Following a finalized agreement to merge Paramount with studio Skydance Media, incoming CEO David Ellison and other executives on Monday laid out a vision for the company’s streaming business, where it hopes to win with a strategy underpinned by content, tech, and an eagerness to bundle or partner.
To be sure, the agreement - which involves Skydance and its consortium including RedBird Capital investing up to $6 billion to merge with Paramount, after acquiring Shari Redstone-led controlling shareholder National Amusements Inc. as part of a two-step transaction - is still fresh and there is much about plans and strategy going forward that remains to be seen.
And comments on Monday’s call assume the deal closes (expected by the end of September 2025) and that no other higher bidders swoop in during the ongoing 45-day go-shop period.
That said, on the call for investors, management of the new Paramount (where Skydance founder and CEO Ellison is set to serve as CEO and former NBCU CEO Jeff Shell will be president) expressed a commitment to streaming and pegged an efficient growth path to profitability as a key aspect of Paramount’s business going forward. Up to this point, streaming units of Paramount+ and FAST service Pluto TV have not made up for declines in the legacy television business, where it counts assets like CBS and networks MTV, Comedy Central, Nickelodeon and BET, among others.
Ellison on the call said Skydance wants to pair its a pure play content company with Paramount’s storytelling expertise while also expanding Paramount into a “a tech hybrid” to support needs as the marketplace evolves. The deal brings together both Paramount and Skydance IP, with plans to expand across the latter’s animation, sports, interactive and technology business efforts. He said the strategic vision is both to double down on the core capability of storytelling but also expand Paramount’s technical skills to make the new Paramount both a media and technology enterprise.
There were a few key areas executive called out for the future direction of the streaming business including tech, content (with combined IP, more efficient windowing, licensing, and consumer product opportunities related to franchises), and partnerships and bundles.
In terms of content, incoming president Jeff Shell cited potential for more efficient windowing strategies that maximize the value of content, where there’s been some experimentation with when films and TV make their way to streaming platforms. Skydance is an independent studio that owns or co-owns all of its content and on average produces six feature films a year, including 10 TV series this year. It has already worked with Paramount to produce 30 feature films together, including on hits like Top Gun: Maverick, as well as other major streamers on hits like Star Trek Into Darkness, The Family Plan with Apple TV+, The Adam Project with Netflix, and TV series like Reacher on Prime Video, among several others.
On Monday executives said they intend to evaluate Paramount’s content, how it’s being monetized and where it should live. And the team isn’t drawing a hard line, expressing an openness to license “in a manner that’s profitable” as well as keep content for its own streaming platforms like Paramount+.
Ultimately, Shell said the goal across the business is to win, where “we want to make this company the leader in entertainment and that goes for DTC too.”
The ultimate bundle
And leading in DTC means evaluating all options, including teaming up with other players to offer services together.
“To be a winner in DTC really means being in the ultimate bundle that’s coming,” Shell said.
In a fragmented viewing landscape several streamers have been exploring bundling with competitors, both to help consumers who face a deluge of services alongside rising subscription prices and to bring potential business benefits like reduced churn, building up ad-supported tiers and lower subscriber acquisition costs. Some recent examples include plans for a Max, Disney+, Hulu bundle from Warner Bros. Discovery and Disney, as well as a recently launched Netflix, Peacock and Apple TV+ bundle offered by Comcast for $15 per month.
Exactly what an ultimate bundle for Paramount looks like remains to be seen but Shell cited “a bunch of inbound” regarding partnerships, which the company will evaluate and could involve working with one or more players.
Looking ahead, Shell expects to see a streaming environment that’s somewhat akin the traditional multi-channel pay TV world, where there will be multiple services and consumers favor particular brands but “want a one stop-shop with a nice EPG” and an easy tech-powered way to find content.
“And if you’re in that bundle, you’re going to win, and if you’re not in that bundle, you’re in real trouble,” Shell said.
Morningstar equity analysts still consider Paramount “a very high-risk firm” but are encouraged by management’s strategic outlook and Skydance assets that come with the deal.
Morningstar senior equity analyst Matthew Dolgin in a July 8 note to investors supported Shell’s stance that inclusion in an “ultimate bundle” is key to success, writing that the firm’s analysts “wholeheartedly agree with this viewpoint.”
“Skydance has had success in producing or co-producing several successful movies and television shows, and Skydance Sports and Skydance Animation, with their relationships with the National Football league and Netflix, respectively, are intriguing,” added Dolgin.
The firm also categorized the openness of Paramount’s would-be new management to both license and keep content for its own platform as wise.
Still, analysts at MoffettNathanson, in a July 9 note to investors, said that while the biggest question of who would buy Paramount and for how much has been answered, key strategic questions remain.
On the streaming front, the Wall Street firm questioned whether the streaming strategy and openness to partnerships means a preference for a joint venture set-up like a reported option with Peacock, launching new bundles, and/or securing licensing deals for sports and Paramount+ original content.
MoffettNathanson also questioned whether the new leadership team would consider Paramount joining the Disney-WBD-Fox Venu sports streaming JV or licensing CBS content to it. Analysts led by Michael Nathanson wrote that “the networks currently included the planned [Venu] service accounted for 61% of 2023 time viewed, but adding CBS would increase that number to 78%, a far more compelling offering.”
Combo of art and technology
As for tech plans, Ellison on Monday’s call said the intent is to rebuild the Paramount+ platform, where it believes technology expertise and its relationships can help expand the DTC business.
“We can improve our algorithmic [recommendation] engine to basically increase time spent on platform, reduce churn and drive lifetime value for all of our shareholders,” he contended. “We can optimize the ad tech and improve the buy side for transparency and audience reach.”
New Paramount also plans to unify cloud providers across all distribution services, which Ellison said will drive significant efficiencies. He pointed to existing work with Oracle on an animation initiative called Studio in the Cloud, where Skydance took work off-prem (previously thought to be too cost-prohibitive) for a recent Netflix project and was able to notably reduce costs and increase efficiencies. It’s an effort Skydance wants to scale across all production workflows, while also leaning on AI tools to boost creativity and fuel production efficiency.
“It really is that combination of art and technology that we believe is the cornerstone of this business and it’s going to be essential towards our future,” Ellison said.
Pressed by analysts on the call as to why technology improving technology on the Paramount+ platform is the right strategy and asked whether the new Paramount could consider exiting the DTC business, Ellison reiterated that “streaming is an incredibly important part of the business” and its future – one where it’s targeting efficient profitability and see best-in-class content and tech as pillars.
For tech, he emphasized the impact of recommendation algorithm engines and their ability to boost discovery and delivery of content and drive time spent, citing “significant efficiencies” that can happen at Paramount+ to create a better user experience, which will in turn reduce churn.
“We believe the combination of those two things [storytelling and technology] are essential to obviously continuing to build and scale Paramount+,” the executive commented.
On the tech front, Morningstar analysts “don’t yet see a tangible benefit from Skydance’s focus on technology.” However, “we see this feature as part of the fresh take from a younger team that has had creative success,” wrote Dolgin. “This is something from which we believe Paramount can benefit significantly.”