Paramount Sold: Another Hollywood Domino Falls

After months of speculation and negotiations, Paramount Studios was sold to Skydance in a deal for $4.5 billion. So ends the run of one of Hollywood's long time studios. This is a company that can trace its roots back to 1912, basically spanning the entire history of film.

This is a multi-faceted deal since it includes assets other than Paramount such as movie theaters and real estate that was owned by the Redgrave family.

Skydance will own 100% of the stock once the deal closes.

This firm was founded and run by David Ellison, son of oracle founder Larry Ellison.

Source

Hollywood Transition

Skydance produces movies. On this surface, this is just another merger between Hollywood players. However, when we dig into it, this company is more than just movies.

It is a company that specializes in films, animation, television, video games, and sports. Some of this lines up with Paramount, much does not.

This is also driven by technology. The interactive gaming division of the company exemplifies this. So does the relationship with Tencent, one of the leading Chinese tech firms. It has a 5% stake in Skydance.

As we can see, while this might not be at the level of Amazon, it is a company that is closer to that than a traditional movie studio. Paramount certainly qualifies as such. It is also why the studio was struggling.

All attempts to move into technology failed.

Paramount has shed nearly $17 billion in value since late 2019, as its traditional television business has eroded faster than its Paramount+ streaming service could turn a profit.

While the stock market isn't the best barometer of value, it does show, in 5 years, when people were locked down for part of the time, how far the company has fallen.

Like most Hollywood entities, the dive into streaming has failed miserably. It really is nothing more than a cash drain as billions were fed in with little return.

We also get this tidbit:

Ahead of an investor presentation on Monday, Paramount disclosed in presentation slides that the deal will produce $2 billion in run-rate savings, half of it in the first year. Restructuring and integration costs will reach $1.6 billion, according to the slides.

Source

This is corporate jargon for layoffs. Like most mergers and acquisitions, people are going to be put out of work. Unfortunately, this comes at a time when work is Hollywood is on the decline.

Technology Sector

It is very clear to me what is happening: Hollywood is going to be swallowed up by the technology sector. It will end up disrupting everything.

We already see Apple, Amazon, and Netflix in different facets of the business. The first two are becoming major players in the sports world, a place where contracts are only getting more expensive. This means bigger players are going to be required.

Then we have Google (specifically YouTube) dominating streaming. It is also the largest digital television provider, only outdone by Comcast and Time Warner in the US in general. This is how big the reach is starting to get.

All of this is occurring as fragmentation is starting to take place.

The quest for eyeballs is only growing as more participants enter the realm. This is nothing new since we saw the volume of nightly newscasts plummet as people had more choices.

In a world where we are moving towards personal AI assistants, old time movie studios do not stand a chance. Adaptation is required, something that is not going to happen since disruption is afoot. These entities are following the path of every other disrupted industry.

My forecast is that, by the end of the decade, there will not be much of Hollywood, as we know it, left standing. The epicenter for entertainment there will be much smaller. It will not surprise me if we see more success coming from entities that are operating outside the traditional areas of entertainment creation. This is going to happen both from a geographic and corporate perspective.

Next Up

As the entertainment industry shifts around, watch for the studios with infrastructure, such as Time Warner, get attacked next. We have Elon Musk with Starlink, Bezos with Blue Origin, and the mobile operators all looking to get into game and take customers.

This is could hit at another level.

For now, let's see what Skydance does once the deal is closed. I would venture to say they might scrap Paramount+ and take the library to Netflix. Why keep draining resources when you can simply get paid each year from the catalog.

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