What Will Happen to Warner Bros. Games Under Paramount?

On paper, Warner Bros. Games appears to be a logical addition to Paramount, a company that said in an investor presentation that “cutting-edge gaming” was a “core creative engine.” But David Ellison is eyeing at least $6 billion in cuts to make its acquisition of Warner Bros. Discovery work, raising the question of whether it will deal the studio behind hits like “Mortal Kombat” its own fatality in the name of merger cost savings.

In addition to “Mortal Kombat,” WB Games brings console and mobile titles based on IP such as “Harry Potter,” “Game of Thrones” and the DC Universe/Batman, complementing Paramount brands like “SpongeBob SquarePants” and the “Teenage Mutant Ninja Turtles,” which are licensed out to third-party developers to build spin-off games. 

While there’s been less attention paid to the gaming side of the deal, the acquisition presents Paramount with the opportunity to bring game development in-house and better coordinate with film and TV production. It comes at a time when gaming has become a critically important way to help Hollywood reach fans wherever they are, from adaptations like HBO’s “The Last of Us” and Paramount’s “Sonic the Hedgehog” to mobile and console titles and themed experiences on platforms like Roblox. 

Gaming is “simply a space that you need to be playing in if you’re a media company trying to win the next generation of consumers,” GameSquare Holdings CEO Justin Kenna told TheWrap. “With Paramount now adding WB Games to their arsenal, they are gaining some gaming franchises that can be used to engage fans year-round within a more streamlined and vertically integrated content experience.”

But Paramount Skydance’s track record in capital-intensive game development and publishing is minor with little known about its ambitions. With $79 billion in net debt upon closing the deal, experts warn that the WB Games unit, which was already restructured following mixed success in the last few years, could become a target for further downsizing or an outright jettison at a time when the gaming industry has already been scarred by a bloodbath of layoffs. 

Companies historically become “very risk averse” after completing mergers and typically only prioritize assets that are generating revenue and “prove out” the acquisition, said Joost Van Dreunen, a video games professor at NYU’s Stern School of Business.

“They buy the other firm and say they’re going to develop the cool IP that everyone knows and then also other projects. And that second part is never true,” Van Dreunen told TheWrap. “Everything that’s higher-risk and half-baked and too innovative to deliver just yet are put in the freezer and you never see them again. So it’s not just people worrying about their jobs. There’s a real ebbing of creative energy because of this.”

A Paramount spokesperson declined to comment on this story. 

Leveling up 

Paramount has seen mixed success with gaming adaptations. It produced a much-derided “Halo” series that was canceled after two seasons, but its “Sonic the Hedgehog” film franchise has become a key piece of IP for the studio after having collectively grossed over $1 billion, with a fourth installment set to release in 2027. Other Paramount adaptations include a “Street Fighter”  film set to release this year and a “Call of Duty” film in development from Taylor Sheridan and Peter Berg.  

Paramount Game Studios, which was rebranded in 2022 from Paramount Digital Entertainment, primarily licenses out its IP such as SpongeBob SquarePants, Star Trek and Teenage Mutant Ninja Turtles to third-party game developers. It also has teamed up with Roblox on some experiences to help market its IP.

Paramount does not break out revenue from its gaming unit, which is lumped in with the Filmed Entertainment division’s “licensing and other” category. 

Ellison has cited gaming as a “core creative engine” for Paramount and has championed new formats. Skydance’s interactive games unit has released virtual-reality games such as “The Walking Dead: Saints & Sinners,” “Archangel” and “Behemoth,” but the business accounted for less than 5% of the company’s total revenue for the first nine months of 2024, according to Skydance’s latest available financial filing. Its upcoming titles include the console game “Marvel 1943: Rise of Hydra” and an untitled Star Wars game in collaboration with Lucasfilm Games.

“There is an existing games business that on paper has a better fit with Warner’s games business,” Ampere Analysis’ head of video game research Piers Harding Rolls told TheWrap. “Whether Paramount has the appetite to expand rapidly to become a major games publisher remains to be seen.”

An established gaming studio

Warner Bros. is home to developers including Rocksteady Studios, TT Games, NetherRealm Studios, Portkey Games and Avalanche Software, as well as WB Games Boston, New York, Montreal and San Francisco. Having in-house studios could allow Paramount to take more control over the quality of the games based on its IP.

Warner Bros. Games’ Lego, Mortal Kombat and Batman: Arkham franchises have sold over 200 million, 100 million and 70 million units globally worldwide, respectively, across their various titles. The mobile strategy game “Game of Thrones: Conquest” has also attracted millions of fans and earned over $1 billion in consumer spend since its launch in 2017.

Additionally, 2023’s “Hogwarts: Legacy” sold over 40 million copies and became the biggest release in the company’s history, spurring David Zaslav to pay more attention to the space as he set his vision for Warner Bros. Discovery.

But the unit has also had costly flops such as “Suicide Squad: Kill the Justice League,” “MultiVersus” and “Harry Potter: Quidditch Champions,” which led to over $300 million in losses in 2024 after the titles underperformed.

While WB Games has previously been floated as a non-core asset that can be sold, WBD leadership in June restructured the unit to focus on four core franchises: Harry Potter, Game of Thrones, Mortal Kombat and the DC Universe.

As part of this change, Monolith Productions, which worked on “Middle Earth: Shadow of Mordror”and was developing the canceled Wonder Woman game, and “MultiVersus” studios Player First Games and WB Games San Diego were all shuttered. Prior to the restructuring, WB Games President David Haddad also announced he would exit his role after 12 years. 

Streaming and games president JB Perrette told analysts last month that last year’s reset was focused on “getting back to proven studios with proven games and proven players.”

In its latest quarter, WBD’s games revenue fell 34% due to “higher carryover” compared to the prior year period. Looking ahead, it will release  “Lego Batman: Legacy of the Dark Knight” in May and the new “Game of Thrones: Dragonfire” mobile game this summer. 

Perrette said he expects the restructuring to bear fruit in 2027 and 2028 when the company returns to some of its biggest franchises with yet to be announced titles.

Flawless victory or fatality?

Ellison previously said that Paramount would spend in excess of $1.5 billion on content in 2026, though it’s unclear how much of that investment will specifically go towards gaming.

Van Dreunen anticipates that Ellison’s playbook around gaming could be similar to Netflix, where titles are offered inside Paramount+ as an add-on designed to retain streaming subscribers and boost engagement. Because mobile games have a high cost of user acquisition, he expects the combined company to focus on “couch co-op type games” that are “accessible and inventively cheap to produce.” 

Argonaut Games co-CEO Michael Arkin was more optimistic that Ellison would turn Paramount Skydance into a major publisher with a focus on IP-based games. However, he cautioned that game development is a long-term investment, with the average title taking between two and five years to create and release.

He estimated that mobile games can cost a couple of million dollars when factoring in user acquisition, while PC and console games can range anywhere from $40 million to $500 million depending on how ambitious you get.

“If Skydance comes in and says, ‘We’re in this for the long haul and we don’t mind spending $100 million,’ that’s all it takes because a publisher makes decisions based on their funding,” Arkin told TheWrap. “Where you make money is with PC/console and AAA games. If you just make smaller games, then the upside is very small. So I strongly suspect that they would continue the strategy of PC and console. It makes sense for them.”

Despite the benefits gaming offers, experts warned that “some level of streamlining is inevitable.” 

Qualia Legacy Advisors managing director Aaron Meyerson said he anticipates a mix of targeted cost cuts and select divestitures. He told TheWrap that Avalanche Software, which developed “Hogwarts Legacy,” and NetherRealm Studios, responsible for the “Mortal Kombat” games, are “cornerstone assets in a franchise-first strategy” and believes they would be the most insulated given their “clear alignment with high-performing, owned IP.” 

More at risk are those without a core IP or that have shown a mixed track record. That includes TT Games, which Meyerson said is valuable given its ties to the Lego franchise but could be “more easily shifted to a lower-cost, licensed production model” and WB Games Montréal, which released 2013’s “Batman: Arkham Origins” and 2022’s “Gotham Knights.”

“If there are divestitures, they would likely be piecemeal rather than a full carve-out of WB Games and focused on non-core assets,” Meyerson said. “Most individual studios would likely trade in the low hundreds of millions to mid hundreds of millions depending on profitability, pipeline and IP alignment.”

Last week, some employees at WB Games Montreal, home to 300+ staffers, disclosed on LinkedIn that they were laid off. A spokesperson confirmed to TheWrap that there were a “limited number of roles” impacted by the cuts, which were part of the company’s “continuous efforts to position Warner Bros. Games for long-term growth and success.”

“We always look at our resourcing needs and make adjustments from time to time, including the small operational shifts at Warner Bros. Games Montréal,” the spokesperson added. “We are committed to approaching the process with transparency, care, and respect for those who are leaving the company.”

Appetite for acquisition

Meyerson said potential buyers would include strategic publishers like EA or Take-Two Interactive, financial sponsors such as KKR or EQT and international groups like Savvy Games Group or Tencent. However, he noted that Ellison and Warner Bros. Games would almost certainly retain its IP, so any transaction would be about selling development capacity and pipelines, not franchises. 

Saudi Arabia’s Public Investment Fund, which previously agreed to commit financing for Paramount’s Warner Bros.’ bid, notably owns Savvy Games Group, and is part of an investor consortium planning to take EA private in a $55 billion buyout in 2027. Representatives for Savvy Games Group did not immediately return TheWrap’s request for comment. 

KKR and Tencent are both passive strategic investors in Skydance. The latter, which previously committed $1 billion for its WBD bid before backing out and is now reconsidering investing in the combined company, also has a gaming presence. But Van Dreunen argued that a Chinese conglomerate would never get regulatory approval for an acquisition and that Tencent could more likely become partial owners of WB Games, similar to its Ubisoft stake.

Representatives for Take-Two declined to comment, while KKR, EQT, EA and Tencent did not immediately return TheWrap’s request for comment. 

Others were skeptical that Ellison would look to sell WB Games. Wedbush Securities analyst Michael Pachter told TheWrap that the unit is additive to Paramount’s “pretty weak” gaming offering and that there aren’t a lot of potential bidders for the division unless ownership of the IP comes with it. Meanwhile, Arkin touted Ellison’s continued commitment to Skydance Games over the past decade despite it being “almost impossible” to make money in VR games. 

“The fact that Ellison and Skydance have stuck with it for 10 years tells me that they’re able to see the long-term value in a very short-term world,” he said. “So unless he totally changes his mind and says, ‘Games are a giant distraction, close it all down,’ I would expect that they aim high and they don’t cut or sell anything.”

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