The conference call for Paramount Global's Q3 2023 earnings begins with an introduction by the operator, Nadia. Jaime Morris, EVP of Investor Relations, introduces the speakers, Bob Bakish (President and CEO) and Naveen Chopra (CFO). The call will include forward-looking statements and focus on adjusted results. Bob Bakish discusses the dynamic and complex media industry, but highlights the company's progress in achieving strategic goals and returning to significant earnings growth in 2024. The third quarter saw growth in streaming revenue and subscribers, as well as a narrowing of D2C losses. The company's franchise strategy, powered by Paramount Pictures, has benefited multiple lines of business, and licensing continues to be an important part of content monetization.

In the second paragraph, the speaker discusses the company's approach to cost management and its focus on generating strong free cash flow and paying down debt. They also highlight the importance of remaining agile and adaptive in an evolving industry and provide updates on their D2C business, including reaching 63 million subscribers and narrowing D2C losses by over 30%. The integration of Paramount+ and Showtime is also credited for driving increases in acquisition, engagement, and operational efficiency, while partnerships are noted as a significant contributor to the company's overall momentum.

Delta has expanded its in-flight access to Paramount+ for domestic customers and has seen growth in subscribers and engagement through its partnership with Walmart+. The company is also expanding its presence in the global streaming market through partnerships and owned and operated streaming services. Pluto TV continues to be a successful option for international streaming, and the company is exploring new distribution strategies, such as bundling streaming and pay TV.

The company has shown success in adapting partnerships to achieve common goals and expects some partners to integrate DTC into pay TV bundles. This could lead to lower costs and improved streaming churn. There are also potential benefits for the company's digital advertising and opportunities to upsell to Paramount+ with Showtime. The company has already finalized agreements with multiple distributors to offer Paramount+ with Showtime as a multi-platform product. The advertising market is facing challenges, but the company is prepared for the transition from linear to digital.

In 2024, the company plans to continue growing its streaming audience and engagement through IQ, reaching over 100 million monthly unique viewers in the U.S. They will also launch Paramount+ Essential on Amazon channels and IQ globally, making it easier for marketers to run multinational campaigns. The company will also launch new ad-supported tiers in select markets and expand its collection of first-party data. They will also target small and medium businesses as advertisers and compete for media budgets previously allocated to formats like social media. The company remains well-positioned to serve larger clients through their direct sales force. Other anticipated bright spots in 2024 include the Super Bowl and an election year, which will bring in higher political spending.

The success of ViacomCBS is largely due to their high-quality content, which includes both new and old intellectual property. The recent WGA deal and changes to the film slate have affected their productions, but the company remains focused on creating engaging content for both linear and streaming platforms. The power of their content can be seen in the success of shows like Survivor and 60 Minutes, as well as sports programming like the NFL on CBS. Their kids and family franchises, such as Turtles and PAW Patrol, have also been successful in driving engagement across various platforms. The Yellowstone universe has also been a major contributor to the company's success, with over 100 million viewers globally tuning in to the franchise over the past 5 years.

The paragraph discusses the success of the show Yellowstone as a top franchise in the U.S. and on Paramount Plus in various international markets. It also highlights Paramount's use of its platforms and partnerships to extend the reach and revenue of its hit shows. The company's combination of advertising, subscription, and licensing revenue streams is providing growth opportunities and diversification, and they remain focused on returning to earnings growth in 2024. The Q3 results show strong momentum in their D2C business and the ability to navigate challenges through operational efficiencies. The paragraph also mentions the expectations for Q4 and the company's path ahead.

In Q3, the company reported $7.1 billion in revenue and $716 million in adjusted OIBDA. Affiliate and subscription revenue grew 14%, driven by both traditional and streaming platforms. D2C subscription revenue saw a 46% growth, with 2.7 million subscribers added. The new Paramount+ with Showtime service led to increased engagement and a 17% growth in hours of engagement for premium subscribers. Monthly pricing was increased, leading to a 16% growth in ARPU, and domestic monthly churn improved year-over-year despite the price increase.

In the fourth quarter, the company saw a 31% improvement in D2C operating profit due to strong revenue trends and improved operating leverage. However, in the fourth quarter of 2023, D2C losses are expected to be similar to the previous year due to higher sports and marketing costs. Despite this, the company is ahead of plan in moving towards profitability in the D2C business. They expect further improvement in 2024 through subscriber growth, user engagement, and international expansion. Advertising growth for D2C remains strong at 18%, while TV media advertising revenue declined 14% due to weaker demand in certain categories.

In the third quarter, the company's performance was negatively impacted by reduced political spend, strike-related costs, and international headwinds. The decline in political advertising will continue to affect advertising growth in the fourth quarter. The strikes also resulted in additional idle costs and negatively affected revenue in the Filmed Entertainment segment. The company is actively managing its cost base and prioritizing initiatives to improve D2C operating leverage.

In the third quarter, the company has been focused on managing expenses and increasing efficiency in various areas such as content, marketing, and overhead. They have also closed a sale and announced a tender offer to reduce debt and improve their financial flexibility. The company remains committed to delivering significant earnings growth in 2024 through a combination of subscriber growth, ARPU expansion, and expense management.

Bob Bakish, CEO of Paramount, believes that transitioning the company's business will create long-term value for shareholders. He then addresses a question about the recent carriage agreement between Disney and Charter, stating that it could potentially be beneficial for Paramount. He also mentions the potential impact on the direct-to-consumer side and the channel side, and discusses the benefits of international hard bundles. Overall, he sees the potential for increased subscribers, lower churn, and compelling long-term value.

The speaker discusses the positive impact of hard bundles on DTC growth, citing international success and partnerships with major operators. They also mention the potential for earnings growth in 2024, with a focus on cost reductions and advertising opportunities.

During the earnings call, the CEO and CFO discussed their expectations for the advertising market to improve in 2024 and the potential for growth in the B2C side of the business. They mentioned various factors that could contribute to this growth, such as increased subscriptions, higher engagement and ARPU, improved churn, and lower expenses. The CEO was also asked about the company's long-term ambitions for its film studio and its strategy for maximizing value. The CFO declined to give specific numbers for 2024 but reiterated that there are various levers that could contribute to year-over-year earnings growth.

Bob Bakish responds to Ben's question about Paramount's total cash content spending and overall OpEx for the company's growth in 2024. He mentions that Paramount's slate is well-balanced, with a mix of titles for different target markets and genres, including both franchises and new ideas. Bakish emphasizes the value of franchises in driving success across the business, with theatrical releases acting as a launch pad for other benefits such as increased consumption on platforms and at retail. He also mentions the significant retail value creation from franchises like Teenage Mutant Ninja Turtles and PAW Patrol. In terms of the future, Bakish states that the slate looks promising and remains balanced.

The paragraph discusses the range of genres and target markets for Paramount Pictures, with a mix of franchises and new ideas. The slate for the near future includes a Bob Marley movie, a Gladiator movie, and several franchises. The number of releases may increase slightly in the coming years. The long-term trend for content spending is expected to grow at a low rate, but the focus is on finding the right content for the right audience. Paramount is working to improve the efficiency of their content spending in both linear and streaming platforms.

The company is focused on leveraging content across streaming and linear platforms, leading into franchises, and using data to better serve key audience segments. This could potentially improve the long-term growth rate of cash content spend. On the M&A side, the company is still looking to sell non-core assets to reduce leverage, but they will not comment on any specific opportunities. In terms of advertising, while DTC advertising grew 18%, viewing hours were up 46%, and the company is looking to close this gap.

The company has strategically focused on long-form video content and is open to potential mergers and acquisitions. The digital ad market is a significant source of revenue for the company, and they are taking steps to continue growing it through increased engagement, launching new platforms, and expanding internationally. They are also focused on increasing demand for advertising on their platforms.

In addition to providing premium content to advertisers in a brand-safe environment, we are also improving the quality of our streaming data to enable more targeted campaigns. We are also targeting small and medium-sized businesses and providing them with self-service tools to attract new advertisers. We are confident that these efforts will help us maintain our scale and increase monetization in the marketplace in the future. It is important to note that the engagement growth mentioned in the numbers includes growth in the ad-free tier of Paramount+. This may not necessarily translate to advertising growth. A question was then asked by Rich Greenfield of LightShed Partners.

Bob Bakish and Naveen Chopra discuss the direct link between the NFL and retransmission fees for Paramount and the industry. They also acknowledge the challenges facing the ad market and the importance of other sports, such as college football and golf, in driving distribution and advertising revenue. They emphasize that sports is integral to their strategy but not a stand-alone business.

The speaker, Naveen Chopra, discusses the role of sports in their company and their focus on increasing engagement and revenue through other products. They are in a good position with their current sports deals and will continue to monitor other auctions in the marketplace. He also mentions the growth of their premium ad-free tier and addresses the impact of pay-per-view events in the quarter.

Phil Cusick of JPMorgan asked several follow-up questions about ViacomCBS's DTC strategy, specifically regarding pricing, the impact on ARPU and costs, the path to DTC EBITDA breakeven, and the improvement in free cash flow in 2024. Naveen Chopra addressed these questions and mentioned that there were several factors to consider, including the recent move on DTC ARPU growth and cost, and the potential impact of pricing in the fourth quarter. Bob Bakish also mentioned the success of the ad-supported version of Paramount+ and the company's focus on higher-priced tiers.

In the fourth quarter, the company expects the average revenue per user to continue to increase due to the timing of subscription conversions. They also see potential for future price increases to drive growth in revenue and earnings. The recent price increase has performed better than expected, and the company believes their high-value content justifies further price increases. The company expects significant improvement in the direct-to-consumer profit and loss next year, thanks to factors such as subscriber growth, higher average revenue per user, and cost efficiency.

The speaker addresses a question about the drivers of growth in 2024 and the impact of the strike on cash flow. They mention that there will be material growth in 2024 and that the strike will have a short-term impact on cash flow but will ultimately result in higher cash flow in the long term. They also mention making progress on cost reduction in both media and D2C, with $700 million in synergies from the combination of Showtime and Paramount+ already factored into the numbers. The speaker also talks about leaning more into partnerships for streaming at Paramount+ and scaling rapidly.

In the paragraph, the speaker discusses the company's current D2C business and their progress towards profitability. They mention a 30% decrease in losses and their plans for streaming expansion through licensing partnerships. The speaker also mentions their presence at MIPCOM and the demand for their content in the international market. They also touch on the importance of content licensing for their business model and briefly mention the $700 million in synergies related to the integration of Showtime and Paramount+.

The speaker expresses confidence in the growth of Paramount+ in the fourth quarter and next year, citing the success of integrating Showtime content and improved churn rates. They also mention a strong content slate for the fourth quarter, including new additions to popular franchises like Yellowstone and Frasier, as well as the popularity of NFL content.

The speaker discusses the success of the company's streaming platform, Paramount Plus, and their plans for future growth. They mention upcoming projects, such as the PAW Patrol movie, and their confidence in achieving earnings growth in 2024. They also address the issue of password sharing, stating that it is not currently a major concern and can be addressed in a beneficial way. The speaker concludes by thanking the listeners and expressing their focus on delivering value for shareholders.

This summary was generated with AI and may contain some inaccuracies.