What Does the Skydance/Paramount Deal Mean for Netflix Animation?

In October 2023, Skydance Animation shook up the industry when it announced it would be decamping from a 2020 deal with Apple Studios for streaming giant Netflix. New movies that Skydance Animation produced, including by filmmakers like Nathen Greno (Disney’s “Tangled”), Brad Bird (Pixar’s “Incredibles” films) and Rich Moore (Disney’s “Wreck-It Ralph” and “Zootopia”) would now bow exclusively on Netflix.

According to several individuals with knowledge of the deal, the idea was that, over time, as much as half of Netflix’s original animated feature output would be Skydance Animation productions. But the arrangement has frustrated in-house Netflix Animation filmmakers. And while some insiders suggested to TheWrap that Dan Lin, who took over from outgoing film chairman Scott Stuber earlier this year, was unhappy with the deal, others familiar with the matter said that Lin and Lasseter are in regular conversation about the upcoming animation slate.

When Skydance and Paramount agreed to merge earlier this month, Skydance executives invoked Skydance Animation chief John Lasseter as a key attribute, underscoring the medium’s importance within the “New Paramount” CEO David Ellison was promising. Now Hollywood creatives want to know how the combination would affect the arrangement between Skydance Animation and Netflix, especially as Paramount has a streaming service of its own.

Skydance, it turns out, has the more lucrative hand in the Netflix deal, according to several individuals familiar with the deal. Netflix covers most of the production costs for the upcoming features. The streamer is also on the hook for the movie’s marketing and publicity, with a larger portion of the overall budget allocated to support the Skydance features over other features, either those developed internally at Netflix — like last year’s “Leo” or this year’s “Thelma the Unicorn” — or licensed coproduction deals, such as Aardman’s upcoming “Wallace and Gromit” movie or “K-Pop Demon Hunters,” made with Sony Pictures Animation.

The tug of war matters because animated films are increasingly key to Netflix’s subscriber base, both in terms of originals like “Leo” — which scored the biggest debut for a Netflix animated film ever last December — and licensed library titles like “Boss Baby,” “Paw Patrol: The Movie” and “The Super Mario Bros. Movie,” which were among the most-watched films across the entire streamer for the second half of 2023. Animated films regularly dominate Netflix’s Top 10 Most Watched list and, key to keeping subscribers, enjoy a high rewatch value as evidenced by how long they stay there.

Should Netflix want to change course, the onus could be on the streamer to challenge the validity of the Skydance deal and get out of it, with Lasseter being a possible lynchpin. But pulling out could complicate Netflix’s upcoming slate, one source told TheWrap. Another individual stressed that Netflix and Skydance are both happy with the deal despite the Paramount merger.

Skydance may win either way: Ellison has repeatedly said he wants to release more, not fewer, features theatrically. If the Skydance animated features, including Bird’s retro future detective movie “Ray Gunn,” return to Skydance from Netflix, they could be part of Paramount’s more robust theatrical slate.

Netflix and Skydance declined to comment for this story.

“We have a phenomenal relationship with Netflix that we’re incredibly grateful for,” Ellison told analysts on July 8 in discussing the Paramount merger agreement. He added it’s “a multi-billion dollar pact to where we co-own everything we create in partnership with them, and that obviously expands to consumer products and ancillaries … Our relationship with Netflix and Skydance Animation will significantly bolster our family entertainment business and is incredibly additive to all Paramount shareholders.”

Some individuals TheWrap spoke with said that it’s more likely that Lasseter will continue to run Skydance Animation through Netflix and Paramount’s animation division will continue to run independently, outside of Lasseter’s purview. Ellison has reinforced that he won’t make changes to the existing Paramount infrastructure. Paramount Animation is currently run by Ramsey Naito, an Oscar-winning producer who became president of Paramount Animation in 2021.

How Netflix got in bed with Skydance

The Skydance/Netflix alliance was brokered as a way to increase the streamer’s animated output. At the time, the union made perfect sense, allowing for more original animated movies to appear on Netflix and allowing Skydance Animation some much-needed creative freedom.

When Lin took over as Netflix’s film chief, he was notified that the contract was contingent on Lasseter’s exclusivity with Netflix. If Lasseter leaves the Skydance Animation/Netflix pact, then it voids the deal. Now, the question remains: If Skydance were to install Lasseter as the head of Paramount Animation, which would see him oversee projects related to key Paramount franchises like “SpongeBob SquarePants,” “Transformers” and “Teenage Mutant Ninja Turtles,” would that negate the Netflix deal?

An insider with knowledge stressed that Lasseter will stick with Skydance Animation and Netflix, and that the parties will respect the initial deal.

Lasseter’s involvement

In Lasseter, Skydance has an effective advocate for additional promotion and marketing. While at Pixar, he directed features like “Toy Story” and advocated for himself and his filmmakers by charming and cajoling other business units like publicity and consumer products.

According to some within Netflix, the idea was floated that Lasseter and the Skydance team, which was said to include Bird and Moore, would be giving notes on Netflix-developed projects. Netflix filmmakers, drawn to Netflix because of the autonomy and creative freedom afforded by the streamer, were not exactly pleased. Another individual maintains this idea was never floated and the entire concept is untrue.

The idea of Lasseter giving feedback has precedent. Lasseter and his brain trust at Pixar saw early results, with some citing the community of filmmakers as the reason so many of those early films were so strong. At the time they needed a support system; before “Toy Story” they weren’t traditional filmmakers. They were making Listerine commercials. Those notes were vital.

On the Paramount side, artists are nervous about potential Skydance involvement. Paramount’s animation department has noted that they have no “house style.” Their movies, like Sony’s, can look like anything, which is visible in the sketchy, asymmetrical style of “Teenage Mutant Ninja Turtles: Mutant Mayhem” or the upcoming “Transformers One,” which has a nifty 1980s lunch box aesthetic. Lasseter is keen on the down-the-middle, traditional animation style popularized by Pixar and adopted by other studios, including Skydance Animation.

There’s also a feeling from some that Lasseter would be lost in the world of big IP, something that current animation head Naito is comfortable with and has embraced in all sorts of interesting ways (see: the aforementioned “Transformers” and “TMNT”). Paramount has yet to roll out a number of initiatives, including a new “Smurfs” animated feature with Rihanna and several features based on the Nickelodeon series “Avatar: The Last Airbender.”

Lasseter’s gifts are with talent. Wooing Greno, Bird and Moore to Skydance Animation were huge feats, and the projects they are working on are exciting. Skydance also recently announced that Don Hall, who had worked at Disney Animation Studios since 1999 and who rose to become one of its most treasured filmmakers, would be decamping for Ellison’s company. That’s all Lasseter. He also excels at cultivating new franchises that can last for decades, with an inherent sense of both story and character.

A source close to the matter insists that this is how things will remain, with Lasseter overseeing these new projects at Skydance Animation and Naito keeping track of the preexisting franchises and projects developed at Paramount.

So what’s next?

But should the Skydance/Paramount deal close, which is expected to happen in the fall of 2025, what will happen to those projects?

While Netflix is very much shouldering the financial liability in the Skydance deal, films like Greno’s “Pookoo” are big-time animated features that are sure to garner plenty of attention, both commercially and critically. The streamer exhibited a few seconds of the movie at a recent Netflix Animation presentation in Hollywood, and it was unquestionably the highlight of the entire presentation. Journalists and other attendees lauded the film afterwards.

And the biggest test is just over the horizon. “Spellbound” — Skydance’s big animated fairy tale featuring music and songs by Disney legend Alan Menken, vocal performances from A-listers like Nicole Kidman and Javier Bardem and Vicky Jenson, one of the directors of the original “Shrek,” at the helm — hits Netflix this Thanksgiving. Last year, Netflix claimed a solid victory when it premiered “Leo” on the platform while Disney released “Wish” theatrically. “Leo” blew “Wish” out of the water, with Disney’s film underperforming and Netflix racking up millions of hours viewed.

This year Netflix will be going up against “Moana 2,” a potential juggernaut, which Disney is releasing theatrically around the same time. Should “Spellbound” prove a runaway hit (and a major Oscar contender), then Netflix might be more motivated to keep the Skydance Animation pact in place. And doesn’t everybody just want their happily ever after?

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