The dominance of Netflix (NASDAQ: $NFLX) and Disney (NYSE: $DIS) in streaming has forced many companies to join forces. So far, Paramount (NASDAQ: $PARA) has gone its own way.
In January, the board of Paramount, including Shari Redstone, the company’s chair, met with a group of bankers to get an update on the media industry and to hear about potential deals that might help the company better compete with streaming giants like Netflix and Disney.
The bankers, from Goldman Sachs and LionTree, came with many deal ideas, according to four people with knowledge of the meeting. The most logical one, the bankers said, was combining some parts of Paramount — which owns networks like Nickelodeon and MTV, and the Paramount+ streaming service — with those owned by Comcast, the cable giant that owns NBCUniversal and the Peacock streaming service. The two companies already have a streaming joint venture in Europe.
But in the end, the board, Ms. Redstone, and Bob Bakish, the company’s chief executive, did not feel compelled to pursue any of the combinations.
They would continue to zig while Hollywood zagged.
That is, Paramount — with its collection of streaming services including Pluto TV and Showtime in addition to Paramount+ — would keep going it alone.
The fast rise of streaming has reshaped the media industry in just a few years as companies have felt pressure to spend billions on new TV shows and movies to attract enough subscribers to compete with the industry’s giants. MGM, the famed movie studio, sold to Amazon. And Discovery combined with WarnerMedia, the film, and TV giant behind “Game of Thrones” and “Succession.”
Not Paramount. Since the company was created from the merger of Viacom and CBS three years ago, it hasn’t sought another big deal. Instead, the company has been trying to build its own profitable streaming business before the flow of cash from traditional TV, still, its big moneymaker, runs dry.
In interviews, both Ms. Redstone and Mr. Bakish said that Paramount, with its global footprint, its streaming businesses, and the movie studio behind the new hit film “Top Gun: Maverick,” would have success on its own terms.
“In many respects, we continue to be the underdog, and that’s OK,” Mr. Bakish said. “But I think as time goes on, people will continue to increasingly see that Paramount is powerful.”
Ms. Redstone was an early supporter of Paramount’s decision to compete directly with major players like Disney and Netflix in direct-to-consumer streaming — a strategy that was still up in the air when Viacom and CBS merged in 2019.
In the aftermath of the merger, leaders at the company debated whether to invest in its existing subscription streaming service — then known as CBS All Access — or to forgo streaming for an “arms dealer” strategy: selling movies and TV shows to other streaming companies, according to three people with knowledge of the discussions.
In early 2020, just weeks after the deal closed, Paramount decided to make an initial foray into streaming: The company would put some content from Viacom on CBS All Access, effectively bulking up the service quickly without spending to produce original content.
Ms. Redstone and Mr. Bakish still have to persuade much of Wall Street. In the years since Ms. Redstone championed the effort to unite the two halves of her family’s media empire — Viacom and CBS — to form Paramount, the value of the combined company has fallen significantly. The day the merger was announced, in August 2019, Wall Street valued both companies at $29.6 billion. Today, Paramount is worth $22.1 billion, a 25 percent decline.
The share prices of Paramount’s competitors, including Disney and Netflix, have also declined over the same period.
In recent weeks, Wall Street has put a sharper focus on the profitability of streaming businesses. Netflix said in April that it lost streaming subscribers in the first quarter of the year, reversing a decade of growth and causing its stock to tumble. Mr. Bakish said that competitors like Netflix — which he cheekily calls “legacy streamers” — are only now coming around to the importance of the revenue strategies Paramount has embraced for years, including advertising.
The box office, another traditional business largely eschewed by Netflix, is another example, Mr. Bakish said. “Top Gun: Maverick,” is on pace to generate $150 million in ticket sales during its opening weekend, but, in an exception to most movies produced by the studio, it won’t appear on Paramount+ within the typical 45-day window.
Paramount got a recent vote of confidence this month from Berkshire Hathaway, the holding company run by the billionaire Warren Buffett. Berkshire Hathaway said in a filing that it had amassed a $2.6 billion stake in Paramount. Berkshire Hathaway did not explain its rationale for investing in Paramount, and the company declined to grant an interview to The Times. But the news caused Paramount’s shares to spike 15 percent.
It is too early to say which way the wind will blow in terms of streaming services – yet one thing is sure, the way viewers consume content has changed forever. In 5 years, cable-TV subscribers are likely to be the minority, while entertainment companies might want to consider shorter-form content that is engaging with the viewer through an on-demand multi-platform approach.
Wall Street has had enough of the crazy tech valuations. The streaming industry has matured and now it’s no longer about brainless growth – it’s about profitability. The companies that have the capacity to come out on top, by proving their methods, are the ones that will outlive the rest.
Perhaps Paramount is one of them? We’re bullish.
Source: New York Times