Latest / Uphoff on Media Podcast / Skydance’s $110 Billion Bet on Netflix’s Order of Operations

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Skydance’s $110 Billion Bet on Netflix’s Order of Operations · Uphoff on Media Podcast

• 0:01
  SPEAKER_00: Hey, it's Tony.
• 0:02
  SPEAKER_00: By now you've heard that Paramount Skydance closed its acquisition
• 0:06
  SPEAKER_00: of Warner Brothers Discovery on October 6th,
• 0:08
  SPEAKER_00: and the combined company is now simply called Skydance.
• 0:12
  SPEAKER_00: The story had the drama, the characters, and enough cliffhangers to make it a great series.
• 0:17
  SPEAKER_00: It's also a sequel.
• 0:18
  SPEAKER_00: Warner Brothers has had three owners this century, and together they lost close to $190 billion.
• 0:26
  SPEAKER_00: Skydance is betting $110 billion.
• 0:28
  SPEAKER_00: It can be the first to get it right.
• 0:31
  SPEAKER_00: Nearly $80 billion in debt is not for the faint of heart,
• 0:33
  SPEAKER_00: but the real bet isn't about the debt.
• 0:36
  SPEAKER_00: It's about how a studio operates.
• 0:39
  SPEAKER_00: Netflix won by putting the how first,
• 0:42
  SPEAKER_00: technology and the customer experience, and the who second, the creators.
• 0:47
  SPEAKER_00: The traditional studios copied Netflix's business model and never changed that order.
• 0:52
  SPEAKER_00: Skydance is betting it can't.
• 0:55
  SPEAKER_00: In today's episode,
• 0:56
  SPEAKER_00: I dig into why this time might be different and why it's one of
• 1:00
  SPEAKER_00: the best case studies I've seen for anyone building,
• 1:03
  SPEAKER_00: running, or funding, or starting a B2B business.
• 1:08
  SPEAKER_00: The episode is titled Skydance's $110 Billion Bet on Netflix Order of Operations.
• 1:15
  SPEAKER_00: The full post includes the How Who Matrix,
• 1:18
  SPEAKER_00: an Uphoff advisory framework you can download and use in your own business.
• 1:22
  SPEAKER_00: The link is in the show notes.
• 1:25
  SPEAKER_00: Let's get to work.
• 1:28
  SPEAKER_00: The studios copied Netflix's business model,
• 1:30
  SPEAKER_00: not how it operates, what
• 1:32
  SPEAKER_00: the Warner Brothers deal teaches every B2B company facing technology disruption.
• 1:39
  SPEAKER_00: Paramount Skydance closed its acquisition of Warner Brothers Discovery on October 6th.
• 1:44
  SPEAKER_00: The combined company is now simply called Skydance.
• 1:48
  SPEAKER_00: Roughly $70 billion in revenue,
• 1:50
  SPEAKER_00: more than $30 billion a year in content spend, and about $79 billion in debt.
• 1:55
  SPEAKER_00: Most of the coverage will treat this as a Hollywood story.
• 1:58
  SPEAKER_00: Studio lots, franchise, slates, who runs HBO?
• 2:02
  SPEAKER_00: That misses the point.
• 2:04
  SPEAKER_00: This is a technology bet with a studio attached,
• 2:07
  SPEAKER_00: and David Ellison has made this his whole argument.
• 2:11
  SPEAKER_00: Quote, unless you can build a tech product truly competitive with Silicon Valley,
• 2:16
  SPEAKER_00: you can't compete, end quote.
• 2:18
  SPEAKER_00: You might be asking how the merger of Warner Brothers and Paramount is a B2B story.
• 2:23
  SPEAKER_00: It's the clearest case study I've seen this year of a legacy business adapting
• 2:27
  SPEAKER_00: to technology disruption.
• 2:29
  SPEAKER_00: The real test isn't the deal.
• 2:31
  SPEAKER_00: It's whether the company can change how it operates and the order it has always done things in.
• 2:37
  SPEAKER_00: Ellison is right about the problem.
• 2:38
  SPEAKER_00: Whether he can fix it comes down to a sequence
• 2:41
  SPEAKER_00: the traditional studios have gotten backwards for most of the streaming era.
• 2:47
  SPEAKER_00: Netflix won on the how, then the who.
• 2:50
  SPEAKER_00: Netflix didn't take over filmed entertainment because it had better content.
• 2:54
  SPEAKER_00: It didn't produce award-winning content until 2013 when House of Cards won its first Emmy.
• 3:00
  SPEAKER_00: Netflix was 16 years old.
• 3:02
  SPEAKER_00: It won because it started with the how,
• 3:04
  SPEAKER_00: consumer choice,
• 3:06
  SPEAKER_00: ease of access,
• 3:07
  SPEAKER_00: and a user experience built by technologists not bolted on by
• 3:10
  SPEAKER_00: a distribution department.
• 3:12
  SPEAKER_00: Only after it owned The How did Netflix go after The Who,
• 3:16
  SPEAKER_00: world-class creators on screen and behind the camera.
• 3:20
  SPEAKER_00: By then it had something no studio could offer talent.
• 3:23
  SPEAKER_00: It knew exactly who was watching, what they finished, and what they'd watch next.
• 3:28
  SPEAKER_00: The How made Netflix the most attractive place for The Who to work.
• 3:33
  SPEAKER_00: That order matters.
• 3:34
  SPEAKER_00: Netflix still doesn't own a cloud.
• 3:37
  SPEAKER_00: It runs Amazon's and still spent $3.4 billion on technology
• 3:41
  SPEAKER_00: and development last year because the advantage was never the servers.
• 3:45
  SPEAKER_00: It was the product organization that decided what got built.
• 3:50
  SPEAKER_00: The studios bought the business model but kept their old operating model.
• 3:54
  SPEAKER_00: The traditional studios watched this happen and responded
• 3:57
  SPEAKER_00: by launching streaming services,
• 3:59
  SPEAKER_00: subscription pricing, original programming, a global app.
• 4:03
  SPEAKER_00: They copied the business model.
• 4:05
  SPEAKER_00: They never changed how they worked.
• 4:07
  SPEAKER_00: The operating model stayed talent first and talent last with user experience treated
• 4:11
  SPEAKER_00: as somebody else's jobs.
• 4:14
  SPEAKER_00: The apps launched feeling like 2009 enterprise software draped over a content library.
• 4:21
  SPEAKER_00: Warner Brothers Discovery renamed HBO Max to Max in 2023,
• 4:26
  SPEAKER_00: erasing one of the most valuable brand names in media,
• 4:29
  SPEAKER_00: then put it back two years later.
• 4:31
  SPEAKER_00: That isn't a technology company making a product decision.
• 4:34
  SPEAKER_00: That's a studio treating one of the most valuable consumer brands as an afterthought.
• 4:39
  SPEAKER_00: Every prior owner of Warner Brothers made a version of the same mistake.
• 4:43
  SPEAKER_00: I traced that history in the post, bundling didn't die, it moved.
• 4:47
  SPEAKER_00: AOL, AT&T,
• 4:48
  SPEAKER_00: and Discovery each arrived with a distribution or cost thesis and none
• 4:52
  SPEAKER_00: of them changed how the place actually worked.
• 4:56
  SPEAKER_00: Skydance is the first studio organized how first.
• 5:00
  SPEAKER_00: Look at what Ellison built before the deal closed and almost none of it is about movies.
• 5:05
  SPEAKER_00: Paramount+, Pluto TV, and BET Plus are moving to a common Oracle backend.
• 5:11
  SPEAKER_00: Skydance Animation already runs Oracle's Studio in the Cloud production model,
• 5:15
  SPEAKER_00: and Ellison intends to scale it across every production workflow.
• 5:19
  SPEAKER_00: Safra Katz, Oracle's former CEO, joined the board.
• 5:23
  SPEAKER_00: Dane Glasgow,
• 5:24
  SPEAKER_00: a former Meta and Google product executive,
• 5:26
  SPEAKER_00: now runs product digital platforms and AI.
• 5:29
  SPEAKER_00: Larry Ellison personally guaranteed roughly $45.7 billion of the equity.
• 5:35
  SPEAKER_00: The closing announcement reads the same way.
• 5:38
  SPEAKER_00: More than $6 billion in run rate synergies over the three years with technology of
• 5:43
  SPEAKER_00: the first source name.
• 5:44
  SPEAKER_00: HBO Max and Paramount Plus unified, quote, into a single service over time, end quote.
• 5:51
  SPEAKER_00: And the org chart,
• 5:52
  SPEAKER_00: Yanan Krais,
• 5:52
  SPEAKER_00: the former Mattel CEO,
• 5:54
  SPEAKER_00: became co-CEO on October 5th and owns day-to-day operations and integration.
• 5:59
  SPEAKER_00: Ellison kept strategy, creative, talent, technology, and capital allocation.
• 6:04
  SPEAKER_00: Other than Netflix,
• 6:05
  SPEAKER_00: no studio has made technology the centerpiece of its strategy the way Skydance is.
• 6:10
  SPEAKER_00: Cloud plus AI plus IP is the how.
• 6:15
  SPEAKER_00: It still needs the who.
• 6:18
  SPEAKER_00: Ellison's formula is cloud plus AI plus IP.
• 6:21
  SPEAKER_00: The first two terms are the how.
• 6:22
  SPEAKER_00: The third is what the who produces.
• 6:25
  SPEAKER_00: And the plus signs hide the real math.
• 6:27
  SPEAKER_00: This works as multiplication, where a zero anywhere zeroes everything.
• 6:32
  SPEAKER_00: Cloud is the easiest term to buy.
• 6:34
  SPEAKER_00: Moving to Oracle can lower the cost to serve.
• 6:37
  SPEAKER_00: On its own, it builds nothing a competitor can't rent the next quarter.
• 6:42
  SPEAKER_00: One catch, Oracle makes money when Skydance consumes more clouds.
• 6:46
  SPEAKER_00: So watch whether that relationship gets priced and measured like any other vendors.
• 6:51
  SPEAKER_00: AI is only as good as the data under it.
• 6:55
  SPEAKER_00: Skydance today has two flagship streamers on two technology stacks,
• 6:59
  SPEAKER_00: a free ad-supported service, a stack of cable networks, and two newsrooms.
• 7:04
  SPEAKER_00: That's a lot of customer data and no single view of the customer.
• 7:08
  SPEAKER_00: Netflix How was built on one identity, one product, one recommendation layer.
• 7:13
  SPEAKER_00: Until Skydance has that, AI gets applied to fragments.
• 7:18
  SPEAKER_00: The who is the term studios think they already have.
• 7:21
  SPEAKER_00: They don't, not anymore.
• 7:23
  SPEAKER_00: HBO's value was built on creators believing they'd be protected and
• 7:27
  SPEAKER_00: the Zaslav years eroded a lot of that trust.
• 7:31
  SPEAKER_00: That's why the leadership moves on the eve of closing matter.
• 7:34
  SPEAKER_00: Casey Bloys,
• 7:35
  SPEAKER_00: the steward of the most trusted creative brand in the building,
• 7:39
  SPEAKER_00: is set to run all of streaming.
• 7:41
  SPEAKER_00: And Craze is the executive who turned Mattel from a company that sold plastic
• 7:45
  SPEAKER_00: into one that monetizes characters.
• 7:47
  SPEAKER_00: The Barbie movie grossed more than $1.4 billion worldwide.
• 7:51
  SPEAKER_00: Mattel's direct take was about $125 million.
• 7:53
  SPEAKER_00: And Barbie toy sales rose 27% in the fourth quarter, but just 3% for the year.
• 8:02
  SPEAKER_00: The ticket sales were never the point.
• 8:04
  SPEAKER_00: The movie proved Mattel's characters could carry a franchise,
• 8:07
  SPEAKER_00: and that's the asset Craze knows how to build.
• 8:10
  SPEAKER_00: Here's the tension Ellison has to manage.
• 8:13
  SPEAKER_00: The how-first instinct,
• 8:15
  SPEAKER_00: applied by a company carrying north of six times EBITDA in debt,
• 8:19
  SPEAKER_00: points straight at cost.
• 8:21
  SPEAKER_00: Fitch cut Paramount to Junk in March and the stated target is three times leverage
• 8:27
  SPEAKER_00: by the end of 2029.
• 8:29
  SPEAKER_00: Every quarter between now and then will reward using technology to cut production costs.
• 8:33
  SPEAKER_00: Netflix used technology to make the experience better,
• 8:36
  SPEAKER_00: which is what made it the place creators wanted to be.
• 8:39
  SPEAKER_00: Same tools, opposite outcomes.
• 8:43
  SPEAKER_00: The line between a technology company and a tech-enabled one is disappearing.
• 8:48
  SPEAKER_00: Netflix disrupted Hollywood as a technology company.
• 8:51
  SPEAKER_00: It built its own product,
• 8:52
  SPEAKER_00: its own recommendation engine,
• 8:53
  SPEAKER_00: and its own engineering culture, and it got valued like a tech company.
• 8:57
  SPEAKER_00: Content was what the platform needed.
• 9:00
  SPEAKER_00: Skydance is something else, a tech-enabled studio.
• 9:03
  SPEAKER_00: It owns the IP,
• 9:04
  SPEAKER_00: rents the infrastructure from Oracle,
• 9:06
  SPEAKER_00: and hired product leadership instead of building an engineering organization
• 9:10
  SPEAKER_00: from scratch.
• 9:11
  SPEAKER_00: A few years ago, that structure all but guaranteed second-place software.
• 9:15
  SPEAKER_00: Agentic AI changes the math.
• 9:18
  SPEAKER_00: When agents write the code,
• 9:19
  SPEAKER_00: run personalization,
• 9:21
  SPEAKER_00: and handle the workflow,
• 9:22
  SPEAKER_00: capabilities that once took a large engineering organization can be rented
• 9:26
  SPEAKER_00: and managed by a much smaller team.
• 9:29
  SPEAKER_00: That's the real experiment inside this deal.
• 9:32
  SPEAKER_00: Skydance doesn't need to become Netflix.
• 9:34
  SPEAKER_00: It needs Netflix results from a different structure.
• 9:38
  SPEAKER_00: IP it owns,
• 9:39
  SPEAKER_00: technology it rents,
• 9:40
  SPEAKER_00: and agents doing work that used to take an engineering department.
• 9:44
  SPEAKER_00: Boards and investors are asking every B2B information CEO a version of the same question.
• 9:50
  SPEAKER_00: Do we need to become a software company?
• 9:52
  SPEAKER_00: In the agentic era, the answer is increasingly no.
• 9:55
  SPEAKER_00: You need to operate how first.
• 9:58
  SPEAKER_00: Who builds the stack matters less every year.
• 10:01
  SPEAKER_00: Who decides what it's for matters more.
• 10:05
  SPEAKER_00: The same sequence error runs through B2B.
• 10:08
  SPEAKER_00: I've covered Oracle as an analyst for Cloud Wars,
• 10:12
  SPEAKER_00: and I've spent most of my career running businesses that owned valuable content
• 10:15
  SPEAKER_00: and rented the technology.
• 10:17
  SPEAKER_00: B2B made the studio's mistake first.
• 10:20
  SPEAKER_00: B2B information companies digitized the business model years ago.
• 10:24
  SPEAKER_00: Print subscription became digital subscriptions, then SaaS pricing, then data licenses.
• 10:29
  SPEAKER_00: Most of them never changed how they worked.
• 10:32
  SPEAKER_00: Editorial first, sales first, product experience, somebody else's problem.
• 10:36
  SPEAKER_00: Plenty of B2B companies still have world-class experts and analysts sitting behind
• 10:40
  SPEAKER_00: a product their customers tolerate rather than use.
• 10:44
  SPEAKER_00: When we rebuilt ThomasNet from a 120-year-old industrial directory into
• 10:48
  SPEAKER_00: a data platform,
• 10:49
  SPEAKER_00: the infrastructure decision was the easiest one we made,
• 10:52
  SPEAKER_00: and in the end, the step that opened the door to growth and value.
• 10:56
  SPEAKER_00: We moved legacy on-premise system to the cloud and went all in on AWS,
• 11:01
  SPEAKER_00: the same cloud Netflix rents.
• 11:03
  SPEAKER_00: The hard part was changing the focus of the business from obsessing about
• 11:07
  SPEAKER_00: a declining base of advertisers to building the product
• 11:10
  SPEAKER_00: and user experience around how buyers actually searched and sourced.
• 11:15
  SPEAKER_00: Then we put a century of supplier content to work inside that experience.
• 11:19
  SPEAKER_00: Agentic AI is about to make this sequence error expensive.
• 11:24
  SPEAKER_00: When the buyer is an agent, The how is the whole front door.
• 11:27
  SPEAKER_00: If the machine doing the buying can't find,
• 11:29
  SPEAKER_00: read, and use your content, it never gets considered.
• 11:32
  SPEAKER_00: The who doesn't matter if the how can't get it through the door.
• 11:39
  SPEAKER_00: At Uphoff on Media on Substack,
• 11:41
  SPEAKER_00: here is the Uphoff advisory framework you can download and use as a diagnostic tool
• 11:46
  SPEAKER_00: in your business.
• 11:47
  SPEAKER_00: Plot where you are on the how and the who today and which one you're actually investing in.
• 11:54
  SPEAKER_00: Four signals will show which sequence Skydance is running.
• 11:58
  SPEAKER_00: Number one, does the Oracle migration show up as a better product or only a cheaper one?
• 12:04
  SPEAKER_00: Cost to serve is half the story.
• 12:06
  SPEAKER_00: Watch the app.
• 12:08
  SPEAKER_00: Number two, when does one subscriber identity span HBO Max and Paramount Plus?
• 12:13
  SPEAKER_00: Quote, unquote, over time isn't a date.
• 12:17
  SPEAKER_00: Do the first AI announcements cut production cost or create new value
• 12:22
  SPEAKER_00: from existing characters and catalog?
• 12:24
  SPEAKER_00: And number four, does HBO's talent stay?
• 12:27
  SPEAKER_00: The creative deal signed over the last 18 months will answer that before any press release does.
• 12:34
  SPEAKER_00: Ellison has the capital, the cloud relationship, and a credible division of labor at the top.
• 12:39
  SPEAKER_00: That's more than any prior owner of Warner Brothers brought.
• 12:43
  SPEAKER_00: But the studios already prove you can adopt the business model without changing
• 12:46
  SPEAKER_00: the operating model.
• 12:48
  SPEAKER_00: Skydance's bet is that a studio can learn Netflix's order of operations,
• 12:52
  SPEAKER_00: the how first and the how in service of the who.
• 12:56
  SPEAKER_00: If it does,
• 12:56
  SPEAKER_00: this is the first legacy media deal that runs like a technology company
• 13:01
  SPEAKER_00: without becoming one.
• 13:02
  SPEAKER_00: If it doesn't, it's the most expensive cloud migration in history.
• 13:09
  SPEAKER_00: That's the episode.
• 13:09
  SPEAKER_00: If you want to put this to work, grab the how-who matrix from the post on Substack.
• 13:14
  SPEAKER_00: And if you found this useful, please do one thing.
• 13:16
  SPEAKER_00: Follow the Uphoff on Media podcast on Apple or Spotify and leave a rating.
• 13:22
  SPEAKER_00: It's the single best way to help another operator find it.
• 13:25
  SPEAKER_00: I'm Tony Uphoff.
• 13:26
  SPEAKER_00: Back at it next week.