Skydance (SKYD) Rises from Mega Merger: Was "Juice Worth the Squeeze?"

SPEAKER_1 (0:00)

Welcome back to Next Year Investing. It's now time to welcome in our next guest, that's Seth Schachner, the host of Breaking Down the Biz Podcast, and Managing Director at Strat America is here to discuss the saga that is now concluded with Skydance. Seth, good to have you back and excited to talk to us. So, we kind of got an answer to some of the questions that have lingered over the last year. I guess my first big picture question was the juice worth the squeeze in the end because where it was at David Ellison and team, they spent a lot of money for this and they finally got it through, deal closed, and we got a corporate name that is Skydance. So, we're throwing the legacy names out the door.

Seth Schachner (0:45)

Well, those names will still stay in the way labels do, Tristar or whatever, Sony Classics or I come from the biz of music, things like Epic and Columbia, but yeah, there is a big new corporate name for sure.

SPEAKER_1 (1:00)

So, when we look at this and we start thinking, okay, this will probably happen in sort of stages as they try to unlock the value. As you start thinking about the approach that they're, in your mind, going to take, what are some of the things that we should expect as we assess this one big firm now?

Seth Schachner (1:18)

Yeah, and it's a great question. I mean, it's probably better to look forward than with all the corporate stuff. I mean, there's probably a lot of yucky stuff in the near term. I mean, they're combining two very similarly positioned enterprises. So you're already seeing some people, Cindy Holland moved out from streaming. So for sure, there's going to be consolidation and job cuts, and that was pretty specific in the Biz Plan.

And a lot of the focus is going to be on how they service that debt long term. But the thing that I think that, and obviously there's also been a ton of stuff about the news, which I don't know if it's worth going into right now. It's kind of a hole to go into. But I think the real thing that I'm looking at is, these are two amazing old legacy Hollywood studios. And if you're overseeing these things, you want to figure out on the creative side, how not to disrupt that. So not only the flow and the number of pictures, which there's been commitments in those settlements with the AGs, but how you make sure those are quality pictures and people are coming back in and want to see the hits and the hot stuff in the way that say Warner Brothers did with Barbie and Pam Abde and Michael DeLuca have done for years, whether it's at Warner at New Line Cinema. And I think that's really the thing that I'm looking at in terms of how you kind of keep the creative balance in place, not alienating the community and keeping to churn out hits, if you will. And so it's probably too early to tell if the juice was worth the squeeze to do your question.

I don't think it's all bad. You know, I think that there's going to be lots of pictures that flow through that pipeline that's not going away. And this isn't going to change the status of movie theaters either. They're still going to struggle. But we'll have to see. I think a lot of it depends on the people and the organization and what the chemistry is like.

SPEAKER_1 (3:07)

Seth, I imagine one of the ways that they will unlock some synergy will be through downsizing the firm's headcount. And if that's the case and they're in this cost-cutting mode, I know the traditional studio approach to films is to try to have the blockbusters. And if you hit on some other things along the way, that's great. But just in the last couple of years, you had the huge mega hits, the Barbies, that were expected as addicts. They were spent that way.

But then you also, on the other side, had the obsessions of the world, what cost under a million dollars and returned a ton of ROI for those filmmakers. Is there a world where they lean more into that sort of independent diamond in the rough side of things, or are they still going to have to focus on the mega hits?

Seth Schachner (4:00)

So it's a great question. And yeah, to focus on things like obsession or back rooms or even Minecraft. This is, I think, got to think every studio is trying to do it now. And it's sort of hard to say, can you manufacture that? But you know, I think there is somewhat of like a model, if you will, for looking at different types of IP of content, say that resonates with Gen Z or young audience. It could be from a game, could be from a comic book. It could just be something. I want to say obsession came from a YouTube series. So that's what I mean going up to the front of this conversation by having creative teams in place that can spot that. And sometimes people think that's a function of cool indies that can do it.