Paramount Global reached nearly 67 million streaming subscribers worldwide as of the end of September, up from 63.7 million as of the end of June. But streaming investments and cord-cutting dragged on the bottom line, with several financial results falling below analysts’ expectations.
Paramount’s stock was down nearly 9 percent in Wednesday pre-market trading as of 7 a.m. ET.
“This is a tough quarter for Paramount as linear pressures appear to be worsening while direct-to-consumer (DTC) revenue growth is slowing,” Wells Fargo analyst Steven Cahall wrote in a first reaction. He had forecast Paramount+ net additions of 2.5 million for the third quarter, compared to a Wall Street consensus of around 3.4 million. “Expenses are running hot, both profit & loss and cash, with earnings significantly down year-over-year. On the call, we think management will be looking to provide efficacy of the pivot to streaming.” He added: “A key question will be what peak losses look like in ’23, and what the path thereafter entails.”
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During an analyst call, Paramount Global CEO Bob Bakish directly addressed investor concerns over streaming losses owing to upfront investments and recessionary pressures impacting consumer spending. “I understand there are concerns about the macro environment impacting the financials. But they’re cyclical, they will inevitably return, and more importantly our world class content engine is driving unquestionable momentum across all our platforms,” Bakish said.
Bakish added the studio anticipated more aggressive cost savings, which includes reorganizing Showtime Networks and its streaming platform. Paramount Global CFO Naveen Chopra conceded upfront investments in streaming had affected profitability in the near term, despite overall direct-to-consumer revenue growth in the last year.
But Chopra argued enlarging Paramount Global’s global footprint with streaming platforms and incremental subscriber and advertising revenues promised long term value creation. “We believe there’s significant long-term shareholder value to be created, and we remain committed to this strategy, despite the impact of near-term cyclical advertising headwinds,” Chopra told analysts.
Bakish talked about Showtime being bundled with Paramount+, with programming from both services becoming available in one app. “Broad works,” he told analysts, as Showtime will continue to offer “edgy” content, even as the studio also looks to “extract more from core franchises” as the platform is increasingly integrated with the rest of the Hollywood studio.
In addition, Bakish discussed Walmart+ subscribers getting access to the entire Paramount+ service under the ad-supported tier. “We look for this partnership to be driving not only Paramount+ subscribers, but importantly Walmart+ subscribers as well as they get access to this great benefit for quite some time,” he argued.
The addition of Walmart+ members aims to help Paramount+ boost its numbers in a crowded streaming market currently led by Netflix and Disney and their subscriber bases. Bakish added Netflix launching an ad-supported streaming tier only validated Paramount Global’s strategy of pursuing a broad streaming model that includes Paramount+ and Pluto TV.
“We’re not surprised they’re joining the market, and we’re happy to compete with them,” Bakish insisted. The Paramount Global CEO also returned to a long-running debate over his studio’s “arms dealer” strategy to license IP and sign deals with rival streaming platforms needing content, while also keeping key originals for its own streaming platforms.
Bakish pointed to success in the studio waiting to release Top Gun: Maverick in theaters, before eventually shifting that tentpole title to Paramount+. At the same time, as Paramount Global looks to simultaneously monetize traditional media while building out its streaming platforms, the studio will reserve key content for Paramount+
Bakish singled out the 1883 and Halo TV series, which he argued belong on Paramount+ and had performed well with viewers and helped sign up additional subscribers. “In that case, the objective is not about maximum reach. They’re key to creating asset value in streaming,” he argued.
During the third quarter, Paramount added 4.7 million global subscribers with that growth partially offset by the removal of Paramount+ subscribers in the Nordics where the company recently launched its streaming joint venture SkyShowtime with Comcast/Sky that replaced Paramount+ in the region.
The Paramount+ streaming platform added 4.6 million global subscribers in the July-September period to hit 46 million, compared with 43.3 million as of the end of June. But the streamer’s user base now does not include 1.9 million subscribers in the Nordics anymore who were migrated to SkyShowtime.
Among Paramount+ content helping with subscribers in the latest period were the likes of the NFL, films like Orphan: First Kill and Beavis and Butt-Head Do The Universe, as well as series as 1883 and Seal Team.
Paramount’s free, advertising-supported streaming service Pluto TV also continued to grow its monthly active user (MAUs) in the latest period to 72.0 million after hitting 69.6 million as of the end of June. Pluto TV also grew total global viewing hours year-over-year in the “strong” double-digit percentage range.
Paramount’s direct-to-consumer (DTC) unit posted third-quarter revenue growth of 38 percent to $1.23 billion as subscription revenue jumped 59 percent year-over-year to $863 million, “principally reflecting paid subscriber growth on Paramount+” and advertising revenue increased 4 percent to $363 million. Paramount+ revenue jumped 95 percent year-over-year. Adjusted operating income before depreciation and amortization (OIBDA) in the DTC segment showed a loss that widened from $198 million to $343 million, “reflecting investments in content, marketing and international expansion.”
Blockbuster Top Gun: Maverick will stream on Paramount+ “by the end of the year,” the company confirmed on Wednesday, but didn’t detail a specific date for the U.S.
Meanwhile, financials in Paramount’s TV Media unit declined in the third quarter, which has been impacted by cord-cutting. Revenue in the segment fell 5 percent to $4.95 billion driven by a 3 percent advertising decrease, “as increases from political advertising and pricing only partially offset the impact from lower impressions and foreign exchange,” and affiliate and subscription revenue dropped 5 percent. Adjusted OIBDA in the TV Media division was down 11 percent to $1.23 billion, “driven by the decline in affiliate and subscription revenue and lower profits from content licensing.”
The conglomerate’s film business had better news to tout. Filmed entertainment unit revenue rose 48 percent in the third quarter to $783 million amid gains in theatrical and licensing revenue, “led by the success of Top Gun: Maverick at the box office and in the digital home entertainment market.” Adjusted OIBDA in the film division swung to a $41 million profit from a year-ago loss of $24 million “reflecting the strong performance of Top Gun: Maverick.” And the company highlighted: “Paramount Pictures achieved its sixth #1 box office film of the year with horror thriller Smile.”
Paramount’s overall third-quarter revenue of $6.92 billion missed the Wall Street consensus forecast of $7.03 billion, while OIBDA of $786 million beat expectations on “better performance at film and lower corporate elimination expense,” according to Cahall. Adjusted earnings per share also missed the Wall Street consensus forecast.
But free cash flow, a profitability metric focused on a company’s ability to fund its investments without the need for outside financing, caused particular concern on Wall Street. Paramount’s free cash flow loss of $333 million in the third quarter missed the Street estimate for a profit of $136 million and widened from the year-ago loss of $187 million.
Paramount’s third-quarter earnings included charges related to restructuring and other corporate matters reached $169 million, up from $46 million in the comparable year-ago period. The firm detailed that this was “comprised of charges of $85 million for restructuring, consisting of severance costs associated with changes in management following the realignment of our operating segments and lease impairments; $77 million associated with litigation described … in our Quarterly Report …; and $7 million related to the suspension of operations in Russia.”
“In the third quarter, Paramount continued to execute on our differentiated strategy anchored by our
broad range of popular content, our diverse portfolio of platforms and our truly global operating
reach,” Bakish said on Wednesday. “That strategy continued to drive growth in subscriptions across our streaming platforms.”
