Paramount's Q2 2024 earnings report reflects a mix of challenges and successes as the company navigates its strategic priorities. The company reported a total revenue of $6.81 billion for the quarter, a decline of 11% compared to the same period in 2023. This decrease was largely attributed to weaker performance in its TV Media and Filmed Entertainment segments, which saw revenue drops of 17% and 18%, respectively. However, the Direct-to-Consumer (DTC) segment showed resilience, with a 13% year-over-year increase in revenue.
Despite the overall decline in revenue, Paramount's DTC segment, led by Paramount+, has been a bright spot. Paramount+ alone experienced a 46% increase in revenue, driven by a combination of subscriber growth and higher average revenue per user (ARPU). However, the platform did see a slight decline in subscribers, losing 2.8 million, primarily due to the end of a bundle agreement in South Korea. Nonetheless, the ARPU expanded by 26% year-over-year, highlighting the service's growing profitability.
In terms of profitability, Paramount reported an operating loss of $5.32 billion for the quarter, a significant increase from the $250 million loss reported in the same period last year. This loss was largely driven by a substantial $5.98 billion goodwill impairment charge related to its Cable Networks unit. However, on an adjusted basis, the company's Operating Income Before Depreciation and Amortization (OIBDA) showed a 43% improvement, reaching $867 million.
Paramount also announced progress on its strategic plan, which includes $500 million in annualized cost savings and a new agreement with Skydance Media to form "New Paramount," a holding company expected to be finalized by mid-2025. This transaction, coupled with the company's focus on streamlining operations and enhancing profitability in its DTC segment, is expected to position Paramount for future growth.
George Cheeks, Chris Mccarthy & Brian Robbins, Co-Ceos of Paramount, stated: “Our strong performance in Q2 demonstrates that we are delivering on our strategic priorities. We are proud of our results, including significant earnings growth largely driven by our DTC segment. In fact, for the fourth year in a row, Paramount+ is leading the industry in domestic sign-ups driven by our big broad hit TV series and blockbuster films. DTC profit growth for the past four quarters has totaled nearly $900 million and we are on track to reach domestic profitability for Paramount+ in 2025. Looking ahead, we will continue to aggressively execute on our Strategic Plan which focuses on transforming streaming to accelerate profitability, streamlining our organization — including at least $500 million in annualized cost savings — and improving the balance sheet by growing free cash flow and optimizing our asset mix. We are confident that our Plan will drive long-term value by leveraging our broad hit content as we continue to transform Paramount for the future.”
Moreover, according to Parrot Analytics, linear TV is a shrinking business, and lowering debt is a key initiative for today’s entertainment conglomerates. Only three Paramount Global brands over-perform when we look at the share of audience demand they generate on Paramount+ compared to supply. Two of these are linear staples: Nickelodeon, and CBS. The kids shows on Nick and CBS’s industry-leading sitcoms and procedurals should clearly be part of the the long term strategy of Ellison’s Skydance owned company. This doesn’t even take into account the importance of the NFL on CBS, so maximizing the profitability of CBS needs to be a key part of Ellison’s plan. TV media accounted for a whopping 68% of the company’s revenue last quarter after all.
The surprise standout here is Paramount+ Originals. Largely led by Taylor Sheridan series and the Star Trek universe, these original series are over-performing with demand vs. supply. This suggests there is value in continuing these franchises, whether on an in house platform or licensing them elsewhere.
Paramount Global remained in third place in corporate demand share, well ahead of NBCUniversal and Netflix, but significantly behind leaders Disney and Warner Bros. Discovery, and dipping slightly in Q2 2024, from 12.0% in Q1 2024. Licensed programming from Paramount accounted for a 12% demand share among Netflix’s U.S. TV catalog in Q2 2024. After the company’s licensing revenue dropped 25% last quarter, partially due to the 2023 labor strikes, this division may ramp up once more with stable leadership and direction.
While demand for original content drives subscription growth, library content is key for customer retention, an increasingly crucial element of all streaming strategies as consumers have more choice and easier ways to cancel than ever. Paramount+ (8.1%) has now finished behind Peacock (8.9%) in this category for three consecutive quarters. Peacock was consistently in last place of the major streamers in on-platform demand share until Q4 2023. It’s worth remembering that Paramount Network’s smash hit "Yellowstone" is still streaming on Peacock due to a late 2010s licensing deal.
Paramount+’s total catalog demand share has shrunk dramatically year over year, down from 11.2% and fifth place in Q2 2023. Furthermore, Paramount+ is the odd man out of the two major streaming bundles so far: Comcast's Streamsaver bundle, combining Peacock, Netflix, and Apple TV+, and the Disney-Max bundle.
As Paramount navigates these challenges, the company’s ability to adapt its strategies and focus on key growth areas will be crucial. While the decline in overall revenue and the struggles in TV Media and Filmed Entertainment underscore the difficulties in the traditional segments, the success and potential within the DTC segment, particularly with Paramount+ Originals, offer a path forward. Paramount’s strategic partnerships, content licensing, and a commitment to cost efficiency will be central to its efforts to maintain competitiveness in a rapidly evolving entertainment landscape. The coming quarters will be pivotal in determining whether these initiatives can drive sustained growth and profitability for the company.