Paramount+ adds 4.6M global subs in Q3, expects to raise prices

Paramount Global on Wednesday reported growth across its direct-to-consumer streaming business, which executives attributed to its strong content slate even as the company faced some impacts from a challenged advertising market.  

In the third quarter Paramount+ added 4.6 million subscribers globally, with a base that now stands at 46 million. That includes removing 1.9 million Paramount+ subscribers in the period, as SkyShowtime replaced the service when it launched in the Nordics in September. In Q3 monthly active users for its free ad-supported streaming TV service (FAST) Pluto TV rose to around 72 million, up from around 69.6 million in June quarter. Including Showtime OTT and all other streaming services, Paramount has a total direct-to-consumer streaming subscriber base of about 66.5 million.

Paramount now expects to exceed its year-end DTC global subscriber target of 75 million subscribers, while continued macroeconomic weakness in the ad market will affect Q4 TV media and DTC OBIDA.

Speaking on the company’s earnings call Wednesday Paramount President and CEO Bob Bakish pointed to the company’s content engine, with a mix of broadcast, cable networks, SVOD, FAST and Hollywood studio Paramount Pictures platforms, alongside a global footprint as helping to fuel reach. Still, he did note impacts from an uncertain macroenvironment.

“This is a complex environment and economic period, and our results for the quarter do reflect the macroeconomic headwinds that are affecting our industry. For us however, managing through near-term volatility does not mean radically diverging from the strategy that is producing real momentum and positioning Paramount to win in the long run,” Bakish said.

Gains in subscribers drove direct-to-consumer revenue up 38% year over year to $1.2 billion. That includes subscription revenue of $863 million, up 59% from the year ago period, propelled by paid Paramount+ subscribers (Paramount+ revenue was up 95% year over year). DTC advertising revenue increased 4% versus Q3 2021 to $363 million, with some impact from the macroeconomic challenges.  DTC Adjusted OBIDA decreased 73% to a loss of $343 million, with Paramount citing investments in content, marketing and international expansion.

During the quarter Paramount+’s Essential plan started to be included with Walmart+ membership through an opt-in as part of a deal with the retail giant, and Bakish said early results have been “very encouraging” and exceeded early objectives in terms of number of subs that have joined through Walmart+.

He expects the partnership to grow as marketing ramps, including an in-store presence for more than 100 million retail customers that go through U.S. Walmarts each week. Partnerships like that with Walmart are a key piece of Paramount’s strategy to have the largest possible addressable market, according to Bakish, adding it’s one that the company is using globally through Paramount+ launches.

In the U.K. it has a new multi-year distribution agreement with Virgin Media, under which Paramount+ will debut on Virgin TV in 2023 and Pluto TV will be more widely distributed.

Paramount CFO Naveen Chopra said bundled distribution partners such as Walmart+ and a launch in Italy as a hard bundle with partner Sky Italia were key drivers of subscriber growth in the quarter, alongside sports like the NFL and UEFA soccer, and movies.

Paramount is also looking forward to a strong fourth quarter for streaming content.

It’s when theatrical film releases of blockbuster “Top Gun: Maverick” and “Smile” (which premiered in theaters in September and now Paramount’s sixth #1 film in 2022) will hit the streaming service,  with the latter following the company’s 45-day theater-to-streaming release strategy. Bakish said the strategy provides a compelling return on investment and is “absolutely the right call” in general, with those two titles specifically benefiting both financially and from a marketing franchise building perspective from theater-to-streaming model.  The fourth quarter will also see the debut of “1923” the origin story for hit series “Yellowstone” – which itself is returning for a fifth season in Q4 on broadcast - as well as a reboot of popular crime drama series “Criminal Minds.”

Paramount sees the lineup as poised to entice more and more subscribers to Paramount+ in the coming months.

And the idea is that advertisers also follow popular content.

“They [advertisers] want to be where the top hits are, and even more so in complex economic times,” Bakish said. “And our combination of the number one broadcast network, rapidly growing streaming service and the number one ad-supported streaming TV service offer reach and a value proposition that no one can match” as what matters most to advertisers is the product on the screen.

Increasing price to drive ARPU

As the company gains subscribers, it’s also looking to boost ARPU and increase ad monetization.

Chopra noted price hikes to Paramount+ will be coming, and said the company expects streaming to be accretive to average revenue per user (ARPU) over time.

“In fact, streaming ARPU already exceeds linear ARPU in some international markets. For example, in the UK P+ ARPU in the current quarter is over 20% higher than our UK linear pay TV ARPU, and our total reach has grown relative to the linear world,” he noted.

In the U.S. he said there’s already streaming services in the market with ARPU comparable or higher to the monthly revenue Paramount generates per linear households – levels Chopra said Paramount+ will achieve over time as the result of price increases and continued growth and engagement for advertising monetization.

Paramount+ ARPU was up year over year in the quarter, as the service benefited from a “dramatic increase” in international ARPU as the subscriber base expands. Chopra also pointed to “robust impression growth,” improving CPMs and consistently high sell-through rates on the advertising side.

On the subscription pricing side, he said Paramount definitely sees opportunities to increase price on Paramount+, “and you will see us do that in the future” without disclosing exact figures or timing.

Paramount+’s Essential plan with limited commercials is currently available for $4.99 per month, while its premium ad-free version is $9.99 per month. Others have raised prices, including Disney+ - which bumped the price of its ad-free tier to $10.99 per month as in intros an ad-supported plan in December that’s priced at $7.99 per month. Apple TV+  just raised its streaming subscription price in October to $6.99 per month, it’s first since debuting in 2019 at $4.99 per month.

He noted pricing is moving higher across the industry, “and we think that means we have room to increase price and ultimately drive ARPU while preserving our value position relative to others, and I think that’s true both in the U.S. and in key international markets.”

Chopra said the company will be smart as to the how and when price increases happen so they don’t impact subscriber churn, with plans to take advantage of Paramount’s dual-tier offerings, where the Essentials plan can still serve price conscious consumers.

Total company revenue grew 5% year over year in the quarter to $6.9 billion.  Affiliate and subscription revenue grew 8%, while licensing revenue declined 1% and advertising revenue was down 2%, partly impacted by FX and macroeconomic headwinds. TV Media revenue declined 5% to $4.94 billion, while Filmed Entertainment was up 48% to $783 million. Adjusted OBIDA was down 23% to $786 million.