can be cut within Skydance’s content spending through shelving projects, cutting any duplicate overall and first-look deals, using AI to lower production costs or being more efficient with where they produce content. Those come with their own downsides and creative costs, though — just ask David Zaslav how shelving “Coyote vs. Acme” turned out. Though Skydance expects to deliver at least $6 billion in cost savings, Citigroup analyst Jason Bazinet believes that $8 billion is likely by 2029. He pointed to Skydance increasing its cost savings target from $2 billion to $3 billion after acquiring Paramount and suspects a similar pattern following the WBD merger. But cost-cutting too aggressively can be disruptive to the business and make Skydance more vulnerable if the economic environment or cord-cutting worsens. MoffettNathanson analyst Robert Fishman said maintaining its $30 billion+ in annual content spend is crucial and that there’s an opportunity to shift its linear TV spending towards streaming, studios and sports. In 2026 alone, Skydance has already produced over 180 series. Fishman also expects a major portion of the content budget will be focused on being aggressive around “must-have” sports rights, such as the NFL and college sports, and that third-party content licensing will continue or even ramp up to help fund its film commitment of at least 30 theatrical releases per year. Media mergers also typically result in layoffs. A study commissioned by Los Angeles County’s Board of Supervisors projects that nearly 4,500 local film and TV jobs could be impacted over the next three years, while an earlier version of that report pegged the company’s total consolidation risk at 6,000 jobs globally. Though Skydance executives have said that the majority of its cost savings would come from “non-labor” sources, it has already started offering voluntary buyouts to some employees and is shifting to a mandatory in-office policy of five days per week, widely seen as a way to thin out employee ranks ahead of more formal action. Skydance already laid off approximately 2,000 employees following the Paramount merger, with 600 employees taking voluntary severance from its return to office push. What other levers can be pulled? In addition to cost-cutting and growing earnings organically, Skydance could look to sell weaker cable assets, though experts are skeptical about how meaningful that would be, warning they generally trade at “pretty low” multiples. Harvesting the linear networks’ cash to reinvest in the streaming and studios businesses is also a key part of the company’s strategy, they said. “The issue is if your leverage is over four times and you sell one of those businesses, at best you’re probably going to get four times,” CreditSights senior analyst Hunter Martin told TheWrap. “You can get cash and repay some debt, but it doesn’t reduce the ratio of debt to profits that you have. You need to sell something at a higher valuation than your current leverage or it just mathematically does not work.” “You’re not going to get a whole lot of value out of [selling VH1 or Comedy Central],” Sarma added. “There’s really not much bang you can get for your buck by selling some of the cable networks outside of the premium networks, which they don’t want to sell because that’s key to the business.” Tesla and SpaceX CEO Elon Musk attends the Golden Age of American Innovation Summit at the Institute of Peace on Oct. 8, 2026 in Washington, DC. (Credit: Win McNamee/Getty Images) In addition to selling assets, Skydance could also look to raise equity, which is factored into S&P’s credit rating and outlook for the company. Following the closing of the Paramount-WBD merger, Skydance issued 471 million warrants that gave holders of Paramount’s Class B stock the opportunity to acquire shares in the new company at an initial exercise price of $12. If all of those warrants were exercised, that would raise around $5.7 billion in proceeds for the company, though it would dilute the ownership of current shareholders. It’s unclear how many warrants have been exercised thus far. If Skydance progresses in reaching its cost-cutting goals, growing the streaming and studios businesses and boosting its stock price, Martin said it could also look to increase the free float, or the total number of a company’s shares that are readily available for public investors, and use the proceeds to pay down debt. The company has a total of more than 5 million outstanding shares, including 3.9 million Class B shares. Skydance can also bring on more strategic investors. It has already received a $1 billion investment from Elon Musk, a $250 million investment from board member Laurene Powell Jobs and a $1 billion investment from South Korean retailer Shinsegae Group. Redbird Capital Partners also added in another $4 billion for a total commitment of $6 billion, while three Middle Eastern sovereign wealth funds are contributing $24 billion and LionTree is contributing an undisclosed amount. And of course, the $47 billion in equity financing is backstopped by David Ellison’s father and Oracle co-founder Larry Ellison. WBD chair emeritus John Malone has predicted that Musk could help bring down the company’s debt with an investment of up to $10 billion alongside a global content output agreement with SpaceX. Though that would accelerate deleveraging, JPMorgan analyst David Karnovsky is skeptical there’s a “clear strategic or financial rationale” for SpaceX and warned it would dilute shareholders. There is also the rationale to consider: Does Musk want something in return for his investment? What happens if Skydance fails to reach its targets? Despite the Ellison family’s assurances that they’ll do whatever it takes to reach their financial targets, experts argue that Skydance doesn’t have much room for error in execution. History is already littered with multiple failed media mergers — Warner Bros. being a key player in many of those disappointments. Karnovsky noted that while Warner Bros. Discovery achieved $4 billion in cost savings against a $3 billion goal, its 2023 revenue and adjusted EBITDA came in 21% and 27% below targets, respectively, while net leverage ended at 3.9. times, above its roughly 3 times target. If Skydance misses its targets, there’s also a risk that Fitch, S&P and Moody’s could downgrade its credit ratings, which would hurt its financial flexibility by increasing its borrowing and refinancing costs. Fitch and S&P have already downgraded Paramount and Warner Bros. Discovery’s credit ratings to BB – two notches below investment grade status – while Moody’s downgraded the company to a Ba3 rating – one notch below investment grade — citing the high execution risk. Oracle co-founder and Chairman Larry Ellison delivers a keynote address during the Oracle OpenWorld on October 22, 2018 in San Francisco. (Credit: Justin Sullivan/Getty Images) Experts said Larry Ellison could write a check to put in more equity or Skydance could do more cost-cutting, though neither option would solve the headwinds facing the business and the latter could end up being more disruptive. They could also face more pressure to sell off non-core assets piecemeal or even consider splitting off the majority of the company’s cable networks from its studios and streaming business. “If things don’t go as planned, there is a precedent in this industry to break up growth businesses from declining businesses. Warner Bros. was going to do this, NBC just spun off Versant, Lionsgate and Starz split in the past,” Martin said. “You’d basically be taking value from bondholders, but there’s a good logic for the company to pursue that strategy.”