Paramount Streaming Loss Widens to $511M as Paramount+ Hits 60M Subs

Georg Szalai and Etan Vlessing
·6 min read
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Paramount Global reached 60 million Paramount+ streaming subscribers worldwide as of the end of March, a gain of 4.1 million from nearly 56 million as of the end of 2022. But the Hollywood conglomerate on Thursday posted a swing to a first-quarter loss amid a wider streaming loss and an 11 percent TV advertising revenue drop as the latest results missed Wall Street expectations.

Management also unveiled a dividend cut, preserving cash amid economic and other challenges as the industry pushes towards turning its streaming businesses profitable. Paramount’s stock was down 14 percent in pre-market trading, a fall that gathered pace as shares fell by $5.73, or 25 percent, to $17.17 in early morning trading.

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Paramount’s advertising-supported streamer Pluto TV grew its monthly active users (MAUs) to 80 million as of March 31 from 78.5 million as of the end of the fourth quarter. The company didn’t immediately detail its total global streaming subscriber count, which had stood at more than 77 million as of the end of December.

However, higher streaming investments were again a drag on the entertainment company’s bottom line, as the quarterly adjusted operating loss before depreciation and amortization in its streaming unit widened to $511 million, compared with $456 million in the first quarter of 2022. The company cited “higher costs to support growth of Paramount+” as the key driver.

Paramount, led by CEO Bob Bakish, also took impairment charges of $1.67 billion in the first quarter, driven by its upcoming combination of Paramount+ with Showtime into a single U.S. streaming platform later this year. Earlier this year, it had said the integration would lead to a content impairment charge of between $1.3 billion and $1.5 billion in the first quarter, while forecasting $700 million in annual expense savings.

“We’re going to focus on driving market-leading streaming growth, while navigating this dynamic macroeconomic environment. And know that the decisions we’re making will position us well for a path of streaming profitability, significant earnings growth and a return to positive cash flow,” Bakish told analysts on a morning call.

Paramount’s TV unit advertising sales continued to fall in the January-March period. The 11 percent decrease in the latest quarter followed a 7 percent drop in the fourth quarter of 2022.

“We are seeing signs of stabilization in the ad market. But perhaps more importantly, we are seeing the unquestionable and growing value of our content and platforms to both the consumer and business community, as exemplified by growing usage, as well as a broadening range of deals and partnerships,” Bakish told analysts, while adding the studio’s content like Mayor of Kingstown, 1923 and Tulsa King was underpinning growth in its streaming platforms as legacy cable channels continue under pressure.

“Yes, this takes investment,” Bakish conceded as Wall Street concerns rise over the studio getting to streaming profitability as TV ad revenues slump and costs rise while Paramount+ combines with Showtime.

He reiterated that 2023 will be a peak investment year for streaming. “But there is no question that our investment is producing results. And as we scale, we are very much on a related path to streaming profitability,” Bakish argued, without putting a timeline on breaking even.

“The levers are in place to continue to drive Paramount+ subscriber revenue and ultimately continue down this path to profitability,” Bakish added in response to a question about continuing momentum in streaming subscriber growth. He argued Paramount+’s content offerings and the coming combination with Showtime will help underpin growth.

To strengthen the balance sheet, Paramount Global has restarted the sales process for Simon & Schuster after an earlier attempt to sell the publisher to the owner of Penguin Random House was blocked. Paramount Global CFO Naveen Chopra told analysts the studio sees “a path to potentially closing a transaction this year.”

“We’re always looking for ways to maximize shareholder value,” Bakish added, without specifying which other non-core assets at Paramount Global could potentially go on the auction block.

Paramount also unveiled a dividend cut as Hollywood giants focus on boosting their profitability via layoffs and other cost cuts amid macro-economic clouds and an increased focus on reaching streaming profitability. It is reducing its quarterly cash dividend from 24 cents per share to 5 cents a share.

The entertainment giant reported a first-quarter loss of $1.23 billion, or $1.81 per share, compared with a year-ago profit of $775 million, or 58 cents a share. Quarterly revenue fell 1 percent driven by a 6 percent film unit drop and an 8 percent TV unit decline, which outweighed a 39 percent streaming revenue gain.

Paramount’s film division posted a 6 percent revenue decline to $588 million as theatrical revenue decreased by $4 million “reflecting the timing and mix of releases,” while licensing and other revenue dropped primarily due to lower consumer products licensing revenues. Adjusted operating loss before depreciation and amortization in the film unit widened from $37 million to $99 million, “reflecting an adverse impact from the timing of the release of Dungeons & Dragons: Honor Among Thieves on the last day of the quarter, as well as costs from the release of Miramax’s Operation Fortune: Ruse de Guerre, and macro-driven softness in consumer products licensing.

TV media unit revenue fell 8 percent to $5.19 billion, driven by the ad drop, “reflecting weakness in the global advertising market and fewer NFL games on CBS, as well as foreign exchange rate changes, and a 15 percent decline in licensing and other revenue, “primarily reflecting a lower volume of licensed content.”

To cut costs in its TV media unit, CFO Chopra told analysts the studio is moving production offshore or to “lower-cost formats” and beginning to use artificial intelligence tools for “content localization, which by the way produces some really high quality results and very compelling economics.”

Also on the ad side, Bakish touted the studio’s intimate Upfront gatherings with buyers in April as Paramount Global chose against holding a glitzy pitch and party at Carnegie Hall. “One big presentation event, and then a huge party after, is not really effective anymore for the day,” he insisted.

Affiliate and subscription revenue dropped 1 percent, driven by foreign-exchange impacts and “the previous restructuring of certain international affiliate agreements, which resulted in a shift of revenue from our pay television services to our direct-to-consumer services.”

At the end of March, Bank of America analyst Jessica Reif Ehrlich upgraded her Paramount stock rating from “neutral” to “buy” and increased her stock price target to $32 in a report entitled “A shopping list of attractive assets.”

“We have had our concerns regarding Paramount’s ability to manage the transition toward streaming while balancing the cannibalization of the legacy businesses,” she explained. “Even with their commendable progress thus far, we are skeptical in how well they can succeed given their relatively smaller scale versus peers. However, we view the two most likely outcomes from this transition as positive for shares as either 1) Paramount successfully executes on their pivot toward streaming which would re-accelerate earnings growth in ’24 and beyond or 2) Paramount struggles to profitably scale Paramount+ and free cash flow, which could lead the company to sell, in our view likely at a significant premium to current market levels.”

The analyst also highlighted that 2023 “appears to us to be the earnings trough as streaming losses peak, the advertising market bottoms, and expense management drives profitability in Paramount’s traditional businesses.”

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