AI will be key in a combined Paramount (PSKY) Warner Bros. (WBD). "We've estimated anywhere between 20% and 40% of costs could be saved from AI … Paramount is one of the best examples of a company that can utilize AI to drive more efficiency, especially on the pre and postproduction side," said Morgan Stanley's Sean Diffley on Yahoo Finance's Opening Bid (video above).
"Instead of having to ship an entire cast and crew to a location, they could do a lot of touch-ups with AI and really explode creativity," he added.
The proposed acquisition of Warner Bros. Discovery by David Ellison-led Paramount Skydance is one of the largest media deals in recent years. The agreement is valued at roughly $111 billion and emerged after a months-long bidding war that included Netflix (NFLX).
If completed, the deal would combine Paramount's CBS, MTV, and Paramount Pictures with Warner's HBO, CNN, and Warner Bros. film and television studios. However, it would create a company with a massive debt pile. "So they're going to be 6.5 times levered at deal close. They've got to get it to under three times leverage within three years," Diffley noted.
"One of the ways they're going to do that is these $6 billion of synergies. They've said less than half of those are headcount reductions. So there's a lot of tech platform unification savings. There's a lot of cloud savings."
While the US Department of Justice officially cleared the all-cash transaction in June, the deal is facing intense resistance from a coalition of state attorneys general led by California. State regulators are preparing an independent antitrust lawsuit to block or heavily freeze the merger. They cite concerns that combining two of Hollywood's "Big Five" legacy film studios will crush industry competition across streaming, theatrical releases, and news broadcasting.
The deal is slated to close in the third quarter.
Opinions on how the combined company will execute, creatively and operationally, vary widely.
"I think the primary impact on Hollywood would be, although they say otherwise, ... a reduction in the output but also a reduction in jobs just because there's a lot of overlap between the two places," former Sony Entertainment and current Snap (SNAP) chairman Michael Lynton said on Yahoo Finance's Power Players With Brian Sozzi podcast.
Others are more hopeful.
"Anyone who says they know [the future of Hollywood] is just over exaggerating their capabilities. But there's more and more content coming online at the same time," IMAX (IMAX) CEO Richard Gelfond said on Yahoo Finance's Opening Bid. "I think there are lots of changes and consolidation. But we had 140 pieces of content last year."