Paramount Global’s net loss widened to $5.4 billion during its second quarter of 2024 as the media giant recorded a goodwill impairment charge of $5.98 billion for its cable networks and announced it would cut 15% of its workforce as part of $500 million in cost cuts.
The impairment charge resulted primarily from a downward adjustment to the unit’s expected cash flows from linear TV affiliates. Paramount executives said it also related to the estimated total company market value indicated by the company’s pending $8 billion merger with David Ellison’s Skydance Media, which is expected to close in the third quarter of 2025.
The massive charge was the second linear TV-related write down this week by a major entertainment company after Warner Bros. Discovery took a $9.1 billion impairment charge on Wednesday. “It’s clearly the season for write-downs,” Third Bridge analyst Jamie Lumley said in a note on Thursday. “The writing is on the wall that the traditional TV ecosystem is facing an irreversible decline that can only be periodically slowed by major programming such as the Super Bowl.”
Paramount also took a charge of $15 million to reduce the carrying values of FCC licenses in two markets to their estimated fair values.
Nevertheless, Paramount shares jumped over 5% in after-hours trading on Thursday as the direct-to consumer-division swung to its first-ever streaming profit of $26 million, compared to a loss of $424 million in the year ago period.
Here are the top-line results:
Net Loss: $5.4 billion, compared to $299 million in the year ago period.
Adjusted Earnings Per Share: A loss of $8.12 per share, compared to earnings of 14 cents per share expected by analysts surveyed by Zacks Investment Research.
Revenue: $6.8 billion, down 11% year over year, compared to $7.21 billion expected by analysts surveyed by Zacks.
Subscribers: Lost 2.8 million subscribers during the quarter for a total of 68.4 million.
A strategic update
The latest quarterly results comes as Paramount co-CEOs Chris McCarthy, Brian Robbins and George Cheeks have embarked on a long-term strategic plan that includes $500 million in cost cuts, streaming partnerships and divesting assets.
During Thursday’s earnings call, McCarthy told analysts that Paramount would reduce its workforce by 15% with a focus on “redundant functions within marketing and communications” and reducing its headcount in finance, legal and technology.
“These actions will take place in the coming weeks and will largely be completed by the end of the year,” McCarthy said. “As you can imagine, these are difficult decisions to make. We have incredibly talented people at Paramount and these actions are not a reflection of their contributions. Rather, they are necessary to transform our organization for the future.”
The $500 million is part of $2 billion in planned cost cuts by Skydance associated with its merger. CFO Naveen Chopra noted that the company is working on a variety of other “significant” and “material” cost reduction plans, but declined to elaborate on specifics.
“They won’t all happen necessarily at the same point in time, and they go beyond headcount,” he said. “Most of the $500 million savings that you’ll see in the near term is headcount related, but we do think that there are opportunities to significantly reduce costs in other areas as well.”
In connection with the $500 million, Paramount expects to incur a restructuring charge of $300 million to $400 million in the third quarter, with a cash impact that will occur over the next several quarters.
At a town hall in June, the trio also revealed that bankers have been hired to help the company with asset sales. TheWrap exclusively reported that Paramount sold the ComicBook and PopCulture websites to Nashville-based Savage Ventures for an undisclosed amount. Four individuals familiar with the co-CEOs’ plans previously told TheWrap that other possible assets that could be put up for sale include Pluto TV, BET, VH1 and the Paramount lot, which would be leased back for the studio’s use.
“The set of assets that make up Paramount Global today were built up through the rise of linear and while we have strong brands and businesses, we must reshape our portfolio to best compete in the future,” McCarthy added. “The assets under consideration are undeniably strong with exciting futures ahead, but will be better served on their own or as a centerpiece of another business.”
In addition, McCarthy said the company is in “active discussions” about exploring potential partnerships with multiple parties.
“We’re looking at a series of opportunities, whether they come in the form of strategic partnerships or joint ventures,” he said. “That includes a series of partnerships that could potentially involve some licensing, but we’ll also be licensing content in addition to that.”
Streaming is a bright spot, but more losses are expected
The DTC division’s quarterly profit reflected revenue growth of 13% year over year to $1.88 billion and lower costs for marketing and content. Subscription revenue grew 12% to $1.4 billion, driven by year-over-year subscriber growth and pricing increases for Paramount+, while advertising revenue rose 16% to $513 million, reflecting growth from Paramount+ and Pluto TV.
The subscriber loss for Paramount+ during the quarter primarily reflected the planned exit from a hard bundle agreement in South Korea and elevated churn from a cohort of subscribers that joined for the Super Bowl in the first quarter. Pluto delivered 3.7 billion viewing hours in the first half of 2024, up 8% year over year and its highest consumption ever.
“We are pleased with the progress that we’ve made and the performance of our direct to consumer segment in Q2,” McCarthy told analysts on Thursday, touting $450 million in profit growth during the quarter and nearly $900 million for the past four quarters. “We remain confident that Paramount+ will reach domestic profitability in 2025.”
Despite the quarterly profit, the DTC segment is expected to generate losses in the third and fourth quarters of the year due to the timing of content expenses. Paramount also anticipates DTC advertising growth in Q3 to be similar to Q2.
“We expect Paramount+ to return to net subscriber growth in the second half of the year as we benefit from a more consistent cadence of original content,” Chopra said. “Now that we’re beyond the impacts of the strike, we also expect normalized international subscribers for the remainder of the year.”
Starting Aug. 20, the price of Paramount+ with Showtime will increase by $1 to $12.99 per month, while the Paramount+ Essential plan will jump $2 to $7.99 per month for all new subscribers. The change will take effect for existing Paramount+ with Showtime subscribers on their next billing date on or after Sept. 20.
“We don’t expect a meaningful financial impact from the new price increase until Q4 given the time required to implement the price changes across our distribution channels, and because the price increase on the ad supported tier only applies to new customers,” Chopra said.
Linear TV challenges continue
Revenue in the TV/Media segment fell 17% to $4.3 billion, primarily driven by fluctuations in licensing revenues, while adjusted EBITDA for the segment fell 15% to $1 billion reflecting the revenue decline, partially offset by lower costs for content and marketing.
Advertising revenue decreased 11% to $1.7 billion, reflecting declines in the linear advertising market. Affiliate and subscription revenue decreased 5% to $1.91 billion, driven by subscriber declines and a 1% decrease from the absence of pay per-view boxing events, partially offset by price increases. Licensing and other revenue decreased 48% to $630 million, reflecting fewer availabilities, including the final season of “Jack Ryan” in 2023, and a lower volume of licensing in the secondary market.
Looking ahead, Paramount expects linear advertising trends in the second half of 2024 to improve with the return of live sports, new fall programming and contribution for political spend, while affiliate revenue growth will decelerate modestly relative to the second quarter. The company also anticipates licensing revenue will return to growth with the return of the new fall slate on CBS in the fourth quarter, though it does expect a modest decline for the full year.
Beginning in the third quarter, Charter Communications will make the ad-supported tier for Paramount+ available to basic cable subscribers at no additional cost. Users who activate subscriptions through the bundle will be counted as Paramount+ subscribers and revenue from the partnership and future distribution deals that bundle Paramount+ will be shared between its TV/Media and DTC segments.
“We believe this type of bundle is an efficient way to grow Paramount+ and can yield many of the same benefits we’ve experienced in the international markets where we’ve adopted a similar approach,” Chopra said. “These models ensure that Paramount and our distributors are full participants in the transition of viewing from linear to streaming.”
Looking at Q3, Paramount expects TV media affiliate revenue growth to decelerate modestly relative to Q2, partly reflecting the impact of exiting Showtime Sports.
Filmed Entertainment posts a loss, weighed down by theatrical and licensing revenue
Filmed Entertainment revenue fell 18% to $679 million, due to timing of releases in the quarter. The segment posted an adjusted EBITDA loss of $54 million, compared to a profit of $5 million in the year ago period, reflecting the
lower revenue, partially offset by lower content and marketing costs.
Theatrical revenues decreased 40% to $138 million, reflecting the comparison to
the release of “Transformers: Rise of the Beasts” in the prior year. During the quarter, the studio released “If” and “A Quiet Place: Day One,” with the latter grossing over $250 million at the global box office to date.
Licensing and other revenue decreased 9% to 534 million, primarily due to lower revenues from the licensing of film library titles.
