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Paramount Global has been hit with a credit rating downgrade from S&P Global Ratings over mounting content and platform investment costs to generate gains in a competitive streaming space.
The research firm reduced the Hollywood studio’s rating to BBB-, from BBB, on concerns over its debt load, with a stable outlook. The increased credit risk for Paramount Global is the result of a “weakening macroeconomic environment, higher peak losses in its direct-to-consumer segment and worsening trends for linear television,” S&P Global wrote on March 30.
“Even as the company has outpaced its initial subscriber growth targets for Paramount+, its operating losses have accelerated because of increased content investments, a weaker advertising market, and costs to enter new markets,” the firm wrote. “The company’s losses in its DTC segment increased by more than 80 percent in 2022 to $1.8 billion and we estimate they will peak at over $2.0 billion in 2023 before improving to about $1.4 billion in 2024. The company has not issued guidance for when it expects its DTC segment revenue to reach break-even.”
The studio is adding subscribers to its core Paramount+ and Pluto TV digital platforms (it has 77 million total subs), but higher streaming investments were a drag on the entertainment company’s bottom line, and TV unit advertising sales dropped as part of its recent fourth-quarter financial results.
The stable outlook came as the research firm expects Paramount Global to reduce its debt load as the economic climate improves, allowing the studio’s streaming losses to fall and a sale of Simon & Schuster to emerge. (In late October, a judge blocked Paramount’s attempt to sell the publisher to the owner of Penguin Random House.)
Paramount Global’s expanding investments in streaming mirror those of other Hollywood media players as the industry pivots away from traditional linear TV. As part of its evolving streaming strategy, the studio, led by CEO Bob Bakish, is combining the Paramount+ streaming service and premium pay-TV brand Showtime.
In its commentary, S&P Global said it wants to see reduced losses from the studio’s fast-expanding streaming model for better prospects for profitability amid tough linear TV trends.
Streaming profitability has emerged as a big question mark over major Hollywood media players as they face huge content investments — the focus of Wall Street watchers these days — to expand their online platforms in the face of strong competition.
S&P Global added: “Paramount’s ability to profitably scale its DTC services will be a key factor in our longer-term assessment of its business … In our view, the key factors to improving its streaming profitability are its ability to raise prices, increase user monetization, and improve the efficiency of its content and marketing spending.”
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