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.
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. “In connection with our plan to integrate Showtime into Paramount+ and initiatives to rationalize and right-size our international operations to align with our streaming strategy and close or globalize certain of our international channels, during the first quarter of 2023 we reviewed our content portfolio and determined that we would not use certain content on our platforms,” Paramount said on Thursday in reporting its quarterly results. “Accordingly, we recorded programming charges, which were comprised of impairment charges for content removed from our platforms or abandoned, development cost write-offs and contract termination costs.”
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.
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 continues to demonstrate the strength of its content engine, driving momentum across
streaming, television and theatrical,” said Bakish in Thursday’s earnings report. “This resulted in Paramount+ and Pluto TV reaching significant milestones with 60 million subscribers and 80 million MAUs, respectively, while CBS is poised to claim the #1 spot in broadcast for the 15th straight season.”
He added: “Looking ahead, we are focused on continuing to drive market-leading streaming growth while navigating a dynamic macroeconomic environment. In addition, the updated dividend policy we have announced today will further enhance our ability to deliver long-term value for our shareholders as we move toward streaming profitability.”
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. “Paramount Pictures’ franchise-focused approach delivered another #1 box office debut with Scream VI, which is now the highest-grossing installment domestically in the franchise,” the company touted though.
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.” 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.” Adjusted operation income before depreciation and amortization (OIBDA) in the TV media division fell 15 percent due to the revenue decline, “partially offset by lower content costs,” Paramount said.
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.”
