Paramount posts streaming revenue, engagement gains in Q2

Paramount Global in the second quarter marked direct-to-consumer revenue and subscriber gains but expects greater streaming losses before becoming profitable as investment is poised to peak in 2023.

In Q2 Paramount’s direct-to-consumer streaming business posted $1.66 billion in revenue, reflecting 40% year on year growth. OBIDA losses of $424 million, meanwhile, improved by $21 million, thanks to higher revenues offsetting incremental costs for growing Paramount+.      

On Monday’s earnings call, Paramount CEO Bob Bakish reiterated that 2023 will be peak streaming investment, and the company is on track to deliver significant total company earnings growth in 2024.

Paramount saw double digit percent increases for both subscription and advertising revenue within the DTC business, which includes the flagship Paramount+ SVOD (including a plan that now integrates Showtime), and the free ad-supported streaming TV service (FAST) Pluto TV.  Subscription revenue climbed 47% over the same period a year ago to $1.2 billion. Paramount didn’t have a blockbuster quarter for subscriber growth but did gain 700,000 subscribers in the three month period (modest compared to the 4.1million it gained in Q1), helping to drive the subscription revenue in the quarter alongside its first domestic price hike. The Paramount+ base now stands around 61 million.

DTC advertising revenue also grew, rising 21% year over year to $441 million on the back of subscriber and engagement gains, as well as improvements in direct programmatic buying activity.  As for engagement, global viewing hours on Paramount+ and Pluto TV jumped 35% compared to a year ago.

During the earnings call, executives commented on Paramount’s digital ad platform EyeQ, with a footprint that has more than 90 million full episode viewers domestically, and which it expects to generate revenue approaching $3 billion across the company this year.

In a note to investors Macquarie Equity Research analyst Tim Nollen said the rollout of Pluto TV now in over 35 international markets, as well as a planned wider launch of an ad tier of Paramount+ internationally should boost the company’s digital ad revenue, while also noting ARPU growth was positive in Q2 with expectations for a 20% bump in 2024. 

“While higher sporting costs in 2H’23 including stepped-up NFL rights and new Big 10 rights will likely further widen DTC losses this year, the company is working with its accumulated data to gain better content and marketing cost efficiency, and the P+/Showtime integration, completed in 2Q, brings ~$700m in annualized cost savings,” wrote Nollen in an August 8 note.

The launch of Paramount+ with Showtime in June was accompanied by a price bump to $11.99 per month and a $1 increase to $5.99 per month for its Essentials plan. In addition to consolidation cost savings and price hikes driving ARPU growth from the Showtime integration, Bakish said the move  creates a stronger product that’s more engaging with less churn.

To support that line of thinking, Bakish called out the earlier bundle of separate Paramount+ and Showtime apps that was offered in the market for the last year or so.

“Customer of that bundle consumed over 40% more titles. So we have clear predictive data that the integrated product will deliver enhanced consumer engagement in streaming and soon in linear,” Bakish commented.

On the sports front, in addition to Big Ten college football, in February Paramount will offer the NFL Super Bowl on CBS and Paramount+, and for the first time a kid-centric alternate telecast on Nickelodeon.

Multi-platform content strategy

Bakish also took time on the call to address the ongoing Hollywood writers and actors strike saying the company remains “hopeful for a timely resolution” and is committed to finding a path forward.

That said, the chief executive noted it needs to minimize disruptions to viewers and said it adjusted its CBS fall slate accordingly, while also highlighting plans to leveraging multi-platform assets and a multi-revenue stream strategy to monetize and market content.

Speaking to the multi-platform strategy Bakish called out the example of CBS, which while still the number one TV network, also accounted for nearly half of total minutes viewed on the Paramount+ SVOD.

“One of the most underappreciated contributions of CBS’ value to our company is its power in content licensing, both domestically and abroad,” he noted. “To put a finer point on it, CBS-produced content accounted for over $600 million in licensing revenue in the quarter. This is an incredible asset.”

Paramount is also leaning into streaming and strategic licensing to third-party platforms on both linear and streaming. According to Bakish, over the past 18 months, the top 20 engagement drivers on Paramount+ “also drove hundreds of millions of dollars in incremental third-party licensing revenue through windowing and secondary market exploitation.”

Overall Paramount saw total revenue decline 2% yoy to $7.6 billion, with adjusted OBIDA of $606 million.  It’s TV media segment saw revenues drop 2% over the prior year period, still contributing $5.2 billion in revenue. The media segment includes legacy CBS and Viacom networks such as MTV, VH1, BET, Comedy Central, Showtime and Nickelodeon. TV media revenues were impacted by a 10% drop in advertising from continued softness in the market. Affiliate and subscription revenue in the TV segment was down 2% while licensing and other revenue was up 17%. 

Paramount’s filmed entertainment business unit saw revenue decrease to $831 million, down 39% yoy, largely because of a difficult comparison to theatrical revenues from Top Gun: Maverick in Q2 2022.

“2Q results were incrementally better, but we think current challenges including continued weakness in the TV ad market and further worsening in DTC losses this year will remain overhangs on the stock,” concluded Macquarie’s Nollen.

Alongside Q2 earnings Paramount announced a planned $1.6 billion sale of book publisher Simon & Schuster to private-equity firm KKR,  with $1.3 billion in net proceeds that it will use to pay down debt.