Skydance's newly completed merger with Warner Bros. Discovery creates a much larger global streaming player, but the deal's financial structure leaves the combined company with a heavy debt load and a continued dependence on a shrinking part of the TV business. That's the takeaway from a new UBS Securities note that weighs the benefits of the tie-up against its risks.
The merger, which closed recently and saw Skydance debut on the New York Stock Exchange, brings together two major entertainment libraries. UBS argues the combined company gains what streaming platforms need most: a deeper catalog of content, more well-known franchises, broader production capabilities, and a larger sports lineup. Management is targeting more than $6 billion in cost savings from the deal.
But the note also flags a key tension: even after the merger, the company's cash flow will still lean heavily on traditional television. UBS estimates that linear TV—the cable and broadcast channels that have been losing viewers and advertisers for years—will still account for over 40% of revenue and roughly two-thirds of earnings before interest, taxes, depreciation, and amortization (EBITDA). That means declines in cable and broadcast advertising and affiliate fees will continue to hit the bottom line hard.
Why leverage is the swing factor
The bigger concern, according to UBS, is how that reliance on linear TV interacts with the company's debt. Net leverage—a common measure that compares net debt to EBITDA—sits near 6.5 times in UBS's view. That's high for a media company, and it means the balance sheet can tighten quickly if linear TV profits fall faster than streaming improves.
Leverage isn't just an accounting detail; it shapes what investors think the company can afford. Because the ratio is debt divided by EBITDA, a drop in legacy TV earnings can push leverage higher even if Skydance doesn't borrow another dollar. Once that happens, lenders and bond investors often demand more compensation for risk, which can mean wider credit spreads and a bigger interest bill when debt gets refinanced.
The knock-on effect is less room to fund streaming investments, absorb execution stumbles, or deliver the more than $6 billion cost-savings plan on schedule. In other words, the stock can stay more sensitive than peers to any disappointment in linear TV trends, since UBS's valuation case depends on leverage staying manageable—not just on subscriber growth or hit shows.
What it means for investors
For everyday investors, this is a reminder that big mergers often come with trade-offs. The streaming upside is real: a larger content library and more franchises can help attract and retain subscribers in a crowded market. But the debt load and the ongoing reliance on linear TV mean the company's financial health is still tied to a business that is structurally in decline.
Investors should watch how quickly the company can reduce leverage and how fast linear TV revenue actually falls. If the decline is gradual, the cost savings could help offset the drag. If it accelerates, the leverage ratio could climb, making it more expensive to refinance debt and potentially limiting the company's ability to invest in growth.
The broader context: media companies have been wrestling with the shift from traditional TV to streaming for years. Some have tried to scale up through mergers to gain negotiating power and cut costs. Skydance's deal is one of the largest examples, and its success will depend on whether the cost savings materialize and whether the streaming business can grow fast enough to offset the linear TV decline.
For now, UBS's analysis suggests the market should keep one eye on subscriber numbers and hit shows, and the other on the health of the legacy TV business. That's the swing factor that could determine whether the deal pays off for shareholders.
