Bob Bakish, CEO of Paramount Global
Courtesy of Paramount Global
Paramount Global reached 67.5 million Paramount+ streaming subscribers worldwide at the end of the fourth quarter, up 4.1 million from the previous fiscal quarter.
The Hollywood conglomerate, whose future is the subject of increasing speculation on Wall Street, said Wednesday it expects to deliver “significant overall corporate earnings growth” in 2024 and reach Paramount+ profitability domestically in 2025.
In an after-market analyst call, Paramount CEO Bob Bakish emphasized that increased viewer engagement, reduced churn and an increase in subscription prices would make Paramount+ profitable next year, marking a “significant and exciting milestone in the company's transformation.” The studio's CFO, Naveen Chopra, also predicted lower programming spending for Paramount's streaming platforms.
“I think subs growth will be lower in 2024 than in 2023. Importantly, we still expect very healthy revenue growth from Paramount+ and of course revenue is the more important metric than subs,” Chopra added of Paramount+ added During the analyst conference, subscriber growth was expected this year.
Paramount posted first-quarter net income of $514 million, compared with net income of $21 million a year earlier, on overall revenue falling 12 percent to $7.63 million. Adjusted for one-time items, the studio reported earnings per share of 4 cents, compared to earnings per share of 8 cents a year ago. Analysts forecast a fourth-quarter loss of 1 cent and revenue of $7.84 billion.
The studio posted a narrower streaming loss of $490 million compared to a loss of $575 million a year ago, which is positive news for Wall Street. After reducing full-year direct-to-consumer losses in 2023, Paramount said it expects to peak in streaming losses in 2022, a year earlier than planned.
The direct-to-consumer division saw advertising revenue rise 14 percent to $526 million, thanks to growth from Paramount+ and Pluto TV, and subscription revenue rose 43 percent to $1.33 billion. Paramount's traditional television revenue, which includes assets such as CBS and its cable networks MTV, Comedy Central and Nickelodeon, fell 12 percent to $5.16 billion in the most recent quarter.
TV advertising revenue fell 15 percent to $2.28 billion, and affiliate and subscription revenue fell 1 percent to just over $2 billion. Paramount's film studio division, home of the “Mission Impossible” and “Top Gun” franchises, reported revenue of $647 million, down 31 percent from $936 million a year ago, reflecting significantly lower licensing revenue is.
The Shari Redstone-controlled conglomerate is racing to replace lost linear TV revenue with streaming and other digital revenue as it responds to consumers' rapidly changing viewing habits. On the advertising side, direct-to-consumer advertising revenue increased while TV media declined in the fourth quarter, which includes a 5 percent impact from lower political advertising. Paramount's advertising revenue was also impacted in the quarter by the two strikes in Hollywood.
“While these headwinds are not unique to Paramount, Paramount shares are uniquely at risk due to its large exposure to linear television, elevated debt and lack of meaningful FCF (free cash flow),” Morgan Stanley Research analyst Benjamin Swinburne said in a February 27 analyst call ahead of the studio's latest financial results.
The decline in linear TV advertising and the increasing elimination of cable channels have led to increased cash flow concerns as the major studio expects higher marketing and subscriber acquisition costs and an increase in its original content production spending due to the two strikes in Hollywood .
Paramount said it generated net operating cash flow of $558 million and free cash flow of $443 million in the fourth quarter.
While streaming gains in the fourth quarter offset a weaker advertising market, CEO Bakish said in a statement on his latest financial results: “Our disciplined execution and strong content offering drove our results in 2023 as we continue to drive our business to profitability.” Develop growth in 2024 and beyond.”
Bakish added: “Looking forward, we remain focused on maximizing the return on our content investments, scaling streaming while transforming the cost base of our business.” And I couldn't be more excited about the initial momentum, which we had across all platforms in 2024 and which demonstrates the power of our strategy and assets.”
The Paramount boss also reached out to Disney, Warner Bros. Discovery and Fox, revealing plans to form a joint sports streaming company to fend off competition from the tech giants. “There is still a lot we don’t know about this service, such as price, packaging and consumer appetite. And as far as the consumer is concerned, for a true sports fan, this product only offers a subset of sports. Half of the NFL is missing, there is a lot of college, football and golf are practically non-existent. Look, it's hard to believe that this is ideal, especially given the price points that have been speculated about in terms of our view of the sport,” he told analysts.
The as-yet-unnamed streaming venture from Disney, Warner Bros. Discovery and Fox is seen as the first step toward a streaming sports package amid industry expectations of more content re-bundling in the streaming era.
However, Bakish added that sports fans have already embraced the offerings available on CBS and Paramount+. “The bottom line is that we really like where we stand in terms of sporting execution and we see the Paramount strategy adding significant value,” he added.
Paramount shares took a hit last week when Warren Buffett's Berkshire Hathaway reported a one-third cut in its stake in the media conglomerate. Buffett's stake sale coincided with market speculation that David Ellison's Skydance Media and RedBird Capital were eyeing a possible acquisition of Shari Redstone's majority stake in the conglomerate.
Bakish answered a question on the analyst call about possible strategic options as the studio weighs its options in a consolidating market. “When it comes to mergers and acquisitions, we at Paramount are always looking for opportunities to create shareholder value. And to be clear: This applies to all shareholders. But I won't comment on speculation or timelines. But it’s obviously something we’re focused on,” he said.
Another media mogul, Byron Allen, also played for Paramount Global by announcing a $14.3 billion offer to purchase all of the studio's outstanding shares. If a deal for Paramount Global goes through, market analysts expect significant divestitures, including Skydance and Paramount, which may combine their film entertainment studios to gain greater reach as content producers.
Bakish also discussed working with competitors in the US market and internationally to offer streaming packages that help attract and retain subscribers by making a content offering more attractive and affordable. “We already have extensive experience with the power of bundling and streaming. We have international fixed packages with providers such as Sky, Canal and others. They were key to our market entry strategy. They are undoubtedly a complement to our Paramount+ underpinnings and economics. In the US there are also things like Walmart+, which is another form of the package,” he said.
