The CFO of ViacomCBS, soon to be known as Paramount, said Tuesday that the company is looking hard for “efficiencies” at its traditional businesses to divert as much cash it can to streaming, where investment will pass $6 billion by 2024.
That’s up from $2.2 billion last year, the streamer’s first. (Netflix laid out more than $17 billion on programming in 2021.)
Naveen Chopra also forecast direct-to-consumer revenue that year of $9 billion (up from a previous goal of $6 billion) as content and global expansion drives growth. He anticipated an operating loss of $500 million in 2022, with the red ink peaking in 2023 (no number given). In 2024, the global DTC businesses will start to see the benefits of a full content slate, including Paramount Pay 1 movies.
The data he ticked off at the end of today’s virtual investor meeting encapsulates why Wall Street both loves and fears streaming.
Analysts peppered Chopra and CEO Bob Bakish with questions about where the funds will come from, what differentiates the year-old Paramount+ from its rivals, and how streaming economics actually work as they try to develop financial models and make stock recommendations for their investor clients. They noted as they do every quarter that ViacomCBS still makes a bundle on licensing while it pulls more and more content in-house.
The company, which announced a rebranding to Paramount today, expects 100 million subscribers in 2024, up from previous forecasts of 60M-75M. Disney expects 230-260M subs for Disney+ by the end of fiscal ’24 and WarnerMedia has set a goal of 120 million to 150 million subscribers to HBO Max + linear HBO.
On investment, Chopra said the parent is “carefully managing spend on the traditional side of the business… where it will grow at a much lower rate than what you will see on the DTC side.” At the same time, the traditional biz is an advantage for the parent, not the other way around, as cable bundles and other partnerships help drive sub growth and reduce churn in streaming, he said, adding. “We’re talking about a very different version of streaming economics than you would see in a pure-play streaming business.”
Chopra said the company’s financial reporting across businesses is “based on the relative value of windows that any given service has right to exploit.” He said “content tends to have more value in its early days on a streaming service, so a lot of the amortization is accelerated” and losses heaviest in the first few years when “everything is coming in and nothing is coming off.”
By 2024, “we’ll be launched in significantly more markets, advertising and subscription monetization will be higher, and the layering of content amortization expense will begin to stabilize. And longer term, our models suggest that the DTC segment will approach margins similar to our current TV media business,” Chopra said.
That’s by far the last word as investors take historic models and try to apply them to the new world.
The ViacomCBS event today started with a plug by Shari Redstone, chair of the ViacomCBS board. “Paramount was already at the core of this vison,” Redstone said, of the move over the past two years to remake a merged Viacom and CBS; they rejoined in December 2020. She said the studio “known for cinematic excellence” was the ideal springboard for streamer Paramount+, launched in March 2021, and the company’s new name, effective this week. (The company says the actual name is Paramount Global but it prefers to be called Paramount, as per the new logo.)
Redstone segued to Tom Cruise in a cameo reminiscing on his first Mission: Impossible film at Paramount nearly three decades ago under then-studio exec Sherry Lansing, calling it “a relationship I am grateful for.”
“Today Chris McQuarrie and I are making the seventh and eighth” films in the franchise, Cruise said, showing clips of footage (that weren’t made widely available) for the films, upcoming in 2023 and 2024, respectively.
The list of executive presentations that followed included Brian Robbins, who added oversight of Paramount to his portfolio last year as studio head Jim Gianopulos exited.
Wall Street and Hollywood both consider streaming essential but have started to fret at the high cost of content needed to feed it amid fierce competition. Netflix is arguably in pole position and its stock hasn’t recovered from a dip after disappointing subscriber forecasts last month.
ViacomCBS shares are down more than 6% in after-market trading today.
Bottom line: It’s not clear how many stand-alone services the market will ultimately bear. That’s likely to mean more deals.
Last spring, Amazon announced an agreement to buy MGM, and Discovery another to merge with WarnerMedia. Redstone was also said to be eager to shift her company into deal mode, including a touchdown at the Allen & Co. media conference in Sun Valley last summer. But ownership is said to be one sticking point for the family enterprise founded by her father, the late Sumner Redstone. The Redstone holding company National Amusements is ViacomCBS’ controlling shareholder.
Regulatory issues also loom. A merger with Comcast, for instance, would have resulted in dueling sets of broadcast networks that aren’t allowed. ViacomCBS instead has inked separate international streaming partnerships. Today it announced another agreement with Canal+.
But it’s early days and Showtime chief David Nevins (also in today’s lineup) has advocated in the past for a hookup with Starz. That asset is potentially up for sale, along with parent Lionsgate. Independent production shingles with libraries are selling fast and are expensive.
Stock price is also an issue. It was around this time a year ago that ViacomCBS began to climb, topping $100 before plunging more than 60% in March. The drop may have been linked to Archegos Capital Management, a family office led by hedge fund veteran Bill Hwang, which failed to meet margin calls forcing liquidation of large chunks of its holdings – including of ViacomCBS.
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