• The combination of Paramount and Warner is set to emerge with nearly $80 billion in debt.View more

When Paramount PSKY Chief Executive David Ellison unveiled his company’s $81 billion deal for Warner Bros. Discovery WBD , he touted a new golden era for Hollywood—one built on scale, technology and a promise to release at least 30 theatrical movies a year.

His plan has little margin for error. 

The combined company is set to emerge with nearly $80 billion in debt—a burden that could weigh on decisions ranging from content spending and streaming investments to news operations and sports rights.

Its net debt is projected to equal roughly 6.5 times annual earnings before interest, taxes, depreciation and amortization after the deal closes as soon as this month, a level that analysts consider high for a media company. Industry analysts at MoffettNathanson called the figure “staggering” in a note shortly after the deal.

The challenge for Ellison will be to cut costs without the sort of austerity measures that defined Warner’s debt-reduction effort under Chief Executive David Zaslav. Thousands of employees were laid off, and high-profile movie and TV projects were scrapped.

Many current and former Warner executives said repeated rounds of cost-cutting have already eliminated much of the obvious savings, leaving them wondering what is left to prune. Paramount has been through several cycles of cost-cutting in recent years, both before and after the sale to Ellison’s Skydance.

Much of Ellison’s financial flexibility—and the combined company’s prospects for success—depend on delivering the $6 billion in promised synergies within three years, a target some analysts view as ambitious given the scale of the integration.

The debt and looming cuts are a shadow hanging over a company that will house two of Hollywood’s founding movie studios, several famed TV brands, including CNN and MTV, and a supersize streaming service.

David Ellison, backed by his billionaire father, Larry Ellison, is making a huge bet on content as the entertainment and media landscape faces higher sports-rights costs, a competitive streaming market and a risky box-office environment.

The younger Ellison has promised that there will be no asset sales or cuts to content spending. The deal has been approved by the Justice Department, and the company is trying to get regulatory clearance in Europe.

“This transaction is premised on growth, not cost-cutting,” Paramount said in a statement, adding, “We will be reducing debt while continuing to invest in the business and content for the long term.”

Paramount said that having the Ellison family as controlling owners with significant skin in the game is an advantage. Executives at Paramount said the company has increased movie production and sports-rights acquisitions while approaching $3 billion in efficiencies.

“This is a key advantage of a creative-first owner-operator,” said Paramount, calling its strategy for the Warner deal “the same proven playbook we have successfully executed at Paramount.”

For now, Paramount is limited in what it can do. Until the deal closes, the company has only a partial view of Warner’s operations and is restricted in how deeply it can examine the business.

There could be hidden land mines. Discovery executives said they uncovered a number of unexpected challenges, including the high costs of the short-lived streaming service CNN+, only after taking control of WarnerMedia following the 2022 merger.

Paramount has said much of the savings will come from consolidating streaming services’ technology platforms and eliminating overlapping operations with Warner, a process expected to result in significant job cuts.

Paramount is projecting that the combined company will generate about $69 billion in annual revenue. After achieving its synergies, it expects adjusted Ebitda of about $18 billion. Paramount is projecting a content budget of more than $30 billion for the combined company at closing.

Paramount has told investors it will lower the debt ratio to three times annual Ebitda within three years, which MoffettNathanson said is too optimistic in its note.

The assets producing much of the cash to pay the debt are themselves under pressure. The combined company won’t be relying on a stable business to pay down debt. It will be primarily relying on television networks, whose revenue continues to decline.

While the combined company’s network holdings, which include CNN, CBS, MTV and Nickelodeon, still generate about $35 billion in annual revenue, the sector remains under pressure from cord-cutting and ad declines. Moody’s Ratings estimates that revenue will fall at an average annual rate of almost 10% for the foreseeable future.

Ellison is betting heavily that the combination of the streaming platforms Paramount+ and Pluto TV with Warner’s HBO Max will create a more formidable streaming competitor and generate more cash.

“We estimate it will take at least five years until the streaming business earnings matches the scale of TV media,” Moody’s said.