Squawk on the Street

Squawk on the Street+ Skydance CEO David Ellison & RedBird Capital Managing Partner Gerry Cardinale 7/10/24

Skydance CEO David Ellison and Gerry Cardinale, RedBird Capital Partners founder and managing partner, spoke with CNBC's David Faber about the technological transformation inside Paramount, how it plans to slow the pace of cord-cutting, and more.

Duration:: 21m
Broadcast on:: 10 Jul 2024
Audio Format:: mp3

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I'm curious as to what that actually means beyond those words. Yeah, absolutely. First, just thank you for having me. Last one was here was a Top Gun Maverick. So it's supposed to be back talking about Paramount. This is very much a business in transition. It has absolutely remarkable assets. You have Paramount Pictures, which is a hundred year graphical studio. CBS, which has been the number one broadcast asset for years. Incredible reach assets, remarkable sports package with the NFL. Nickelodeon, iconic brands and kids and family. But we believe to meet this moment that technology and content need to work seamlessly together. The core of Paramount will always be a content company. It will always be a storytelling company, an entertainment company. And we believe that we need to make Paramount the number one destination for the most talented artists in the world. But we also believe technology will transform every single aspect of this company. From infrastructure to studio in the cloud to the use of artificial intelligence will completely transform this business and allow us to emerge in this period of transition stronger than ever. Yeah, I mean, but does it extend well beyond that a better user experience for Paramount Plus users recommendation engines? I mean, that wouldn't seem to be enough to move the needle towards the kind of growth that you're talking about. So give us some senses to where you really see the numbers adding up. No, absolutely. So David, we're incredibly comfortable in businesses in transition. I think if you, you know, there's real restructuring that needs to take place at this business. You know, linear television is in decline, but we can restructure and slow that curve. And then we are going to invest into significant growth areas in this business. And when we emerge in this transition, we will return to being a growth company. In addition to that, when you think about how AI will adjust the way content is created, when you talk about what we built with studio in the cloud with Oracle, we've been able to increase efficiency while also reducing costs. So delivering a better product that ultimately costs less. And in addition to that, when you think about how cloud infrastructure will transform every single aspect of this business, we will be able to emerge from this stronger than ever. Yeah, Jerry, stand by. I've got more questions, plenty of questions for you, but I want to follow up, David, on that again. You talk about slowing the curve in terms of the linear decline. I'm curious as to why you think you may be able to achieve that. I mean, you're -- and again, to remind people, you've targeted 8% EBITDA growth from 27 over 26, 2027 over 26. That's after a lot of these cost synergies you've talked about have already taken effect. So how do you get to that number and how do you do what others haven't been able to, slow that curve that you just talked about? As I said, there's significant restructuring that we intend to do in the business. We've talked about that synergy number publicly. But I think when you really look at what we want to do in streaming, how we want to evolve the algorithm of Rec Engine, how we want to improve the ad technology in the business, what we've done with Studio and the Cloud. We believe in the future of Paramount Plus, and as I've said, I do believe that what will occur over a course of time with this business is you will have -- the linear curve will continue to go down, the growth areas of the business, streaming interactive film will continue to accelerate and grow, and we will ultimately emerge in this period with returning to growth and maximizing multiple shareholders' wrong investors. Yeah. Oh, well, Jerry, that's obviously got to be something that happens for you. You're making a huge allocation of capital here at Redbird bigger than you ever have by far. And I'm curious. I mean, you know it very well. I have covered it for years. There have been so many other media companies that have been trying to navigate this transition and not all have been successful yet. So I'm curious as to what gives you the confidence. And what gives you the confidence that Jeff Shell, my former boss, are going to be able to do this, particularly given just how much money you've put at risk here. Yeah, look, David, I'd say the context here that's very important is that, you know, our style of investing at Redbird is very much a continuum. So it's, you know, from -- there's one perspective here, which is I've been at this for 30 years to get to this point. I've had the benefit of the last five years working very closely with David and the team at SkyDance. And this is all about, you know, the monetization of great intellectual property. And so, you know, if you go back to my career and you look at what we started with the regional sports networks with the Yankees 25 years ago, you know, it's very much a continuum across, you know, that spectrum. And, you know, great intellectual property today is Hollywood and sports. And, you know, we've built a career in monetizing those, you know, two verticals. And a lot of times it's creating companies around it. The great thing about this deal is we don't need to create a company around it. We started with the great work that David and the team has done at SkyDance. It's 15 years in the making. By the way, in that 15 years, David's created a phenomenal partnership with Paramount across a lot of their temples. And so this is really about taking a over 100-year-old company with a great portfolio of intellectual property and positioning it for the new world. This binary notion that there's tech and that there's Hollywood really is the wrong notion. Those are Venn diagrams that should be working more seamlessly together. You know, and it really is in my 30-year career. The only time that seems to have dawned on people is with the unleashing of the streaming wars. Well, David and the team at SkyDance has been doing this for a while. And, you know, frankly, I'd say for 30 years, I wanted to invest in this space. And it really took David Ellison and SkyDance to get me off the dime to really start to put money into it. Yeah, well, I mean, David, back to you then about Paramount Plus in particular. I think you just indicated you believe in it. I'm curious as to how you view it, though. You know, some have argued maybe it should be shut down. You should go back to being an armed supplier to all the other streamers, for example. Many argue that its needs are well beyond technology. You need scale. So I'm curious, how do you view that asset given it is key to getting you to that growth that you're talking about? It's absolutely key in getting us to the growth that we're talking about. And again, as I talked about the core principles here, we need to deliver on two things. One is the core competency of Paramount is an entertainment and storytelling company. And that is always going to be the core competency of Paramount. The technology is really in service of that content. And by using technological tools to first make sure that on the creative side, the most talented artists in the world call Paramount their home. But then when you think about the power of Netflix and how much technology has been investing into the media space. It is time that we obviously invest heavily in technology and start to go the other direction and believe that that combination of art and technology will significantly improve the user experience, will reduce cost, allowing us to invest more into that content and obviously have a far greater reach vehicle in terms of Paramount Plus, and also believe that there's several options at the management team that is currently running Paramount's going to explore. What are those options, David? What are we talking about there? I mean, it's possible that they're going to do an international deal while you're obviously still in the sidelines, so to speak, is where you look. I'm curious, again, how you view the future for this asset that has been a drag, obviously, on profitability at the company for some time. So, look, I think all options should be on the table. And I think one of the things that cannot transpire here is there can be no paralysis at the company. We have a tremendous amount of respect and admiration for the management team that currently exists at Paramount, and they need to be able to explore and make decisions during this interim period. There are conversations around what a licensing approach to international might look like as it relates to streaming. There have been incoming conversations around exploring what a joint venture might ultimately look like, and believe that all of those are premature. Believe that all of those things need to be evaluated, but fundamentally what we underwrote and what we believe in here is the standalone case. That's very much what we presented, and everything that I'm talking about would be significant incremental upside to obviously what we talked about earlier this week. Right. You know, Jerry, though, you've got this three-headed sort of monster. I mean, I don't know. I've rarely seen this, if ever. Three CEOs trying to run a company. I doubt you have. What gives you the confidence that the people running Paramount in this interim period before you close are going to do the right thing, do what you need them to do, deliver on these cost cuts that they also, by the way, have introduced as well before you close the deal. Look, they're very talented. We all know each other. There's a real trust factor there, as I said, because David and the team at SkyDance has been working for many years with this team. So we've had a lot of confidence in these guys, and look, we're all aligned. You know, the fundamental construct. There were two fundamental constructs to this deal. Number one, we are embracing the entire portfolio. We're not looking to break it up. We're not looking to kill it. We're looking to embrace it and transition it for a very pro growth strategy. And number two is alignment. And so, you know, if you look at, you know, our investment, the bulk of our investment is riding right alongside, you know, the common shareholders here. And I'd say everybody's aligned, starting with, you know, the two management groups, as well as the shareholders. So I've got a lot of confidence. What can you stop them from doing? I'm curious. I mean, because, again, you're sort of on the outside looking in for a period of time. Look, we can't stop them from doing anything. But, you know, I think there should be, look, I think there's a lot of collaboration that should be going on in terms of, you know, vetting of best ideas. But at the end of the day, you know, it's still their show, you know, between signing and closing, and we're going to support that. High five. Up top. This company just got the first ever five-year price lock guarantee from Comcast Business. It's five years of gig speed internet, advanced security, and a great rate that won't change. All from the company with 99.9% network reliability. Like, yeah. He hasn't given this many high five since Deborah brought in her famous banana bread. The Comcast Business five-year price lock guarantee. In Z82124, guaranteed rate applies to monthly service charge for new customers on qualifying internet bundle, excluding taxes and fees. Other restrictions apply. David, I see you wanted to say something. Feel free. Go ahead. You know, look, we have 15 years experience working very closely with Paramount, and we do have through the IOCs the appropriate seat at the table. But as Jerry said, the team is very much managing the business during this interim period. I also just want to say that we're really comfortable with businesses in transition. I think if you look at the technological prowess we have on the family side and the transition that Oracle just went through, that was a time period when people were naysayers. We bought more stock and emerged from that transition stronger than ever. Remember, similar conversations around Tesla when we made that bet, obviously, as a family. And what we believe in here is the ability to transition this business to double down on our core competencies and invest in technology and actually create that media company in the future where art and technology can work hand in hand and believe that when we come out of this, Paramount will definitively be a winner. Yeah. You mentioned your family, obviously, and Oracle and investments in Tesla. How involved is your father, Larry Ellison, going to be in the running of this company? So, so obviously, you know, I'm running the company with Jeff Shell. But please understand, I've got an amazing relationship with my father and we talk every day. And, you know, it's had the incredible privilege of being able to learn from him and learn from other mentors like Steve Jobs and David Geffen. And what I really want to say is when you go back to Skydance 15 years ago, the core thesis of the foundation of Skydance was that this bridge was going to get built between Silicon Valley and Hollywood and that that was going to create a tremendous amount of disruption. And Skydance is very much a pure play content engine that was the tip of the spear for that disruption that believes in where entertainment is heading. And really, Paramount is a business that needs to follow suit and make that transformation and be able to meet this particular moment in time. And when you think about the incredible actors that we have at Skydance, the unification of all the crown jewels in the Paramount Library, a remarkable television studio, John Lasseter in Skydance Animation, one of the greatest animated stories of all time, by the also core principles of Pixar, right? It was art and technology, working hand in hand together. And we also have a great relationship with the NFL at Skydance Sports. And when you inject the storytelling capacity of Skydance Sports in with the licensed games at CBS, you create an unmatched experience for sports fans and also in onboarding and on-ramp through storytelling for new fans into the NFL. And so there's by bringing these two companies together, we're going to supercharge the core assets that existed Paramount that we think are remarkable and undervalued and transition to business in the future. Yeah, I mean, obviously one of your important business partners as well has been Tom Cruise, given the importance of the mission Impossible and Maverick franchises, which get brought together, of course, under this deal. What would Cruise say if I were to talk to him about what Skydance has done in terms of contributing to the success of those films? Well, one we've made nine movies together. He is one of the greatest, most talented artists in the world. You know, Ghost Protocol was the second film we ever made in partnership with Paramount. And that was after Mission 3 had not performed with the heights of its predecessor. And together, we collaborated and delivered the most successful installment and continued that trajectory with Mission Impossible Fallout and others. I'm really proud that we have made the most successful Mission Impossible film in the history of Paramount. We've made the most successful Star Trek film in the history of Paramount. "Top Gun Maverick" is the most successfully wholly owned picture, obviously, at Paramount's history. And also, you know, "Top Gun Maverick" was the first film I ever put into development. I actually wrote the 30 page in my first meeting with Tom was talking about "Top Gun" and with the late great Tony Scott and Jerry Bruckheimer. So I'm deeply, deeply passionate about this business. I'm deeply passionate about the stories that we put into the culture. And, you know, believe that while utilizing technology, recruiting the best management team to the world, we've got a very bright future ahead. Have you talked to Cruz at all about the deal as soon as he's supportive? Tom is supportive. And what I would also say is the outreach that we have received from the entertainment community has been pretty remarkable and humbling. I think there's a great opportunity, the fact that we'll have one of the first owner-operated studios that will be stable, that can think long-term, that's not just going to have to focus on tomorrow but can focus on several years from now. We really are going to take the long-term approach to this business. And it's been really both exciting, encouraging, and humbling that the greatest filmmakers in the world are supportive of this transaction. And, in part, you can afford to do that as a result, as we said earlier, of your family and your father's commitment in terms of capital. I think it's great you talk to him every day, I wish my kids talked to me every day. But I'm curious, how involved is Oracle, you know, how important is Oracle going to be? I know you have a partnership, obviously, at Skydance. Will that extend and deepen with the new Paramount Skydance? It's a great question, and obviously there are some things in this interim period I can't speak to, but what I can't speak to is what we're already doing with Oracle. And when you really look at Studio in the Cloud, traditional wisdom, when you look at animation, was that it needed to be an on-premise business. The thought process of being able to move that amount of data from the Cloud to the artist's hands or render off-premise, everybody thought it was too expensive and too slugged. We partnered with Oracle on Studio in the Cloud and found out that it was not only significantly more cost-efficient. It was faster, and that's scalable, and that level of technological touchpoint is going to transform every single aspect of the entertainment business. And given the background and technological prowess that we have, it really is that theme, and I apologize for repeating it, of making Paramount the number one home for artists, because it's always going to be about entertainment. It's always going to be about sports, video games, all of these categories that I could not be more passionate about, and the technology will support that, will make that more efficient. Your experience better will make the advertising more efficient. And I think when you think about the resources that we've had and what we've been able to do in the tech space, we can help pioneer the next generation of that with an asset that has a 100-year history, is it a remarkable institution, and we're going to win. All right, well, that helps answer the first question. Jerry, let me come to you quickly, because we've got to wrap up here on a couple of just deal-related points. Thank you guys for talking about perhaps nine months to a year. Is this thing going to need a Siphius review? I know Tencent was, or is it an investor in Skydance? I've gotten some questions about that. What are your expectations on that? Look, we're going to be highly coordinated with the regulators. We very much embrace that process. We should be clean from all aspects. We don't believe there's any Siphius issues. There should be no licensing issues. There should be no antitrust issues. I think we're clean. But we'll work very closely with the regulators to ensure that. So it should take, maybe it should be less than maybe nine months. I mean, are you hopeful in that? Yeah, I mean, I think we're going to go out of our way to sort of make this as transparent and in the review process as possible. Don't know how the election impacts that in any way, but we're going to be fully embracing a regulatory process. But I think there could be a pathway here for this to be a lot tighter and quicker in the review process, but it's not in our control. Well, you speak about the election. Let me end on that, David, a bit of a different note here. I think you gave a million dollars to the Biden victory fund earlier this year. Do you still support the president? Are you one of those who perhaps is sort of a concerned donor in terms of what we've seen recently? You know, I'm not going to make any political declarations. So apologies and not trying to skirt it. It's just what, you know, obviously, you know, I mean, what we're here to talk about today is entertainment. And one of my favorite things about, you know, making films like Topkin, Maverick, or Mission Impossible is when you think about sports, when you think about storytelling, it's something that really brings people together. And our number one concern is always the audience and delivering for them. And that's what we're here to talk about and that's what I'm excited to get. Well, I know, but I was ending here. I was hoping I'd get you to at least just weigh in. Come on, Hollywood and supporting the president. You know, you're at the center of that. Nothing. You got nothing to give me? Apologies. I'm a big believer and let's just let the work speak for itself and that's not going to be something you'll probably ever find the comedy on. All right. Great thing about content, David, is it's neutral. Well, we'll be watching closely, of course, as things get underway. Guys, I very much appreciate your taking the time. Thank you. David Ellison, Jerry Cardinal. Appreciate it. How about Captain Crunch's Crunch Berries with breakfast? Whoa, Dad, why? Crunch, island. His son left foot. And his stole our crunch. Quick, the zip line. He's getting away. Throw our last Crunch Berries. No! 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