Paramount+ to Raise Subscription Prices, Take Up to $1.5B Impairment Charge
Paramount Global will raise the monthly subscription price for its rebranded streaming service Paramount+ with Showtime in the third quarter of 2023, executives said on an earnings conference call on Thursday after reporting fourth-quarter results that saw Paramount+ post strong subscriber gains in the fourth quarter thanks to such hit content as Top Gun: Maverick.
“We all know streaming represents incredible value for consumers and the Paramount Plus offering is far from the industry price leader. We are on the value end of the pricing spectrum. And so in 2023, we will raise prices both for Paramount Plus Premium and Essential, both in the U.S., and select international markets,” CEO Bob Bakish said on the call.
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The cost of the advertising-free premium streaming plan will rise from $9.99 per month for Paramount+ to $11.99 for Paramount+ with Showtime, while the essential plan with advertising will see a price hike from $4.99 a month to $5.99.
These price changes will apply to new and existing customers upon launch of the integrated Paramount and Showtime offering. The company expects to see some reduction in total subscriber numbers when the two services are combined due to the way in which the numbers were previously calculated.
Both the Showtime linear pay-TV channel and the premium tier of Paramount+ will be rebranded as Paramount+ with Showtime, with Chris McCarthy to lead the Showtime studio and linear channel, while Tom Ryan oversees the streaming business, Paramount Global CEO Bob Bakish had detailed in a memo in late January.
Paramount CFO Naveen Chopra on the call said that the company would see $289 million in payments for restructuring, merger-related costs and transformation initiatives for the full year.
The company also expects an impairment charge of $1.3 billion to $1.5 billion in the first quarter of 2023, related to content, as the company realigns its strategy with Showtime and says it will not “need the kind of content that you would need if they were operating on an independent basis.” Overall, Paramount expects to see $700 million of future annual expense savings, coming from a plan to reduce operating expenses in marketing technology and operations and reductions in content expense related to integrating Showtime.
Bakish also spoke to a plan to “efficiently manage” the company’s content spending going forward by leaning into franchises, which drive the majority of engagement on Showtime.
“By far our biggest lever to manage spending is to focus on franchises. The higher levels of consumer awareness and built in fan bases associated with this IP drive strong subscriber acquisition volume, lower acquisition costs, lower churn and extend LTVs,” Bakish said on the call.
“And while we will, of course continue to take selective swings on new IP, there’s no question that franchises are a powerful advantage,” he added.
Paramount expects 2023 to be its peak investment year for streaming, with 2024 returning to positive free cash flow and total company earnings growth. The company also expects an improvement in the ad market in the back half of 2023, which should help boost earnings, alongside the price increases.
Going into 2024, Paramount said it expects reductions in the growth rate of headcount, product and technology expenses, after a full year of integrating Showtime and Paramount.
The merged streamer’s price hikes come after other Hollywood giants have also boosted what their streaming services charge consumers as part of their focus on making them profitable.
“Given a shift of attention from subscriber growth to profitability, most over-the-top services (OTT) have moved into a price-raising mode,” Cowen analyst Doug Creutz wrote in a Jan. 23 report. “Disney and Warner have already announced price increases and Paramount is likely about to do so.” He added: “We think the degree to which this does or does not drive higher churn will be a critical factor driving valuations this year. We also note that industry-wide price raises could have distributional effects as well; second-tier OTT services are far more likely to be pressured than services consumers view as must-have, even if the second-tier services are not raising price themselves.”
