Paramount Global on Thursday detailed plans to raise prices on the Paramount+ streaming service when Showtime is integrated into the platform later this year.
The price of a Paramount+ Premium plan, which will include Showtime, will increase to $11.99 per month, up from the $9.99 price point today. Paramount+ Essentials, which won’t include Showtime, will bump up by $1 to a price of $5.99 per month. The new prices will go into effect to new and existing customers in the third quarter when the integrated Paramount+/Showtime offering launches.
Executives detailed the new pricing plan as the company reported fourth quarter earnings, putting specifics to comments in earlier quarters that prices would be rising. Users of Paramount+ Premium will have a greatly expanded content library with the addition of Showtime, they noted. In Q4 Paramount+ added 9.9 million new global subscribers, bringing it tally to 56 million. Total direct-to-consumer (DTC) subscribers climbed to more than 77 million. Paramount’s FAST Pluto TV grew monthly active users by 6.5 million in the quarter, driven by new markets and expansion into Canada, to end the quarter with78.5 million MAUs.
During the earnings call Paramount CEO Bob Bakish said the company is at peak investment for its direct-to-consumer streaming businesses in 2023 and is focused on profitability and revenue growth at scale. A combo of streaming investment and a soft ad market are expected to impact earnings and cash flow in 2023. In Q4 direct-to-consumer revenue was up 30% to $1.39 billion. DTC Adjusted OBIDA decreased $73 million year on year, reflecting investments in content and international expansion.
The company anticipates DTC losses to narrow significantly in 2024, with expectations for a return to earnings growth and positive free cash flow next year. Price increases in both the U.S. and select international markets is one way Paramount will drive DTC revenue growth, Bakish said. Partnerships and leaning into and building upon existing IP and franchises are two other elements he cited as contributing to revenue growth (such as one inked with Delta last year), as Paramount simultaneously works to efficiently manage content spend and reduce operational expenses as it looks to profitability.
In terms of price hikes Bakish noted that Paramount+ is far from an industry price leader currently, instead falling on the value end of the range.
Paramount already disclosed plans to merge its Showtime OTT product with Paramount+, and previously enabled users to access Showtime from within the Paramount+ platform. Integrating the two is a move that’s also expected to help deliver significant cost savings for both its TV media and DTC businesses, according to CFO Naveen Chopra.
During the earnings call, Chopra said the biggest benefit will be seen in reductions in content expense and related marketing. He also indicated that not all Showtime content will make its way onto Paramount+.
“Simply put, a single service requires less content to acquire and retain customers than two independent services,” the finance chief said. Chopra cited Paramount analysis that showed “an overwhelming majority of Showtime engagement” is driven by key franchises that make up less than half of Showtime’s content amortization expense.
“By extending and evolving these powerful Showtime franchises, and supplementing them with the breadth of content on Paramount+, we’re able to deliver a powerful consumer proposition in both linear and streaming formats, thereby preserving revenue while meaningfully reducing total content expense,” Chopra said.
Related to lowering its content expense, Paramount anticipates an impairment charge in Q1 estimated in the range of $1.3 billion-$1.5 billion as it realigns the content portfolio. Since there is some overlap in users of the Showtime OTT app and Paramount+, once they combine in Q3, total subscribers will decline. However, Chopra said it isn’t expected to negatively impact DTC revenue expectations. He noted on average, subscribers to Premium tier Paramount+ have higher ARPU and lower churn than Showtime OTT users.
“Our planned price increase for Paramount+ will further magnify benefit of migrating customers to a single service,” Chopra added.
Combining Showtime into Paramount+ also allows Paramount to reduce expenses for marketing, technology, and operations. Over time, and together with content expense reductions, integrating the two services is expected to deliver around $700 million in future annual expense savings.
And when it comes to managing content spend, Bakish said the biggest lever Paramount plans to focus on is franchises. Fan favorites come with higher levels of consumer awareness as well as built-in viewer bases, helping to drive subscriber gains, lower acquisition costs and lower churn, he noted.
“Franchises give the people what they want,” Bakish commented, pointing to CBS films and series, including those by Taylor Sheridan. “While we will of course continue to take selective swings on new IP, there’s no question that franchises are a powerful advantage.”
In Q4 affiliate and subscription revenue grew 8% year over year, including 48% growth in DTC subscription revenue growth.
Paramount also continued to feel impacts from weakness in the ad market in Q4, with a 5% decline in quarterly ad revenue, largely from international markets and FX impacts. Domestic advertising revenue declined 2%, although DTC advertising grew 4% thanks to strong consumption on both Paramount+ and Pluto TV.
Chopra said that the company expects DTC ad revenue growth to accelerate as the market improves and is encouraged by DTC engagement trends and “early signs of broader ad market stabilization.”
Paramount’s consolidated results missed Wall Street expectations, with total revenue of $8.13 billion, up 2% year over year. Free cash flow was negative $491 million. TV media revenues declined 7% to $5.88 billion. Operating income of $182 million in Q4 compares to $2.66 billion in the fourth quarter of 2021, a 93% year over year decline. Adjusted OBIDA of $614 million was up 10% from Q4 2021.