What Paramount’s Rebrand Means for the Streaming Wars | Analysis

·6 min read

ViacomCBS is now Paramount but whatever you call the company today, it’s clearly going all-in on streaming. That push put Hollywood on notice — and Wall Street on edge.

During an avalanche of entertainment news shared at a busy investor day on Tuesday, Paramount President and CEO Bob Bakish and non-executive chair Shari Redstone firmly planted their digital flag amid the ongoing streaming wars.

Among the many announcements: Paramount+ is becoming the new pay TV window for all Paramount Pictures movies, “South Park” is coming home after its HBO Max run, and the company is all-in on “Yellowstone” creator Taylor Sheridan even more than it was previously. As analyst Doug Creutz of Cowen put it in his analysis: “Seemingly every piece of Paramount content that has had ever had success is getting spinoffs or expansions.”

While the plans and content slate certainly made noise within the entertainment industry, on Wall Street shares in the renamed company sunk by about 20% on Wednesday — though the share price leveled off on Thursday to $29.35 per share. ViacomCBS (as it was called at the time) whiffed on fourth-quarter 2021 earnings, but it was media analysts’ concerns about the skyrocketing streaming-content spend — and the continued declines in revenues from linear TV, which now appears to be an afterthought — that caused the stock to crater.

But will Paramount+ growth at the expense (literal, in several ways) of the medium-term future’s bottom line(s) be worth it in the long run? Is the former CBS All Access, now very much beefed up, going to end up on the eventual streaming medalists’ podium with Netflix and Disney+?

Perhaps. But the fledgling streamer faces some serious competition from the likely combination of HBO Max and Discovery+, following the WarnerMedia-Discovery merger in a few months, as well as Apple TV+, Hulu, Peacock and Amazon’s Prime Video Service.

The analysts at MoffettNathanson appreciate how the “breadth” of Paramount+ content — which includes sports, kids, general entertainment and news programming — is a differentiator from its peers, but the losses are adding up, they wrote in a Wednesday morning analysis. And the spending (and near-term losses) are really just getting started.

Paramount forecasts that its direct-to-consumer (DTC) losses will peak in 2023. Last year’s DTC losses were about $1 billion on a content spend of about $2.2 billion. This year, the company expected to lose $1.5 billion. With content spend expected to ramp up to $6 billion in 2024, subscriber numbers and subscription/advertising (for the Paramount+ ad-supported option) need to grow exponentially. Fortunately, the spending should begin to decline in 2024 and Paramount+ may even inch toward profitability in 2025.

Analysts are skeptical, however. Some more than others. “Even though we think Paramount’s shift to streaming is necessary given the headwinds the company faces on the [linear TV] business, we still have a hard time seeing how DTC would become big enough to return the total company on a path to growth within the next five years,” the MoffettNathanson report reads.

To justify (and eventually cover) all that spending, Paramount+ needs to gain traction as a must-have streaming service. Executives believe they’re getting there. On Tuesday, the company updated its 2024 forecast from 65-75 million global paid subscribers across Paramount+, Showtime OTT and a few other niche services to over 100 million, raising the forecast for DTC revenue from $6 billion to over $9 billion.

Paramount+, Showtime OTT, BET+ and Noggin/Nick+ combined for 56.1 million subs at the end of 2021, with Paramount+ making up 32.8 million of those. (The free Pluto TV had 64 million monthly active users.)

For a comparison, Netflix ended calendar-year 2021 with nearly 221.8 million global subs, Disney+ was just shy of 129.8 million paid subscribers, while HBO and HBO Max combined for 73.8 million. Each of those services also spend way more on content than even Paramount’s ambitious estimates.

Disney-owned Hulu ended 2021 with 45.3 million subscribers, including a few million who are there for the pricey live-TV service in addition to the SVOD stuff. NBCUniversal’s Peacock, which also has a very basic free tier, finished with 24.5 million monthly active accounts.

Apple TV+ does not share subscriber numbers, though estimates tend to range from 8 million and 20 million. In September, the International Alliance of Theatrical Stage Employees (IATSE) said Apple executives told them the service has less than 20 million paying customers in the U.S. and Canada.

Amazon has more than 200 million Prime subscribers, but the lion’s share of those have signed up for the retail website’s free two-day shipping — and not necessarily to watch original video content like “The Marvelous Mrs. Maisel.”

“Paramount has set itself a course to compete toe-to-toe with larger and better financed companies with (in at least some cases) more powerful IP portfolios,” Creutz warned in his takeaways. “We think the margin for error in this endeavor is very slim, given that the end goal is not just significant revenue growth, but sustainable profitability.”

Paramount+ has a few tiers. The cheapest one, inclusive of commercials, costs $4.99 per month. The most expensive version, which is ad-free and includes Showtime, costs $14.99 per month.

ViacomCBS Paramount’s willingness to lose money for several years to build out a streaming slate and acquire subscribers may feel foreign for a legacy media company, but it’s exactly what happens in the tech space. And the tech space is where Paramount+ will play, and compete with native digital companies like Netflix and Amazon.

Up in Silicon Valley, deficit spending is the norm. Down in Hollywood, it’s still a tough sell. Three thousand miles due northeast, on Wall Street, it probably has people snapping pencils.

Media analysts are split on the actual valuation of Paramount Global the company, now formerly known as ViacomCBS. Bank of America downgraded the stock and MoffettNathanson dropped its target price by $4 per share. Still others find it to be underpriced. But everyone seems to be applauding the ambition — and the new name.

We lobbied for a Paramount-focused name two years ago when the Viacom-CBS merger was announced, and think the new moniker is a significant improvement,” Creutz wrote.

Paramount, an homage to the legacy movie studio, was previously tapped to add some prestige to the short-sighted (in title, and in competitive scope) CBS All Access. The name, which invokes the heyday of “The Godfather,” was also utilized to rebrand Spike TV. (“The Offer,” the story behind Paramount producers Al Ruddy and Bob Evans and the making of “The Godfather” movie, will even premiere on Paramount+ this spring!)

With both legacy-TV brands, Viacom and CBS, out of the way — and out of the corporate branding — it’s clear which part of the company’s past will be central to its future. What is unclear is if Paramount will be left standing when the streaming wars enter the history books. But at least for now, the mountain isn’t going down without a fight.