Industry Insider: A Look Into Paramount Global’s 2023 Q2 Earnings Call
Bob Bakish, CEO and President of Paramount Global (NASDAQ: PARA; PARAA) led 2023's Second Quarter Earnings Call on August 7 together with the company’s CFO, Naveen Chopra. Dominating the event was the announcement of a $1.62 billion all-cash deal to sell Paramount’s publishing house, Simon & Schuster, to private equity firm KKR. The deal is part of Paramount’s strategy to increase liquidity, and was supposed to go through as early as November 2022, when Penguin Random House was set to buy Simon & Schuster for an astonishing $2.2 billion. At the time, the acquisition raised antitrust concerns, and was eventually called off by US District Court Judge Florence Pan.
Paramount beat Wall Street’s estimates - although these were in the red in the first place. While the DTC segment is still in the red, losses have shrunk from $445 million in 22Q2 to $424 in the second quarter of 2023, largely driven by the revenue spike in Paramount+ (which grew by 47% to $1.2 billion and reached almost 61 million subscribers) and in DTC advertising revenue, which increased by 21%. One of the main contributors to the revenue jump is the bundling of subscriptions, first and foremost Showtime and Paramount+, announced months ago, it went into full action on June 27. The bundle increased ARPU (Average Revenue Per User), decreased churn, and allowed for $700 million in consolidation-driven cost savings. Moreover, users who subscribed to the bundle reportedly watched 40% more content.
The TV Media ones overshadow the DTC segment’s revenues: in 2023’s second quarter, the TV Media segment earned $5.2 billion, with an adjusted OIBDA (Operating Income Before Depreciation and Amortization) of $1.2 billion. The division includes CBS (the most-watched network in the US, with 126.88 million viewers in the 2022-2023 season), Showtime, MTV, BET, Nickelodeon, Paramount Television Studios, and Paramount International.
The importance of content in the current media and entertainment market was heavily emphasized, as Bakish describes it as the first pillar on which Paramount’s strategy is based. Paramount relies on a 4,000 film and 200,000 television episodes library, which drives licensing, streaming, and TV (Pluto TV and linear). However, the substantial reliance on older content and fan-favorite IPs (like the Mission Impossible franchise) raises doubts in some analysts about the positioning of Paramount+ in an industry that calls for continuous innovation and original output. Wade Payson-Denney, manager at Parrot Analytics, in an interview for Yahoo!Finance described his view on Paramount’s role in the streaming arena as that of a secondary company, largely basing its impact on the content library it already possesses and the fanbase which follows it, but is still unable to play alongside the major streamers.
“It's hard for us to see really how Paramount Plus makes the jump to that top three streaming category that clearly Netflix, Disney, and Warner Brothers Discovery currently have a hold on.”
On the other hand, the WGA and SAG strikes have virtually halted all new US productions, and the streamers and studios with the biggest content libraries have the upper hand in licensing older films and shows. Moreover, Paramount currently has over 85 international productions that are either greenlit, in production, or ready for distribution. This is a crucial point in their strategy, as the WGA and SAG strikes only involve American writers and actors (as well as all foreign professionals who are either part of the unions or actively support the strike). Therefore, the major US studios naturally channel their funds into international projects, which will decree the continuous output of content while the strikes pause productions in the US.
The second pillar is a diversified business model with multiple distribution platforms (Pluto TV, CBS, Paramount+, and the theatrical distribution arm of Paramount Pictures) as well as numerous revenue streams. This resilient business model allows for flexibility and adaptability to the evolving industry, as well as a continuous revenue stream coming from licensing the above-mentioned extensive library. Bakish describes Paramount’s position as follows:
“There is an incredible amount of change happening across our industry. But [...] when you have a coherent strategy, strong execution and the ability to stay nimble, your business will be built to weather periods of change and transformation. That is our approach at Paramount, what we remain focused on every day.”
