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Navigating Leadership Changes and Financial Challenges
Paramount Global (NASDAQ:PARA), a media and entertainment company, provides content to global audiences, featuring brands such as CBS and Nickelodeon, catering to diverse tastes around the world.
Renowned for engaging audiences, Paramount holds a significant share of the U.S. television market. Through its extensive library of television and film titles, Paramount reflects its history of creativity and storytelling. In the digital age, Paramount focuses on innovation with streaming services and products, exploring new possibilities in entertainment from production to distribution.
Paramount’s reach extends across live events and products, fostering global connections with audiences. Paramount emphasizes premium content and a strategic approach to streaming and contributes to the evolving media and entertainment landscape.
Paramount recently changed its leadership. It created an Office of the CEO, comprised of three senior executives: George Cheeks, Chairman and CEO of CBS; Chris McCarthy, Chairman and CEO of Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, Chairman and CEO of Paramount Pictures and Nickelodeon. Cheeks, McCarthy and Robbins will work closely with CFO Naveen Chopra and the Board of Directors.
The abrupt change in management structure has drawn widespread attention. Former Paramount Global Chairman and CEO Robert M. Bakish joined Viacom in 1997 and held a number of leadership roles at ViacomCBS and its predecessor companies for many years. He played a key role in the strategic planning and execution of the merger between Viacom and CBS Corporation, which closed in December 2019.
Paramount produces content and experiences for global audiences, with each segment playing an essential role in the ongoing operations of the company and includes the following segments:
Direct to consumer: Paramount’s streaming platform, Paramount+, led revenue growth in the first quarter of 2024. With a 51% increase in revenue according to the 1st quarter earnings releaseParamount+ exceeded expectations, reflecting its importance within Paramount’s business. The revenue increase was driven by substantial subscriber growth, with more than 71 million subscribers and 3.7 million net adds in the quarter. Paramount+ leveraged its diverse content offerings and monetization strategies to achieve a 26% year-over-year increase in global ARPU. Revenue growth in this segment outpaced both Television Media and Filmed Entertainment, underscoring the growing dominance of streaming services in the entertainment industry.
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Paramount Global: Navigating Leadership Changes and Financial Challenges
TV Media: With modest revenue growth of 1%, Paramount’s Television Media segment remained crucial to the company’s overall revenue. The segment saw a 14% increase in advertising revenue, driven by CBS’s broadcast of Super Bowl LVIII. However, it faced a 3% decline in affiliate and subscription revenue due to declining subscribers. Despite this, Television Media leveraged its strong content, with CBS as the top broadcaster for the 16th consecutive season.
Filmed entertainment: Paramount’s Filmed Entertainment segment saw revenue growth of 3%, driven by blockbuster releases. The segment saw a 20% increase in theatrical revenue, led by films such as Mean Girls and Bob Marley: One Love, which topped the domestic box office charts. However, there was a slight 1% decline in licensing and other revenue, possibly due to market dynamics and content availability.
Paramount Global, formerly ViacomCBS, is struggling to compete despite a diverse portfolio that includes television networks and film production. In the ever-evolving entertainment landscape, multiple competitors are vying for the top spot, each bringing unique strengths and content offerings.
One of Paramount Global’s fiercest competitors is The Walt Disney Company (NYSE:DIS). Disney’s acquisition of 21st Century Fox bolstered its impressive lineup, including its studio productions, theme parks, and streaming service, Disney+. With iconic franchises like Marvel, Star Wars, and Pixar under its belt, Disney remains a formidable force in the entertainment industry. Disney Recipe for the year ended December 31, 2023, was US$88.935 billion, an increase of 5.35% over the previous year.
Another major competitor is Comcast Corp.NASDAQ:CMCSA), which owns NBCUniversal. Comcast is a significant player in both traditional and digital media with its vast array of television networks, including NBC, USA Network, and Bravo, as well as studios such as Universal Pictures. Additionally, its streaming service, Peacock, offers a mix of original content and beloved classics, further intensifying competition in the streaming market. Comcast Annual Revenue for 2023 was US$121.572 billion, an increase of 0.12% compared to 2022.
Tech giants like Netflix (NFLX) and Amazon (NAS:AMZN) also pose significant challenges for Paramount Global. Netflix has revolutionized the entertainment industry with its streaming platform, investing heavily in original content across a variety of genres. Amazon, through its Prime Video service, offers a vast library of movies and TV shows and bundles its streaming with other Prime benefits, creating an attractive package for subscribers. Netflix Recipe for the year ended December 31, 2023, was US$33.723 billion, an increase of 6.67% over the previous year. On the other hand, Amazon’s Annual Revenue for 2023 was US$574.785 billion, an increase of 11.83% compared to 2022.
Finally, WarnerMedia, now part of Warner Bros. Discovery Inc. (NASDAQ:WBD), is a crucial competitor with its extensive content library, including Warner Bros. Studios, HBO and DC Entertainment. With the launch of HBO Max, WarnerMedia has expanded its reach in the streaming market, offering a rich catalog of films, series and exclusive content. The recent merger with Discovery should further strengthen its position in the industry and intensify competition on all fronts. Warner Bros Discovery Annual Revenue in 2023 was US$41.321 billion, an increase of 22.19% compared to 2022.
Additionally, below is a chart of some of the streaming services offered in the US.
Paramount Global: Navigating Leadership Changes and Financial Challenges
Mixed Reviews – Impacted by challenging financial situation
Paramount Global: Navigating Leadership Changes and Financial Challenges
Paramount Global Price/Earnings (P/E) ratio highlights the company’s financial difficulties. In the last fiscal year, Paramount reported a net loss of $608 million, and the most recent quarter alone saw a net loss of $554 million, according to its earnings report. Rising operating expenses compound these problems, putting further strain on the company’s finances. With significant debt and dwindling cash reserves, Paramount faces substantial challenges in maintaining its competitiveness in the industry.
The current company PB ratio is 0.30, calculated using a share price of $9.97 and a book value per share of $33.44 in the quarter ended March 2024.
The company’s latest financial report for the quarter ending December 2023 reveals a ROE of -9.98%. Over the 13-year period, Paramount Global’s ROE ranged from a high of 81.91% to a low of -2.74%, with a median of 25.66%, showing mixed performance. However, it ranks worse than 59.49% of companies in the Miscellaneous Media industry.
According to an article published by The New York Times on May 17, 2024, Sony Pictures Entertainment and Apollo Global Management have signed confidentiality agreements to access Paramount’s financial information, advancing their acquisition efforts. They had previously expressed non-binding interest in buying Paramount for $26 billion to acquire the studio and sell other assets. Concerns among Sony shareholders about the cost of the offer and the challenges of the streaming industry have led them to consider alternative approaches.
Paramount controlling shareholder Shari Redstone prefers a deal for the entire company but is open to a breakup. Redstone has approved the sale of her stake in National Amusements to Skydance, although Skydance’s offer has faced resistance from shareholders. Despite the end of exclusive negotiations, discussions with Skydance continue.
This development complicates Paramount’s strategic decisions as the company faces significant internal changes and market pressures.
Overview
Paramount is facing financial difficulties, with stagnant revenues and mounting losses attributed to high operating costs. In addition, a substantial debt burden adds to its challenges. The recent departure of a key leader and rumors of a potential acquisition by Sony and Apollo cast uncertainty over Paramount’s future.
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This article first appeared in GuruFocus.