Skydance maps out $6 billion cost cuts after Paramount merger

Skydance has laid out a plan to cut at least $6 billion in costs over the next three years. The aim is simple: run the combined entertainment business with fewer duplicate jobs, systems and bills.

Think of two large department stores joining together. They do not need two head offices, two payroll teams, or separate buyers ordering the same supplies. Skydance sees a similar opportunity after bringing together streaming services, film and television studios, TV businesses and corporate functions.

The target is large, but it sits against an expense base of more than $50 billion. The company says the cuts should come from combining work that had been done separately, rather than from a single change.

The biggest part of the plan is $2.2 billion from back-office and corporate work. This includes fewer layers of management, a smaller office footprint and broader use of artificial intelligence tools.

Skydance also expects to save:

• $1 billion by streamlining marketing and promotion
• $1.4 billion by combining streaming operations, broadcast systems and behind-the-scenes technology
• $1.4 billion by reducing outside spending and centralizing purchasing

These are cost cuts, not new sales. For beginners, that matters because a company can improve its profit by earning more money, spending less money, or both. Skydance is putting much of its early focus on the spending side.

Some of the reshaping has already started. The company offered voluntary buyouts to employees ahead of planned layoffs, moved to a five-day office week and saw eight executives leave across the Warner Bros. and Paramount sides of the business.

Skydance says its earlier efficiency program at Paramount is on track to produce more than $2.7 billion of annualized savings by the end of 2026. Annualized savings means the expected saving over a full year once the changes are fully in place.

That earlier program is part of the company’s case that the new, larger target can be reached. Still, the $6 billion plan is spread over three years, so its effect on profit will not arrive all at once.

The cuts are not meant to stop investment in shows and films. Skydance spends more than $30 billion a year on content and says a combined company can make better choices about where to distribute and earn money from both new titles and older library content.

The company plans an early step toward joining Paramount+ and HBO Max: a bundle of the two services early next year. A bundle lets customers buy services together, like a phone plan that includes several features in one bill.

Management also expects artificial intelligence tools to speed up production and lower filmmaking costs. The balance will be difficult. Lower costs can help profits, but streaming and film businesses still need shows and movies that attract and retain audiences.

The legacy Paramount Skydance business reported third-quarter revenue of $7.03 billion, close to expectations, and adjusted earnings before interest, taxes, depreciation and amortization of $1 billion, above expectations. This earnings measure is a rough way to look at profit from the core business before several major accounting and financing costs.

Those quarterly figures do not include the effect of the Warner Bros. Discovery acquisition because it closed after the quarter ended. Skydance also flagged a $200 million fourth-quarter drag from weaker theatrical performance tied to Warner Bros. titles already released and upcoming releases.

The next major marker is the fourth-quarter report early next year, when Skydance plans to give full-year guidanceGuidanceA company’s own forecast of revenue or profit for the coming quarter or year. Shares often react more to a change in guidance than to the past results.Full explanation in the glossary →. That should offer a clearer view of how quickly the combined company expects the savings plan to change its financial results.