The inevitable M&A question came toward the end of Paramount Global‘s hourlong conference call with Wall Street analysts on Wednesday — a session that undoubtedly would have been more contentious for Paramount leaders if they hadn’t started out by serving up sacrifices for the greater good of free cash flow and profit.
Paramount Global CEO Bob Bakish waved off the inquiry from Bank of America Merrill Lynch media analyst Jessica Reif Ehrlich about the tidal wave of media speculation about suitors coming (and going) for the company with a breezy “We’re always looking for ways to create shareholder value.” But it was clear from the earlier commentary and business updates from Bakish and chief financial officer Naveen Chopra that they are charting a course for this year and next to take streamer Paramount+ to the promised land of profitability and keeps the company entact as a standalone entity.
Indeed, Bakish nodded in his prepared remarks to the endless chatter on the Street and in media about Paramount’s long-term fate. “Regardless of current market sentiment, we’re convinced that the value of our assets today, combined with the execution of our strategy as we move forward represents a significant value creation opportunity, and we are dedicated to unlocking that value,” Bakish said.
The unlocking process will include a $1 billion write-down to be taken in the current quarter. Bakish and Chopra promised Wall Streeters that the company will spend less to make and market movies and TV shows and they will get more bang for those bucks with more aggressive windowing of streaming content across linear assets and vice versa. Moves forced by necessity during the programming drought of last year’s strike months — “Yellowstone” reruns airing on CBS, for one — are helping to guide its future. Most of the write-down ($700 million to $900 million) will stem from existing TV shows and movies that will be yanked from Paramount’s various digital and linear platforms and development projects that will be scrapped.
After recording a $1.6 billion loss on streaming operations in 2023, Paramount+ will reach profitability in the U.S. in 2025, Bakish vowed. Paramount Global will deliver free cash flow and growth in the second half of ths year, Chopra added.
Bakish emphasized that the company will also significantly cut back its efforts to produce local-language content in overseas markets. Instead the company will focus on generating hot prospects at home that have global resonance.
“Internationally, it’s become unquestionably clear that Hollywood hits are the biggest draw for our audiences and partners around the world,” Bakish said. “Which means there’s a clear opportunity to lean into our CBS slate, Paramount+ originals and Paramount films while slowing spend on local content and associated marketing.”
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Chopra said the decision was influenced by analysis of what most non-U.S. subscribers watch on the streamer. “We’ve learned the Paramount+ subscribers outside the United States spend nearly 90% of their time with our global Hollywood hits — meaning we can keep them engaged while right-sizing our investment in content that does not travel around the world,” he said.
However, in the hunt for what the executives called “efficiencies,” Paramount will look to produce more TV programs and films overseas, where the cost of everything from hiring extras to an espresso at Starbucks is lower than in Los Angeles or New York.
“You will see us leaning even further into offshore production for our global franchises, including the upcoming London installment of ‘Billions,’ the new ‘Ray Donovan’ origin story as well as new series like ‘The Department’ from George Clooney,” Bakish said of three series on deck for Paramount+ with Showtime.
On the film side, Bakish pointed to Paramount Pictures’ success so far this year with modestly budgeted theatrical films “Mean Girls” and “Bob Marley: One Love,” the biopic that has lead the U.S. box office for the past two weekends. “We’re improving ROI by lowering the average cost per title,” Bakish said, noting the film studio’s refined focus on “balancing high-budget tentpoles with more modest cost titles.”
Paramount Global spent about $16.5 billion on content in 2023, a number that was lower than 2022’s content bill because of the Writers Guild of America and SAG-AFTRA strikes, Chopra said. He expects that 2024 spending will be higher but not by too much. “We contemplate spending really only about 50% of what we’ll call the strike savings. That’s a critical ingredient in our ability to drive healthy growth in free cash flow,” Chopra said.
Other topics addressed on the call:
The Disney/Warner Bros. Discovery/Fox streaming sports venture announced earlier this month has been a de rigueur question for CEOs during the Q4 earnings reporting cycle. Bakish is not impressed with the offering that is rumored to be priced at $40 to $50 a month. “For a true sports fan, this package only has a subset of sports,” he said. “It’s missing half the NFL, a lot of college [events] and has virtually no soccer or golf. So it’s hard to believe that’s ideal, especially at the price points that have been speculated.”
Speaking of game theory, sports is an important subscriber funnel for Paramount+, which offers CBS’ AFC NFL package as well as acquired rights to soccer and golf tournaments. Prospective subscribers come in for a game or two but stay for the entertainment. “For people that come in [to Paramount+] for sports, 90% of their engagement is with non-sports” content, Bakish said.
CBS has been a bright spot for the company. The network got its strike-delayed season off to a strong start with freshman drama “Tracker,” thanks in part to a big circulation boost from large crowds turning out for the Golden Globe Awards, Grammy Awards and the record-setting Super Bowl telecast. But the Eye is also becoming more budget-conscious when it comes to content spending. “We have an increasingly efficient and targeted development process,” Bakish said. “We prioritize lower cost formats, like unscripted and those shot abroad while maintaining our strength and franchises.” He cited the success of last year of “NCIS: Sydney,” the latest interation of the drama franchise that was shot Down Under “at a much more efficient price point.”
In 2023, Paramount+ nabbed a total of 4.1 million new subscribers. Expectations for 2024 are lower in part because Paramount+ will be detached from bundled packages in some overseas markets “where the economics just weren’t that compelling,” Chopra said. “We do still expect very healthy Paramount+ revenue growth and of course, revenue is the more important metric than subs.”
(Pictured: “Bob Marley: One Love”)
