Friday, November 08, 2024

Paramount Global Reports Third Quarter 2024 Earnings Results

Paramount Global (NASDAQ: PARA, PARAA) today (November 8) announced financial results for the third quarter ended September 30, 2024. The full press release and other earnings material can be viewed on the Paramount investor relations website at ir.paramount.com. A audio replay of Paramount's earnings call is also be available to listen to.

Paramount Global logo

PARAMOUNT REPORTS Q3 2024
EARNINGS RESULTS

★ Meaningful Progress Advancing Strategic Goals

– Significant Improvement in Direct-To-Consumer: Adjusted OIBDA Improved $287 Million Year-Over-Year to $49 Million

– Continued Momentum at Paramount+: Revenue Growth of 25% Year-Over-Year and 3.5 Million Subscriber Additions in the Quarter

– Streamlined Organization: Advancing $500 Million in Annual Run Rate Cost Savings

★ Skydance Transactions Expected to Close in First Half of 2025

STATEMENT FROM GEORGE CHEEKS, CHRIS MCCARTHY & BRIAN ROBBINS, CO-CEOS
"Our hit content drove strong performance in Q3 where Paramount+ added 3.5 million new subscribers, solidifying our position as the #4 global SVOD service. Our DTC segment successfully delivered profitability for the second quarter in a row, improving by more than $1 billion over the past four quarters, and, across the company, we continue to successfully execute non-content cost reductions that will result in $500 million in annual run rate savings. With two very strong quarters under our belt, it’s evident that we have clear momentum and that our plan is working thanks to our very talented teams and creative partners."

DIRECT-TO-CONSUMER

OVERVIEW
DTC profitability improved significantly year-over-year. Sports, including the return of the NFL and UEFA, originals like Tulsa King, which saw the biggest global debut in platform history for season 2, and Mayor of Kingstown, as well as post-theatrical releases, such as A Quiet Place: Day One and IF, all drove acquisition in the quarter. Pluto TV continues to benefit from strong engagement resulting in increased monetization.

Q3 FINANCIALS

▪ DTC revenue increased 10% year-over-year.

– DTC subscription revenue grew 7%, driven by year-over-year subscriber growth and pricing increases for Paramount+.

– DTC advertising revenue rose 18%, reflecting growth from Paramount+ and Pluto TV.

– Paramount+ revenue grew 25%, driven by year-over-year subscriber growth and ARPU expansion.

▪ Paramount+ subscribers increased 3.5 million in the quarter to 72 million.

▪ Paramount+ global ARPU expanded 11% year-over-year.

▪ DTC adjusted OIBDA increased $287 million year-over-year to $49 million, reflecting revenue growth and cost efficiencies.

TV MEDIA

OVERVIEW

TV Media benefited from a powerful combination of sports, news and entertainment. CBS live news channels saw strong growth in minutes viewed year-over-year, The Daily Show continued to grow across streaming, linear and social platforms, MTV’s Video Music Awards had its biggest audience in four years, and The Challenge delivered its highest share in franchise history.

Q3 FINANCIALS

▪ TV Media revenue decreased 6% to $4.3 billion, primarily driven by lower affiliate revenue and fluctuations in licensing revenue.

– TV Media advertising revenue decreased 2%, reflecting declines in the linear advertising market, partially offset by higher political advertising, and the recognition of revenue underreported by an international sales partner in prior periods.

– TV Media affiliate and subscription revenue decreased 7%, driven by subscriber declines and a 2-percentage point decrease from the absence of pay-per-view boxing events, partially offset by price 
increases.

– TV Media licensing and other revenue decreased 12%, reflecting a lower volume of licensing in the secondary market.

▪ TV Media adjusted OIBDA decreased 19% to $936 million.

FILMED ENTERTAINMENT

OVERVIEW

Paramount Pictures’ diverse film slate continued to deliver with the success of A Quiet Place: Day One, which set a franchise record for the biggest opening at the global box office and has grossed $261 million worldwide to date. Transformers One has grossed $127 million at the global box office to date.

Q3 FINANCIALS

▪ Filmed Entertainment revenue decreased 34% to $590 million.

– Theatrical revenue decreased 71%, reflecting the number and timing of releases in the quarter compared to the prior year.

– Licensing and other revenue decreased 6%, as lower revenue from home entertainment and the licensing of film library titles were partially offset by higher studio facility revenue compared to last year, which was impacted by the labor strikes.

▪ Filmed Entertainment adjusted OIBDA increased $52 million versus the prior year period, which was impacted by the labor strikes.

SKYDANCE TRANSACTIONS

Completion of the Skydance transactions is subject to regulatory approvals and customary closing conditions. The transactions are anticipated to close in the first half of 2025. Until then, Paramount continues to operate in the normal course of business.

ABOUT PARAMOUNT

Paramount (NASDAQ: PARA; PARAA) is a leading global media, streaming and entertainment company that creates premium content and experiences for audiences worldwide. Driven by iconic consumer brands, its portfolio includes CBS, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Paramount+ and Pluto TV. The company holds one of the industry’s most extensive libraries of TV and film titles. In addition to offering innovative streaming services and digital video products, Paramount provides powerful capabilities in production, distribution and advertising solutions.

For more information about Paramount, please visit www.paramount.com and follow @ParamountCo on social platforms.

PARA-IR

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This communication contains both historical and forward-looking statements, including statements related to our future results, performance and achievements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements reflect our current expectations concerning future results and events; generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “may,” “could,” “estimate” or other similar words or phrases; and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. These risks, uncertainties and other factors include, among others: risks related to our streaming business; the adverse impact on our advertising revenues as a result of advertising market conditions, changes in consumer viewership and deficiencies in audience measurement; risks related to operating in highly competitive and dynamic industries, including cost increases; the unpredictable nature of consumer behavior, as well as evolving technologies and distribution models; risks related to our ongoing changes in business strategy, including investments in new businesses, products, services, technologies and other strategic activities; the potential for loss of carriage or other reduction in or the impact of negotiations for the distribution of our content; damage to our reputation or brands; losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and content; liabilities related to discontinued operations and former businesses; risks related to environmental, social and governance (ESG) matters; evolving business continuity, cybersecurity, privacy and data protection and similar risks; content infringement; domestic and global political, economic and regulatory factors affecting our businesses generally; disruptions to our operations as a result of labor disputes; the inability to hire or retain key employees or secure creative talent; volatility in the prices of the Companyʼs common stock; potential conflicts of interest arising from our ownership structure with a controlling stockholder; business uncertainties, including the effect of the Skydance transactions on the Companyʼs employees, commercial partners, clients and customers, and contractual restrictions while the Skydance transactions are pending; prevention, delay or reduction of the anticipated benefits of the Skydance transactions as a result of the conditions to closing the Skydance transactions; the Transaction Agreementʼs limitation on our ability to pursue alternatives to the Skydance transactions; risks related to a failure to complete the Skydance transactions, including payment of a termination fee and negative reactions from the financial markets and from our employees, commercial partners, clients and customers; risks related to change in control or other provisions in certain agreements that may be triggered by the Skydance transactions; litigation relating to the Skydance transactions potentially preventing or delaying the closing of the Skydance transactions and/or resulting in payment of damages; challenges realizing synergies and other anticipated benefits expected from the Skydance transactions, including integrating the Companyʼs and Skydanceʼs businesses successfully; potential unforeseen direct and indirect costs as a result of the Skydance transactions; any negative effects of the announcement, pendency or consummation of the Skydance transactions on the market price of the Companyʼs common stock and New Paramount Class B Common Stock; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our most recent Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. There may be additional risks, uncertainties and factors that we do not currently view as material or that are not necessarily known. The forward-looking statements included in this communication are made only as of the date of this report, and we do not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

***

Paramount Global (PARA) Q3 2024 Earnings Call Transcript
Courtesy of Seeking Alpha

Company Participants

Jaime Morris - EVP of IR
Brian Robbins - President and CEO
Chris McCarthy - President and CEO
George Cheeks - President and CEO
Naveen Chopra - EVP and CFO

Conference Call Participants

Ben Swinburne - Morgan Stanley
Bryan Kraft - Deutsche Bank
Rich Greenfield - LightShed Partners
Steven Cahall - Wells Fargo
Michael Morris - Guggenheim
Michael Ng - Goldman Sachs

Operator

Good afternoon. My name is Nadia and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount Global's Q3 2024 Earnings Conference Call. At this time, all lines have been muted to prevent any background noise. After the speaker's remarks, there will be a Q&A session. [Operator Instructions]

At this time, I would like to turn the call over to Jaime Morris, Paramount Global's EVP, Investor Relations. You may now begin your conference call.

Jaime Morris

Good morning, everyone. Thank you for taking the time to join us for our third quarter 2024 earnings call. Joining me for today's discussion are Paramount's Co-CEOs, Brian Robbins, Chris McCarthy and George Cheeks; and our CFO, Naveen Chopra. Please note that in addition to the earnings release, we have trending schedules containing supplemental information available on our website.

Before we start this morning, I want to remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Some of today's financial remarks will focus on adjusted results. Reconciliations of these non-GAAP financial measures can be found in our earnings release or in our trending schedules which contain supplemental information and in each case, can be found in the Investor Relations section of our website.

Now, I will turn the call over to Chris.

Chris McCarthy

Thank you, Jaime, and good morning everyone. I'm Chris McCarthy, and I'm joined here by my fellow Co-CEOs George Cheeks and Brian Robbins. Together we'll share the results of another very strong quarter, demonstrating the progress we are making against our strategic plan. Then Naveen will take us through the financials.

Okay, let's start with some headlines. We are pleased with our very strong performance this quarter fueled by our hit content and our focus on execution. In DTC, we saw Pluto reach record engagement. And on Paramount+, we added 3.5 million subscribers, reinforcing our position as the number four global streaming service. Paramount+ continued its momentum with revenue growth up 25% year-over-year.

This quarter marks the second quarter in a row where D2C achieved profitability, with adjusted OIBDA improving more than $1 billion over the past four quarters. And we remain on track to reach Paramount+ domestic profitability in 2025.

We also made progress in streamlining our organization, as we continue to successfully execute cost reductions that will result in $500 million in annual run rate savings. And at the same time, we have not slowed down on doing what we do best, continue to produce some of the biggest and broadest hit films, and television series.

In addition, the Skydance transaction achieved a few key milestones, including the conclusion of the go-shop period, the expiration of the HSR waiting period, and on November 4, we filed our S-4 registration statement with the SEC. We continue to expect the deal to close in the first half of 2025, subject to regulatory approvals and other customary conditions.

And now, I'll pass it to George to update us on distribution and advertising.

George Cheeks

Thanks Chris.

I'll start with distribution, in an evolving landscape. We continue to renew long standing agreements with key partners, including a number of distribution renewals this year. Our track record of getting deals done, speaks to the power of our entertainment, news and sports content, and we'll continue to work with our partners to innovate and deliver for audiences.

As an example of that, our Paramount+ ad-supported tier, is now available to charter customers, enhancing the value we're delivering across linear and streaming. Now its early days, but we're pleased with the response so far.

Now turning to advertising, Q3 benefited from record political spend, as well as the return of NFL and college football. Digital ad growth remains strong, showing notable increase in demand year-over-year, which reflects our valued position from a price, quality and scale standpoint, and will continue to drive growth.

The scale of our digital advertising platform, spanning Paramount+ Pluto as well as other digital properties, is one of the largest addressable footprints in the domestic marketplace, and it represents nearly half of our national domestic advertising revenue, when you exclude sports. Major brands continue to tap into the power of Paramount.

Recently, we launched the Summit, a new offering that connects our key ad partners with priority Paramount launches across theatrical, linear and streaming. For our first Summit partnership, we brought Pepsi together with Gladiator II. The campaign launched with the NFL on CBS, and included a media blitz across all Paramount global, linear, digital and social platforms. Yet another example of how we're leveraging our creative assets, and capabilities to deliver unmatched impact for our biggest advertisers.

I also want to touch on our ongoing dispute with Nielsen. We remain engaged with them and we're hopeful for a resolution. So far, we're encouraged by our partners' willingness to lean into innovation, and adopt alternative measurement solutions. Bottom line, our brand and agency partners are the number one priority, and we're proving every day that content, scale and value are what matters most to advertisers.

And with that, over to Brian for an update on our strategic plan.

Brian Robbins

Thanks George.

We are pleased with the progress we have made in advancing our business by transforming D2C, and streamlining our organization to reduce costs. Starting with DTC, the segment was profitable again in the quarter sports, including the return of the NFL and UEFA originals like Mayor of Kingstown and Tulsa King, as well as post theatrical releases such as A Quiet Place: Day One and IF, all drove Acquisition in the quarter.

For Pluto, we're continuing to see a strong performance. Year to date, Pluto delivered its highest consumption ever, up 5% to 5.6 billion viewing hours. Growth is being driven by increased use of video on demand, with more available content, enhanced discoverability, and a better user experience. And as we said before, we are evaluating potential partnerships in streaming through a lens of creating value for the business, and our shareholders over the long-term and given the complexity, we are being deliberate and thoughtful in our approach and assessment.

Moving to streamlining our organization, we have made progress on realizing $500 million in non-content cost savings, which will reduce our U.S. based workforce by 15%. To-date, we have executed 90% of these reductions and expect to have the remaining completed by the end of the year. Our objective has been to unlock operational efficiencies and right-size the cost base, while continuing to invest in the growth levers that are the key to the future, including content streaming and advertising.

In addition, we remain diligent as we optimize our asset mix. The sale of our equity interest in Viacom18 is a great example, which will result in an attractive financial return on our investment. We expect the sale to close in Q4. Now let's move to the core of what we do best, making some of the biggest and broadest hit films and TV series.

I will pass to Chris to kick us off.

Chris McCarthy

Thanks, Brian.

Let's start with Paramount+ where this fall, we kicked off one of our most ambitious slates to-date, seeing the return of our biggest hit series like Mayor of Kingstown and Tulsa King, which returned to great fanfare, each quickly soaring into a top 10 streaming original across all SVOD services. And Tulsa King also broke records as the number one global debut in Paramount+ history.

Internationally, where we have South Park exclusively for SVOD. It ranks as a top five star driver and the number two engagement driver, and we're excited to have the South Park series return to Paramount+ here in the U.S. starting in June of 2025. We're confident this momentum will continue throughout the quarter, with the return of Lioness, which premiered October 27, and is off to a great start, scoring as a top five global series premier in Paramount+ history, followed by Landman a new series from Taylor Sheridan, which will premiere November 17th and stars Billy Bob Thornton, Demi Moore and Jon Hamm. This series has all the makings of a great big hit, and promises to do for the oil industry what Yellowstone did for ranching.

Now moving over to our premium tier, this quarter marks the beginning of a new adrenalized showtime slate, with cinematic high stake originals and the return of some fan favorites. Starting with the agency, a new global espionage series from executive producer George Clooney, starring Michael Fassbender, Richard Gere, Jeffrey Wright and Jodie Turner-Smith, which will premiere later this month and that's followed by the return of Showtime's most successful franchise ever, Dexter. With a new origin story titled, Dexter: Original Sin. On cable, we also saw some impressive results.

The Challenge, the series that created the reality competition genre, celebrated its 40th season with the highest share in franchise history, up 60% first the previous season. This was followed by the MTV Video Music Awards, which attracted its biggest audience in four years on Linear.

And on Social, it broke records as the number one most social entertainment telecast in television history, besting all entertainment and sports. And on the Daily Show, the return of Jon Stewart continues to pay off, having won our second Primetime Emmy in a row and Monday night with Jonathan Helm, the Daily Show remains the number one late night show across Linear and Social.

And it's working hard for us on Paramount+ with engagement up 10x. And John's not going anywhere. As we just announced he's extended a stay through 2025. And to continue our momentum this Sunday, Yellowstone, one of the most eagerly anticipated shows of the year, will return on the Paramount Network in the U.S. and internationally on Paramount+, where it's been the number one star driver and the number one engagement driver for the full year to date.

And now I'll turn it over to George to walk us through CBS Entertainment, Sports and News.

George Cheeks

For CBS, fall means football and the launch of our new primetime schedule. The network's coming off a record setting '23. '24 NFL season, as well as a top rated primetime schedule that includes the return of last year's number one show.

In the first five weeks of the season, the NFL on CBS is averaging more than 20 million viewers. That's up 5% from last year. And streaming of the games on Paramount+ is up over 50% year-over-year.

CBS Primetime, which just launched its new season, is off to a great start. Tracker is once again the most watched series on TV. Matlock is the number one new show. And Georgie and Mandy, a spin-off of Young Sheldon is the most watched comedy. And our shows are winning across platforms.

Matlock's first episode reached more than 22 million viewers in its first 30 days. Tracker's season 2 premiere delivered over 15 million multiplatform viewers in just its first seven days. That's up 25% from its time period premiere last year.

Now turning to news, the total minutes watched on Our CBS News 24x7 streaming network continues to grow, up 56% over 2023 and up 78% versus third quarter last year. We expanded and rebranded the platform with more live programming and the increased presence of key CBS News talent.

All of this speaks to the collective power of broadcast and streaming working together to aggregate more unduplicated viewership while optimizing the value and efficiency of our content investments. Our programming strategy remains laser focused on entertainment, news and sports that excel on both CBS and Paramount+.

Over to you Brian.

Brian Robbins

On the Paramount Picture's front, at the end of the second quarter, A Quiet Place day one opened to nearly 100 million worldwide and set the franchise record for the biggest opening at the global box office.

To-date, the film has grossed $261 million worldwide. Transformers One also debuted as the first animated Transformers film in nearly four decades, grossing $127 million at the global box office to-date. And most recently, the October release of Smile 2 from home grown talent, Parker Finn, saw a record breaking global premiere out earning its predecessor's debut weekend.

It also makes Smile 2, Paramount's fourth number one opening this year after Mean Girls, Bob Marley: One Love, and if. We're confident that the rest of Q4 will build on this momentum.

Thanks to an impressive roster of upcoming releases, including Next up, Ridley Scott's, Gladiator II, one of the most anticipated films of the year with a phenomenal cast including Paul Mescal and Academy Award winner Denzel Washington.

Early tracking and first reactions are generating optimism and excitement for the movies release and award season prospects. Now, rounding out our diverse slate, we're excited to be bringing audiences the journalistic thriller September 5, which has been on the festival circuit generating awards buzz also the third instalment of fan favorite, Sonic the Hedgehog, with Jim Carrey and the original cast reprising their roles.

And then Better Man from the director of The Greatest Showman, Michael Gracie, and based on the life and music of Robbie Williams. And looking ahead to 2025, we have a fantastic, robust line-up with something for everyone.

That includes an Eighth Mission Impossible, the reboot of the Naked Gun franchise, starring Liam Neeson, new instalments of beloved animated franchises like Smurfs and SpongeBob, which is celebrating its 25th anniversary and running man from Director, Edgar Wright and starring Glen Powell, to name just a few.

Taken together, all of our content reinforces that we have so much to be excited about in this period of evolution and transformation for our business and the industry. It is what continues to create value for our partners, investors and the broader media landscape both now and well into the future.

With that, let me turn it over to Naveen for more detail on our Q3 financials. We'll then look forward to taking your question.

Naveen Chopra

Thank you, Brian. Good morning everyone.

Q3 demonstrated the progress we've made in transforming Paramount for the future. We delivered adjusted OIBDA of $858 million in the quarter, up 20% year-over-year, reflecting significant improvement in our D2C business, which continues to deliver healthy top line growth and improved operating leverage.

As always, you'll find a comprehensive review of financial results in our press release. For today's call, I'll focus on a few areas of note, starting with advertising. Total company advertising grew 2% powered by direct-to-consumer which delivered strong growth of 18%, an acceleration versus the 16% growth we saw in Q2.

D2C advertising growth was driven by a double digit increase in sold impressions and higher CPMs, and these trends have continued in Q4 where we expect another quarter of double digit D2C advertising growth.

In TV Media, advertising revenue declined 2%, an improvement versus last quarter, reflecting the return of football and higher political spend. Similar to last quarter, international advertising benefited from the recognition of revenue that was underreported by an international sales partner in prior periods.

Looking ahead, we expect TV Media advertising growth in Q4 to be similar to the reported growth rate in Q3 and Q4 growth will benefit from record political spend, but we'll also have less sports inventory compared to the prior year.

Our forecast for Q4 does not assume any additional revenue true-ups from third-party under reporting. Next, let me turn to affiliate and subscription revenue, which declined 1% in Q3. Now, as a reminder, last year's third quarter included Showtime pay-per-view events that did not recur this year as we exited Showtime Sports at the end of 2023.

This comparison reduced the Q3 growth rate by 270 basis points. Absent the impact of Showtime pay-per-view, affiliate and subscription revenue increased 1%, with growth in direct-to-consumer more than offsetting declines in linear.

In the TV Media segment, affiliate revenue declined 6.6% year-over-year, reflecting ecosystem trends and the Showtime pay-per-view headwind I just mentioned. D2C subscription revenue grew 6.8% in the quarter, with Paramount+ subscription revenue up 27% year-over-year.

Paramount+ added 3.5 million subscribers in the quarter, reaching 72 million subscribers overall. Subscriber trends benefited from the expansion of an international hard bundle deal and the return of NFL and college football, new originals and theatrical releases.

And in Q4, we expect continued subscriber growth at Paramount+ driven by a strong slate of originals and the CBS fall schedule. Unlike Q3, we do not expect to add new hard bundle partnerships in Q4.

Global ARPU for Paramount+ grew 11% in the quarter. ARPU growth was tempered by the lapping of last year's price increase and a greater than expected shift in the mix of our subscriber base toward our Essential tier and hard bundle subscribers.

Additionally, the price change we announced in August of 2024 will take some time to be reflected in ARPU due to the grandfathering of existing Essential tier subscribers, and these dynamics will continue to influence ARPU growth in Q4.

The combination of continued healthy revenue growth and expense discipline in Q3 helped deliver our second consecutive quarter of D2C profitability. In Q4, we expect continued top line growth. However, the timing of content and marketing spend will result in a quarterly loss for the D2C segment.

That said, we liked the trajectory of the business over the last few quarters and believe we're well-positioned to reach Paramount+ domestic profitability in 2025. Next, I'll touch on licensing.

Licensing and other revenue declined 9% in the quarter, primarily reflecting a lower volume of licensing in the secondary market and lower home entertainment revenues. Now, as I've previously noted, licensing revenue can be fairly uneven from quarter-to-quarter and for the full year 2024, we expect licensing revenue to decline relative to 2023.

More than half the year-over-year decline will come from made for third-party productions and these productions are strategically valuable. But the scale of our business has been impacted by the decision to steer more content to internal platforms.

A smaller part of the year-over-year decline in licensing is related to our second run and library licensing activity, partially reflecting lingering strike impact on the business. Even though we'll benefit from the return of the CBS fall slate in Q4, it will take longer than expected to return to our pre-strike level of output.

Turning to the balance sheet. In Q3 we delivered $214 million of free cash flow and reduced leverage to 3.8 time. Free cash flow in Q4 will be negative given the timing of content spending and the headwind of approximately $150 million of cash restructuring payments.

However, this shouldn't negatively impact leverage as we expect to receive nearly 500 million of proceeds from the Viacom18 transaction which is expected to close this quarter. Putting it all together, we remain on track to achieve our key financial goals for 2024.

That includes significant growth in total company OIBDA enabled by the progress in D2C profitability you've seen over the last few quarters and the execution of cost savings initiatives across the company. Similarly, our expectations for full year free cash flow growth remain unchanged.

Overall, I think 2024 will demonstrate meaningful progress in the ongoing transition of Paramount encompassing streaming growth, enhanced cost efficiency and of course, continued investment in our renowned content portfolio.

With that operator, please open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead.

Ben Swinburne

Good morning. Brian, you talked about being deliberate. Given the complexity around direct-to-consumer and partnerships, I'm just wondering if you could talk a little bit more now that you guys have been working on it, as to sort of what you're solving for. What are the key variables you're looking for? What would lead the company to kind of pull the trigger on either a partnership or a change in how you're kind of working internationally? I think that's been kind of one of your focus areas in streaming.

And then, Naveen, it's been -- I think almost a year since you talked about domestic streaming profitability next year. Given the progress we've seen this year and the cost action you've taken, how far away are you from overall D2C profitability? Any way to kind of update us and dimensionalize sort of the international versus domestic D2C situation as we look at '25 would be helpful? Thank you guys.

Chris McCarthy

Hi Ben, how you doing? This is Chris. I'll take your first part of your question, and then I'll pass to Naveen for the second part of that. First, let me start by saying that we're very proud of the success that we've had with Paramount+ this quarter saw revenue growth up 27%. It's our second quarter of profitability, and for 2025 we're on track for full year domestic profitability.

So, we feel good about our position, and our ability to remain a standalone. Now, that being said, you can absolutely count on us to be opportunistic. We're looking at partnerships from a strategic lens to drive more value. And you can be sure that in deciding that, we'll take key factors into consideration, but the ultimate value will be is this going to drive increased value for our business today, our consumers and our investors.

But as it stands today, we have our momentum driven by our strategy, our execution and driven by our hit content. And so we feel good about our position as a standalone and we'll continue to look for opportunities. Naveen?

Naveen Chopra

Great. Thanks, Chris. And hi Ben, with regard to your question on D2C profitability in '25, as you said, we've made tremendous progress this year. Chris mentioned some of the stats. I think it's fair to say that progress has been really multidimensional between subscriber growth, improvements in ARPU, strong digital advertising growth, and by the way, some real efficiency improvements on the marketing side of the equation.

So, I think we're well set up for 2025. And as you heard us say, we do continue to expect the business to get to domestic profitability next year. In terms of how that translates to the segment as a whole, I'd note a few things. First, domestic we do expect to be profitable next year. Pluto is already a profitable business. And so the real variable is what the P&L for the Paramount+ international business looks like.

And I've generally described that as tracking somewhere in the sort of 12 to 18 months behind the domestic business. Just given the relative maturity and the timing of when we launched internationally versus domestic. And I think that's still the right way, to think about the business as a whole. And obviously we'll keep you updated on progress, as we continue to move down that path.

Jaime Morris

Thanks, Ben. Operator next question.

Operator

The next question goes to Bryan Kraft of Deutsche Bank. Brian, please go ahead.

Bryan Kraft

Oh, thanks. Good morning. I guess the last answer, Naveen, was a good segue to my question, which was you've been making various moves in international markets, but I think you've also been reviewing the strategy on a market-by-market basis. So I wanted to ask if at this point there is a clear path forward yet for Paramount+ in international markets. And if so, if you could talk about what that looks like, and how it's differed from the approach up until now. And then just a housekeeping question Naveen, and sorry if I missed it, but would you be able to quantify for us, the impact of the revenue for prior period international ad sales, under that partner under reporting? Thank you.

Chris McCarthy

Hey Bryan, how you're doing? This is Chris. Listen, let me start by saying we think it is very important to globally monetize our content in the widest possible basis, and our success to date really proves that out. Now we're taking a market-to-market approach when we're looking through the lens, of how do we drive the most value. In some cases that'll be an owned and operated situation, where we control.

In other cases it'll be a hard bundle with a market leader, and in other cases it may make more sense for us to really go in a licensing model. But you can rest assured our goal here is to maximize the value for our hit content, and look at all opportunities very opportunistically through that lens. And now I'll pass to Naveen for the second half of that.

Naveen Chopra

Yes, Bryan, with respect to your question on the size of the underreported revenue in Q3, it is a relatively important factor in the year-over-year trend for international advertising similar in magnitude to Q2. Actually a little larger in magnitude in Q3 versus Q2. It's - I'd size it in the call it plus or minus $50 million range. And importantly, as I said in our prepared remarks, our forecast for next quarter assumes that there is no further true-up required, due to the under-reporting.

Jaime Morris

Thanks Bryan. Operator, next question please.

Operator

The next question goes to Rich Greenfield of LightShed Partners. Rich, please go ahead.

Rich Greenfield

Hi, thanks for taking the question. I've got a couple. First on Nielsen I think you dropped. I think it's been now over a month, maybe it's been five weeks. I think the last time you had an impasse it was only like 14 or 15 days. I think there's been a lot of speculation in the market that you've saved, or that you're in the run rate savings are hundreds of millions of dollars on the cost side. But on the other side I want to understand, what's happening in terms of not being able to sell advertising against Nielsen data. Have you seen any material impact in Q4 from not having Nielsen data and I guess related to any top advertisers that have left, CBS or your cable networks, because you can't sell against Nielsen and I think you're using VideoAmp. And then just maybe a housekeeping question for Chris or George, I guess on the TV media side of the equation, I think everyone's trying to understand sort of the potential of cost cutting longer term. Could you just give us a sense in TV media today, how many employees roughly do you still have in that division after all of the cost cuts that you've done to date? Thanks.

George Cheeks

Hi, Rich, it's George. I'll take this. So starting with Nielsen, I want to level set. This really is not about affordability. It's about getting the value we need for what we pay. And I think it's important to consider all of this in the context of the media industry. I mean, as we all know, linear audiences, especially basic cable linear, are declining and shifting to streaming.

This, of course, is going to affect how we look at the appropriate spend here. I mean, for example, we wouldn't want the Nielsen fee for certain networks to be greater than the ad revenue those networks actually generate. Now, as to your point on impact, we haven't seen any adverse impact on ad revenue to-date, and we don't expect a material impact in Q4. But I do want to be clear, Rich, that we do recognize that Nielsen can be a valuable resource.

It's just that the economics have to make sense for the business. Now as to your second question [technical difficulty] setting right now, the number is about 6,000-plus in domestic and about 3,000-plus, now you have to remember that, that [technical difficulty] big sports production infrastructure and our 27 local stations, which obviously require a lot of employees as well. But as Chris mentioned before, we're [technical difficulty].

Jaime Morris

Is there a second question about TV media?

George Cheeks

Just answered it.

Jaime Morris

Oh, I'm sorry. Operator, next question, please.

Operator

The next question goes to Steven Cahall of Wells Fargo. Steven, please go ahead.

Steven Cahall

Thank you. So another one on streaming, the S-4 indicated that one of the parties might have been interested in a combination or even licensing Paramount Plus. And you know, you've done bundles. We've seen a lot of bundles in the industry. I don't think we've actually seen any app integration or streaming integration deals. So I'm wondering how you think about that. One of your peers also has a streaming product that has a lot of sports, has a good film library. Seems like very strong customer overlap. So how do you think about the opportunities in streaming to go beyond just bundle deals, and into something that's a little bit deeper from a consumer perspective? And then, Naveen just an accounting question. What's the method for allocating content costs like sports and series between D2C and TV media when the air on both. You're growing revenue and subscribers so strongly at Paramount+ and you've given the domestic profitability guidance. So just wondering if there's a way for us to think about how content expense grows there, since it's shared between the two segments? Thank you.

Chris McCarthy

Hi Steve, it's Chris. I'll take the first part of that question, and then I'll pass to Naveen. As we talked about, we are seeing real momentum at Paramount plus and across Pluto. We've got great growth, second quarter profitability and on track in '25. So we feel really good about the position and frankly our ability to remain as a standalone. Now you talk about bundles and we've got some great partnerships and great bundles in the way of Walmart and with Delta Airlines.

Now these are ones that are very specific that add incremental value to us. They bring new consumers, and really enhance the value proposition from a total business perspective for us. Now that being said, you can always count on us to be strategically looking through the lens of creating value. Now, part of that exercise is really to be opportunistic, about both looking at things from a market-to market-perspective and from a broader partnership perspective.

And in doing that, we ask ourselves, is this the right market, or is there something better that we can get and something more value? And you can count on us to continue to do that. But as of today, there's no change. We feel great about where we are, and we feel really strong about the position moving forward. Naveen?

Naveen Chopra

Thanks, Chris. Steve, the question regarding how we allocate the cost of content that is shared between our streaming business and our traditional linear businesses. I think there's a couple of important concepts to understand. Number one, it does differ somewhat based on the type of content, but it's all based on the principle that the allocations of that cost should reflect the relative value of the content windows that, each of the platforms has rights to.

So what that means is that effectively, as more of the viewership moves to streaming, you will see more of the cost being allocated to streaming, and moving away from linear. And that's certainly been reflected in the way that we do that allocation for sports, for movies, library and the like.

Jaime Morris

Thanks, Steve. Operator next question.

Operator

The next question goes to Michael Morris of Guggenheim. Michael, please go ahead.

Michael Morris

Thank you. Good morning and thanks for all the answers. I wanted to ask first about the DTC trends, and specifically you said you were pleased with the response so far from Charter customers. Hoping you can share a little bit more detail on whether the third quarter results reflected the full impact from that Charter partnership at both TV and at DTC. And anything you can share about customer activation, and any churn from Charter subs who are already Paramount+ subs, those types of things. I'd love to hear any additional detail you can share. And then secondly, it was a very strong EBITDA quarter growing 20% year-over-year. Kind of begs the question whether we should expect any incremental cost in 4Q, to maybe offset the strength that you had in the third quarter, or whether this outperformance kind of flows through to the full year? Thank you guys.

Naveen Chopra

Yes, hi Mike, it's Naveen. I'll take both of those, starting with the question on third quarter sub growth, and specifically the impact of Charter. So just zooming out a little bit of the 3.5 million subs that we added in the quarter, I'd note that there's contribution from both international and domestic. As I noted in prepared remarks, International did have a new hard bundle that we signed, so that was an important contributor.

And on the domestic side, we did see some sub growth coming out of the Charter bundle, though I would note that it's still relatively early, in terms of time since the launch of that bundle. And I expect the contribution will continue to grow over time. That being said, when we look at the first few months if you will, we're actually quite pleased with the results both in terms of the take up from Charter subs, and the impact on direct sub acquisition, so we continue to like the trends there.

Then moving to your second question on fourth quarter, and how that is impacted by some of the - over performance in the third quarter. Let me give you sort of a big picture answer on that too. If you think about the third quarter, the over-performance was really driven by the DTC segment, which came in better than we expected. As I mentioned earlier, that's multidimensional.

But in particular we saw some real strength in marketing efficiency that we were able to realize in the quarter. I would say that the restructuring work had a relatively modest impact in Q3, just given the timing of when those actions were taken. More of that benefit is going to be realized in Q4. So then if you think about Q4 specifically, there are some moving pieces that are probably worth calling out.

First, some of the tailwinds we will see more of that restructuring benefit that I mentioned. There will also be, as you would anticipate, some real strength in political advertising that will benefit Q4, and Q4 tends to be relative to the first three quarters of the year, the strongest quarter for advertising generally. And so, I think that will benefit us relative to Q3.

There are a couple of headwinds to keep in mind. We will have higher content expenses in Q4 than we did in Q3, just given the timing of sports and some of the streaming originals. And as I mentioned, we do not expect to have any incremental true-ups for past period under reporting on those third-party advertising partnerships. And then, there is some shift of marketing expense from Q3 into Q4.

But when you put all of that together, I think the key takeaways for you should be that number one, the vast majority of the over performance that we saw in Q3, I do expect to flow through to the full year. And number two, I think we're really well set up for 2025, particularly given the progress in D2C and the significant improvements that we've made in profitability for that part of the business.

Jaime Morris

Thanks, Mike. Operator, we'll take one last question please.

Operator

Thank you. The last question goes to Michael Ng of Goldman Sachs. Michael, please go ahead.

Michael Ng

Hi, good morning. Thank you for squeezing me in. I wanted to just follow-up on the last question around DTC efficiencies. Naveen, you talked about the marketing efficiencies. I was wondering if you could just expand on that a little bit in DTC, because obviously DTC, FX was an area of positive surprise. And then relatedly, I was wondering if any of the programming charges taken earlier in the year, had any potential benefit to cost amortization for DTC in the quarter as well? Thank you.

Naveen Chopra

Yes, sure. Hi Mike. I'll take both of those. The DTC improvement that we saw as I mentioned, did benefit from marketing efficiency. But there's kind of a bigger story behind that, which relates to the composition of our subscriber base. We've talked about for some time now the importance of having a diverse subscriber base that, spans multiple channels.

The direct channel partner-based distribution on platforms like Amazon, Roku, Apple hard bundles both domestically and internationally, commercial bundles like what we have with Walmart+. And when you have that sort of go-to-market approach, there are some real benefits with respect to acquisition costs and churn. And I think we're starting to see those fall into the P&L of the business.

Which is why I called out the marketing efficiencies that is enabled, by the fact that we have these channels where we're able to acquire and keep subscribers very, very efficiently, and that's really flowing through to the bottom line. And then, with respect to your second question regarding programming charges, yes that does obviously have some amort benefit in future periods.

But I think we're really focused on driving the top line growth, continued sub growth, ARPU growth, and capturing these improvements in marketing, and churn reduction as a way of continuing to drive the business toward profitability.

Brian Robbins

Thanks Naveen, this is Brian and on behalf of my fellow Co-CEOs, we'd like to thank you all for joining the call today. We had another very strong quarter with continued strength in streaming, improving momentum in advertising, and meaningful progress in making the business more efficient.

All of which sets us up well for the future. All at the same time while we've been doing what we do best, which is making some of the biggest and broadest hit TV series, and blockbuster films. Thanks to our tremendously talented teams and creative partners. We look forward to updating you all on our progress again soon. Thank you and have a great day.

Operator

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

###

From Deadline:

Paramount Global Adds 3.5 Million Streaming Subs In Q3 But Revenues Fall 6% As TV & Film Dip

Paramount Global posted mixed third quarter financial numbers as its TV and film divisions dipped, but bosses are pointing to solid subscription growth and profits at Paramount+ and cost reductions as signs their plan is “working.”

Revenues for Q3 were $6.73 billion, down 6% year-on-year, but adjusted earnings per share were up 63% at 49 cents, outperforming expectations. Wall Street analysts’ consensus forecast had called for earnings of 24 cents a share, down from 30 cents in the year-ago period, with revenue declining to $6.95 billion from $7.13 billion. Adjusted OIBDA was up 20% at $858 million.

Adding the DTC boost to operational changes that will reduce costs by $500 million annually, Paramount said “meaningful progress” was being made.

It was a different story in other parts of the business, with revenue for the TV segment at $4.3 billion, down 6% from 2023. The drop was attributed to lower affiliate revenue and fluctuations in licensing turnover. TV advertising dropped 2%, with political adverting in the run up to Donald Trump’s re-election partially offsetting losses elsewhere. Additionally, recognition of revenue unreported by an international sales partner helped push the numbers in the right direction. Paramount also noted TV media licensing had dropped due to lower volumes in the secondary market. Adjusted earnings decreased 19% to $939 million.

Filmed entertainment revenues fell 34% to $590 million, with theatrical down 71%. Box office successes during the quarter included A Quiet Place: Day One and Transformers One. However, adjusted earnings increased by $52 million versus Q3 2023 when impact of the strikes was kicking in. “Lower revenue from home entertainment and the licensing of film library titles were partially offset by higher studio facility revenue compared to last year, which was impacted by the labor strikes,” said Paramount.

“Our hit content drove strong performance in Q3 where Paramount+ added 3.5 million new subscribers, solidifying our position as the number four global SVOD service,” said Paramount Co-CEOs George Cheeks, Chris McCarthy and Brian Robbins in a statement. “Our DTC segment successfully delivered profitability for the second quarter in a row, improving by more than $1 billion over the past four quarters, and, across the company, we continue to successfully execute non-content cost reductions that will result in $500 million in annual run rate savings. With two very strong quarters under our belt, it’s evident that we have clear momentum and that our plan is working thanks to our very talented teams and creative partners.”

The quarterly results are likely to be some of the last financials to emerge from Paramount Global in its current structure. Last summer, it reached a merger agreement with Skydance Media that will see the David Ellison-led company invest $8 billion in a two-step deal. After acquiring Paramount controlling shareholder National Amusements, Skydance will then merge with Paramount. Regulators are reviewing the combination, with the parties expecting to be able to close it during the first half of 2025. “Until then, Paramount continues to operate in the normal course of business,” the company said today.

As the merger winds its way to completion, following a protracted, months-long bidding process involving multiple suitors, cutbacks have been a constant theme. Paramount confirmed in August it planned to cut 15% of its U.S. workforce by the end of 2024. The staff reductions had first been signaled officially in June, when the three occupants of Paramount’s Office of the CEO, George Cheeks, Chris McCarthy and Brian Robbins, announced they had identified $500 million in annualized cost savings. Weeks later, Skydance said it was eyeing $2 billion in cost savings from the merger.

Along with Warner Bros. Discovery, Paramount also took a sizable write down on the value of its cable networks over the summer, booking the $6 billion transaction as it reported second-quarter results. Linear cable assets have been acknowledged to be the main headache for traditional media companies. Comcast said last week it was exploring the possible spinoff of its cable networks into a separate company in order to limit exposure to the rapidly declining asset, which has been ravaged by cord-cutting.

Paramount’s full-year revenue to date is $21.23 billion, down 4% in the $22.01 billion posted in the first nine months of 2023. Though TV and filmed entertainment turnover is down bay 7% and 19% respectively, DTC has grown 15% to $5.62 billion. Operating loss is at $5.4 billion, but this includes a $6 billion goodwill impairment on in its cable networks from the second quarter.

###

From Variety:

Paramount Global Adds 3.5 Million Streaming Subscribers in Q3 Bruised by TV, Movie Declines

Paramount Global added 3.5 million new Paramount+ subscribers in its third quarter, but those gains failed to offset meaningful declines in its larger TV and film businesses.

The owner of the CBS broadcast network, the Paramount movie studio and cable networks Comedy Central said third-quarter revenue fell 6% to $6.73 billion from $7.13 billion in the year earlier period, crimped by a 6% decline in revenue from its TV properties and a 34% decline in its movie businesses. Revenue for the company’s direct-to-consumer operations rose 10%.

Paramount reported earnings of $1 million, or 0 cents per share, compared with profit of $295 million, or 43 cents a share, in the year-earlier period. Earnings came to 49 cents a share when one-time items were removed. The company reported a charge of $104 million in the quarter tied to impairment of the value of its FCC licenses — part of a process of examining asset value that has been done a few times this year — and a charge of $321 million tied to severance related to layoffs and the exit of former CEO Bob Bakish.

Like its rivals, Paramount is struggling to move forward in an era when more of the consumers who once gathered regularly to watch TV mainstays like “CBS Evening News” and “The Daily Show” at specific times and days have moved to streaming venues, where they watch their video favorites at times of their own choosing. Despite a library of popular content, Paramount is saddled with an array of entertainment-focused cable networks such as MTV and TV Land that have seen their pull on the viewing public diminish over time.

The company has in recent weeks worked to cut $500 million from its operations as it awaits a merger with Skydance Media, a production entity led by executive David Ellison. Executives there have articulated a plan to make further cuts once the deal is consummated, and Paramount on Friday reiterated that it expected the transaction to close in the first half of 2025, and said it had made 90% of the cuts that would take it to its budget goals. The rest are expected to be made by the end of the year.

“Our DTC segment successfully delivered profitability for the second quarter in a row, improving by more than $1 billion over the past four quarters, and, across the company, we continue to successfully execute non-content cost reductions that will result in $500 million in annual run rate savings,” said the company’s three CEOs, George Cheeks, Chris McCarthy and Brian Robbins.

Revenue at the company’s biggest unit, its TV business, fell 6% to $4.3 billion, as fees it collects from cable and satellite distributors fell 7%, owing to subscriber declines and the absence of pay-per-view boxing events once put on by the company’s Showtime. Advertising revenue fell 2%, despite upticks in political advertising tied to the recent 2024 presidential election.

Revenue at Paramount’s film businesses fell 34% to $590 million, with theatrical revenue off by 71%. The company attributed the decline to comparisons with the year-earlier quarter and the timing and number of release in each period.

The company’s direct to consumer operations saw ad revenue rise 18%, while subscription revenue increased 7% due to robust activity at Paramount+. As of the end of September, Paramount+ had 72 million subscribers following the pickup of 3.5 million in the quarter.

More to come….

###

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Originally published: November 08, 2024.


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