Streaming content spending could fall below forecasts in 2024, CFO Naveen Chopra said at an investor conference
“Paramount plus advertising has actually continued to grow at a very healthy clip, and I expect that will continue particularly as the ad market starts to recover,” he said. He added, however, “We’re still going to be looking at the back half of the year before there’s a noticeable recovery in the marketplace on a broad basis.”
But Chopra noted that the ad market is cyclical and the slowdown will be “fundamentally short term in nature,” as are the investments the company is making in streaming around the world. While 2023 will be “our year of peak losses” in its direct-to-consumer business, he said he expects the company to see growth in both earnings and cash flow toward the end of 2023.
“And in fact, I think the growth in cash flow will be larger than the growth in earnings because of the dynamics around content amortization,” he said.
Paramount’s 2024 forecast for $9 billion in DTC revenue depends in part on the advertising recovery.
“There’s no doubt that the weakness in the macro advertising environment has created some headwind around revenue growth,” he said. “Advertising is a meaningful component of our DTC growth strategy. But on the other hand, we’re ahead of our plans when it comes to Paramount plus revenue growth, and that’s driven frankly, by both better-than-expected subscriber growth and better-than-expected ARPU.”
Earlier this month, Paramount said it now has more than 77 million global DTC subscribers. Paramount+ added a record 9.9 million subscribers during the last three months of 2022, reaching nearly 56 million, while Pluto TV, Paramount’s FAST service, added 6.5 million monthly active users during the period, bringing its total to almost 79 million monthly active users globally.
Chopra referenced multiple times what he sees as the strength of Paramount’s content driving the growth and limiting customer churn.
The company has “learned that once consumers experience our content, they tend to get very sticky,” he said. “We look at this data quite frequently in terms of what is the churn rate for a customer that watches one show, versus a customer that watches two shows, versus a customer that watches three shows. And, you know, the slope of that line is pretty steep. So once we get people into even a couple of our shows, we really, really liked the churn characteristics of the business.”
“We know that if we can get people into the service and get them to sample our content, that most likely they’re going to stick around for a long period of time,” he added.
“Q4 was yet another record-low churn, which is what you’d like to see as a service continued to mature and the content slate expands, and we get better and better at both attracting and programming the service for consumers,” he said. “I think there’s a lot of opportunity there.”
Paramount plans to lean heavily on established franchises as it ramps up content, Chopra said, pointing to the success of 2022 titles like “Top Gun: Maverick” on the big screen and Sylvester Stallone’s “Tulsa King” and “Yellowstone” prequel “1923,” on its streaming service. This year will see another “Mission: Impossible” entry, another “Transformers” movie, “Dungeons & Dragons” and the revival of the “Teenage Mutant Ninja Turtles” franchise, he said.
The company is also on track to launch its combined Paramount+ and Showtime streaming service in the fall. Chopra said the integration is a content opportunity and will help “reinvigorate the Showtime content slate” with “Dexter,” “Billions,” “Yellow Jackets” and other new offerings.
“We’re going to be increasing the price of Paramount+ later this year, and the fact that we have Showtime content integrated there, and we know that customers are willing to pay for that, is encouraging,” Chopra said.
The integration also means that the company “will spend less than we previously anticipated in DTC content expenses,” he said. The company previously guided to $6 billion in content expenses for 2024. “We haven’t issued any new guidance or update or anything of that nature, but it kind of gives you a little bit of a sense of some of the pulls and takes in that equation,” Chopra said.
Paramount has restructured its marketing approach and its ad sales to shave costs and is leveraging its own platforms to reduce purchases of outside media, Chopra said. The company is also realigning its international businesses and its DTC offerings overseas, and it plans to expand its services in several regions.
While international business dynamics are different from the U.S., Chopra said he expects new markets and the opportunity for consumers to access multiple tiers will help expand revenue and ARPU internationally.
Eileen AJ Connelly