Paramount Global saw strong subscriber growth in its direct-to-consumer business in the fourth quarter of 2022, but posted mixed results overall for the period, sending the stock lower in morning trading.
The media conglomerate reported net income of $21 million, or 1 cent per share, for the final three months of 2022. Adjusted for one-time items, Paramount earned 8 cents per share. Revenue for the quarter came in at $8.13 billion, up 2% compared with $8 billion during the same period a year ago. Operating income fell 93% to $182 million, a tough comparison because of a one-time gain on a real-estate sale in 2021.
Analysts surveyed by Zacks Investment Research were expecting adjusted earnings per share of 18 cents on revenue of $8.06 billion.
The results disappointed investors, and shares of Paramount slid by $1.04, or 4.2% to close Thursday’s trading at $23.50. Shares have traded between $15.29 and $39.21 in the past 52 weeks, and remain up about 43% since the start of the year.
Paramount said it now has more than 77 million global direct-to-consumer subscribers. Paramount+ added a record 9.9 million subscribers during the quarter, 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.
The company attributed Paramount+’s subscriber growth to its strong content slate, including the
NFL, the expansion of existing franchises like “Top Gun: Maverick” and “1923,” the success of new franchises like “Tulsa King” and “Smile,” as well as CBS’s overall entertainment slate.
DTC revenue climbed 30% year over year to $1.396 billion, including $936 million in subscription revenue and $460 million in advertising revenue. However, the segment’s operating loss widened to $575 million, “reflecting investments in content and international expansion,” the company said.
“We are now at the point where we are getting to scale with streaming, generating over $5.5 billion in annual revenue on a run rate basis as we exit Q4,” Paramount Global president and CEO Bob Bakish told analysts during the company’s earnings call. “Since day one, we have executed against a plan to build a profitable streaming business, one that achieves TV media-like margins. To get there necessitates an investment phase and now in 2023, entering the third year of Paramount Plus in the marketplace, we are at peak investment.”
Chief Financial Officer Naveen Chopra said the previously announced integration of Showtime into Paramount+ will officially launch in the third quarter. The combination is expected to result in an impairment charge in the range of $1.3 billion to $1.5 billion in the first quarter and generate approximately $700 million in future annual expense savings.
As part of the move, the company is raising its prices for Paramount+ subscriptions. The top tier of Paramount+ will rise to $11.99 per month from $9.99 per month. The cheaper, ad-supported Essentials tier, which will not include Showtime, will increase to $5.99 from $4.99 per month. Consumers who already pay for the Paramount+/Showtime bundle will not be affected by this price increase.
In the TV and Media segment, led by CBS, total revenue fell 7% year over year to $5.88 billion, including $2.68 billion in advertising revenue, $2.02 billion in affiliate and subscription revenue and $1.18 billion in licensing and other revenue.
Advertising revenue in the segment decreased 7% year-over-year as “increases from political advertising and pricing only partially offset lower impressions,” the company said. Affiliate and subscription revenue declined 4% year-over-year, as the “evolution of certain international affiliate agreements resulted in a shift of revenue from our pay television services to our streaming services, and rate increases for our domestic networks only partially offset subscriber declines,” Paramount said in its earnings release. Licensing and other revenue declined 11% year-over-year driven by a lower volume of programming produced for third parties.
In the fourth quarter, U.S. viewers spent 370 billion minutes consuming CBS content alone on both linear and digital.
“That’s virtually the same amount of time as viewers spent with Netflix’s substantially larger entire slate of originals,” Bakish said.
Paramount’s Filmed Entertainment segment posted a revenue increase of 35% year-over-year to $936 million, including $6 million in advertising revenue, $97 million in theatrical revenue and $833 million in licensing and other revenue. Theatrical revenues increased 149% year-over-year, driven by the box office success of “Smile,” while licensing and other revenues grew 28% year-over-year, benefiting from
2022 releases in the home entertainment window, led by the continued “success of Top Gun: Maverick,” the company said.
Looking ahead, Paramount said it expected its streaming investment and the current state of the ad market to impact earnings and free cash flow in 2023, but anticipated losses will narrow significantly in 2024, resulting in a return to positive free cash flow.
