Despite Headwinds in Legacy Media, Paramount Eyes Future Growth with Strategic Restructuring and a Pending Merger with Skydance Media
Paramount Global (PARA) witnessed a 6% surge in its stock during premarket trading on Friday, following a mixed bag of quarterly results. The company’s second-quarter earnings revealed a significant milestone: a profit in its streaming division for the first time, even as its linear TV business continues to grapple with substantial challenges.
Streaming Success Amidst Cable Woes
For the second quarter, Paramount’s direct-to-consumer (DTC) segment reported an operating income of $26 million, marking a remarkable $450 million improvement compared to the same period last year. This turnaround is particularly striking given the $286 million loss reported in the first quarter of 2024. The company’s streaming platform, Paramount+, played a pivotal role in this success, despite losing 2.8 million subscribers in the quarter, bringing the total to 68 million. The decline in subscriber numbers was attributed to the company’s planned exit from a bundled agreement in South Korea.
However, there was a silver lining: the global average revenue per user (ARPU) for Paramount+ increased by 26% year-over-year, driving a 46% revenue boost for the platform compared to the previous year. While the streaming division is still operating at a loss of $260 million for the first half of the year, Paramount remains optimistic about achieving domestic profitability for Paramount+ by 2025.
This success in streaming contrasts sharply with the struggles in Paramount’s traditional linear TV business. The company took a nearly $6 billion write-down on the value of its cable networks, reflecting the broader challenges facing legacy media companies in an era of accelerated cord-cutting. Linear advertising revenue dropped by 11% year-over-year, slightly worse than the 10% decline analysts had anticipated. This decline underscores the difficulties facing traditional media outlets as viewers increasingly shift towards streaming platforms.
Strategic Layoffs and Cost-Cutting Measures
In response to these challenges, Paramount announced plans to lay off 15% of its U.S. workforce in the coming weeks, with the process expected to be largely completed by the end of the year. This move is part of a broader strategy to streamline the organization and achieve at least $500 million in annualized cost savings.
The layoffs were announced during a conference call with investors, where Paramount’s co-CEOs, George Cheeks, Chris McCarthy, and Brian Robbins, emphasized the company’s commitment to transforming its streaming business to accelerate profitability, improving its balance sheet, and optimizing its asset mix. The company’s strategic plan includes not only cost-cutting measures but also potential strategic partnerships and joint ventures with competing streaming platforms to drive greater scale.
Financial Performance: Mixed Results
Overall, Paramount reported adjusted earnings of $0.54 per share for the second quarter, significantly exceeding the $0.13 per share expected by analysts and the $0.10 per share reported in the same quarter last year. However, the company’s revenue of $6.81 billion fell short of consensus expectations of $7.24 billion and represented an 11% decline compared to the $7.62 billion reported in the year-ago period.
The decline in revenue was driven by a double-digit decrease in linear ad revenue and an 18% drop in film division revenue. Paramount attributed the film division’s decline to the “timing of releases in the quarter” and tough comparisons to last year’s success with “Transformers: Rise of the Beasts.”
Skydance Merger on the Horizon
These results come as Paramount prepares for its anticipated merger with Skydance Media, a deal set to be completed in the third quarter of 2025. Skydance, which will be valued at $4.75 billion upon the deal’s completion, plans to inject $6 billion in cash into Paramount, with $1.5 billion earmarked for alleviating the company’s debt.
As part of the merger, Skydance CEO David Ellison is poised to become the chairman and CEO of the combined company, while former NBCUniversal executive Jeff Shell will serve as president. The new leadership team has already outlined a strategic vision for Paramount, including $2 billion in cost cuts, with $500 million already in progress.
The merger is expected to provide Paramount with the financial and strategic resources necessary to navigate the ongoing challenges in the media landscape. As the company continues to transition from its legacy businesses to a more digitally-focused future, investors appear cautiously optimistic, as evidenced by the stock’s recent rise.
Paramount Global’s second-quarter results highlight the company’s ongoing transformation amidst a rapidly changing media environment. While the challenges in its linear TV business are significant, the profitability in its streaming division and the upcoming Skydance merger offer a glimpse of a potentially brighter future. As Paramount continues to implement its strategic plan, the company is positioning itself to emerge stronger and more resilient in the face of industry disruption.
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