Q1 2022 Paramount Global Earnings Call

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Good morning, My name is Shirley and I'll be the conference operator today at this time I would like to welcome everyone to the Paramount Global Q1, 2022 earnings conference call.

All lines have been muted to prevent any background noise. After the speakers' remarks, there will be a Q&A session. If you'd like to ask a question. During this time simply press star followed by one on your telephone keypad, if you'd like to draw. Your question. Please press star followed by two.

Let's get through as many questions as possible. We ask that you. Please limit yourself to one question.

At this time I would now like to turn the call over to Anthony Diclemente, Paramount Global's EVP Investor Relations you May now begin your conference call.

Good morning, everyone. Thank you for taking the time to join US for our first quarter 2022 earnings call. Joining me for today's discussion are Bob package, our president and CEO and the Vinci Oprah our CFO .

Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website.

I want to remind you that certain statements made on this call are forward looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Some of today's financial remarks will focus on adjusted results Reconciliations of these non-GAAP financial measures can be found in our earnings release.

<unk> or in our trending schedules, which contain supplemental information and in each case can be found in the Investor Relations section of our website now I will turn the call over to Bob.

Yeah.

Good morning, everyone I'm excited to update you on our results for the first time since we unveiled the new Paramount brand and the Paramount vision in February .

As we said then the Paramount brand represents the best in media and entertainment and we pride ourselves on delivering superior content across platforms to fans all around the world too.

Today's results show, we're already executing on that vision, we have strong momentum across our business from our fast growing streaming services and top box office films to our highly rated TV programming and we're on track to deliver against our long term goals, we laid out at our recent investor event.

I think you will see this isn't being walks you through the details of our segment financials shortly.

But first I want to talk to you about the key to our success our differentiated playbook, our playbook anchored in the broad positioning only paramount holds in the market our playbook.

Comprised of four self reinforcing elements.

First our broad collection of exciting engaging content.

Second our diversified streaming business model offering free AD supported and paid subscription options.

Third our wide ranging set of platforms, combining streaming with broadcast cable and theatrical.

And fourth our truly global operating footprint.

This differentiated playbook is what makes paramount unique.

And then there's a playbook, which was designed from the start to leverage our specific asset base to create an advantage streaming model one with a superior financial outlook relative to pure play legacy streamers.

As you'll hear today, we drew on these strengths to drive consumption and monetization across our business in Q1.

Total content consumption has grown to 14 billion hours on our owned and operated platforms. We're also seeing continued total company revenue growth, excluding the impact of the Super Bowl.

And streaming momentum is clearly evident where paramount plus led the way, adding $6 8 million subscribers globally. Once again, making it one of the fastest growing streaming subscription services in the quarter and bringing our total DTC sub base to more than $62 million.

We also continued to dominate the free AD supported streaming TV space with Pluto TV growing to 67, and a half million monthly active users globally.

With that let me break down how our four key differentiators broad content diversified streaming business model wide range of platforms and global operating footprint drove growth in Q1 and will continue to drive performance through the rest of the year and beyond.

First as always is content.

Paramount's diversity and quality of content sets us apart from the competition.

We've got movies scripted and unscripted originals kids and family News sports and events, we've got animation and live action and we serve audiences of all ages all over the country and all around the world and you can see this breadth in our success this quarter.

In the U S. Paramount is the only film studio to have four films opened number one at the box office. This year with Scream Jackass forever, the lost city and Sonic the Hedgehog too.

And next up we have the hotly anticipated top gun Maverick for Memorial day weekend.

In TV CBS is once again, the most watched network for the 14th consecutive season.

This despite not having the Super Bowl or the Olympics.

Our international broadcasters are also strong.

<unk> in Chile. These you know continue to be number one in their markets and share for channel five in the U K is up 10%.

And Pluto remains the number one free AD supported streaming TV service in the U S by a significant margin.

And you now see the incredible Paramount content engine definitively driving streaming, particularly at Paramount plus.

This quarter, we saw engagement go up in all content verticals year over year.

And movies and specials scripted original series and kids and family each more than doubled.

Here are just a few of the top performance from Paramount plus in the quarter.

Starting with movies.

Paramount movies are a powerful driver for Paramount plus.

Films were the number two content vertical and driving new subscribers and we saw triple digit lifts and number of households, viewing and hours streamed year over year.

Our approach to Paramount film releases directly following their theatrical window brought scream and Jackups forever to the service in March where our 45 day fast follow model continued to deliver strong metrics, including strong ROI.

And I'm excited to see La city in Sonic to coming to the service in the next few weeks.

Worth, noting sonic two is outperforming sonic one and Paramount in Cig are also developing a third sonic theatrical film.

And our first ever original Sonic series for Paramount plus next year.

All of this content will make paramount plus the home for this incredibly popular franchise.

Live Sports also continued to perform for Paramount plus.

The NFL playoffs grew strongly year on year and in April the Masters became the most stream golf event ever on Paramount plus.

And for fans of the beautiful game, we are now in UEFA season.

Which will include Paramount plus and CBS sports showcasing the highly anticipated UEFA Champions League final featuring the top soccer clubs in Europe at the end of this month.

The first quarter was also huge for Paramount plus scripted originals.

The compelling an incredibly popular Yellowstone origin story 18, 83 from creator producer Taylor Sheridan was once again a juggernaut.

It holds the top spot for acquisition and as the number one streaming original ever for this service in terms of new domestic subscribers and engagement our latest Star Trek installment Star Trek Picard also thrilled fans in the quarter.

Building on the strong performance of Picard and Star Trek Discovery, we're excited to bring the debut of Star Trek Strange New worlds to audiences. This week.

The quarter also saw our best performing Spanish language scripted series yet.

In fact beyond voice had the strongest acquisition and streaming performance across all original international titles to debut on Paramount plus U S to date.

Filmed in Mexico. The show is a shining example of the power of our global production capabilities.

And then there's halo.

This epic adaptation, bringing to life the action and adventure of the immensely popular Halo game series is a huge global hit.

In fact, it became the most streamed original series premiere in its first week, Andrew release on Paramount plus.

And rest assured there's more coming.

Including Taylor Sheraton's, Tulsa, King starring Sylvester Stallone and the next season, a mayor of Kingstown.

Another season of seal team of Beavis, and Butthead movie and theories and a lot more kids and family programming, including season, two of our Spongebob Spinoffs camp coral.

That plus a pact reality slate with hits like season, three of the challenge all stars.

Our second differentiator is our broad streaming business model.

While many legacy streamers are rethinking their paid only models are a mix of free AD supported and paid subscription streaming options has been a hallmark of our strategy from the start.

Offering viewers the freedom to choose the plan that's right for them and.

And giving us access to the largest global total addressable market.

While providing the benefit of dual revenue streams.

With another strong quarter Pluto TV continues to be a global leader in free AD supported TV.

The service continues to grow and users engagement and revenue.

Pluto launched more than 102, new channels internationally in the quarter.

For a total of now more than 1000 global channels of Great Entertainment on the platform.

Global TV viewing hours are growing by double digits year over year.

It's worth noting that one of the things that makes Pluto Tv's so special is that rather a seeing in a strictly an alternative to other services. Many of you will see it as complementary to linear and paid streaming.

In fact, 80% of Pluto's customers also subscribe to paid streaming services.

Now, we all know people consume content on a variety of platforms. Some shows are worth the subscription. So you can watch them the moment they drop.

Some movies are meant to be seen on the big screen.

And for Big Games, you just have to watch it live on broadcast T V or Paramount plus.

That's why our broad set of platform is a powerful third differentiator.

Our deep expertise and expansive reach across the optical broadcast cable and streaming gives us multiple advantages the legacy streamers don't have.

Strong promotional platforms to market and launch content and multiple revenue streams to generate return on every dollar of content investment.

And remember they created the massive libraries, we have that are now generating significant incremental consumption at incredibly low cost.

We see the power of the multiplatform advantage in the performance of our films.

Our four number ones for example opened in theaters backed by promotion across the entire company.

And we were able to springboard off the theatrical marketing to drive performance as titles launch on Paramount plus.

You saw this approach with screaming Jackass and you will see it in the coming weeks with La city in Sonic two <unk>.

In addition, as I mentioned with Sonic we will also launch spinoffs for Paramount plus to further strength in franchises and deepen fan basis and based off the success of Jackass forever. We're working with the creators to continue the partnership with a new series, bringing even more ridiculous antics straight to Paramount plus.

We also see the power of the multiplatform advantage in the performance of our top linear TV programs and.

In addition to being the most watched network in America C. B S continues to be a strong driver of Paramount streaming services.

Many of the cornerstones of our CBS lineup fan favorites like ghosts, Ncis and F. B I are also among the strongest performers in streaming.

To date. This season CBS has been the source of 17 of the top 30 titles on Paramount plus.

And Pluto TV CBS content accounts for 10 of the top 30 series in the quarter.

This multi platform advantage also benefits our advertising partners.

When advertisers see the massive scale of our linear and streaming offerings, including services like our Paramount plus essentials here and our industry. We'd include OTV fast service. They instantly recognize that we provide access to a highly valuable diverse audience in a manner and scale that's hard to match.

Through IQ, our integrated suite of streaming and creative AD solutions, we gave advertisers turnkey access to $80 million full episode monthly unique viewers.

This is a powerful offering in the marketplace and no one can deliver an audience from across a range of platforms in quite the same way, particularly when we package that with linear TV.

The fourth and last major differentiator that sets us apart is our international operating scale we.

We don't just license out the outside the United States like some companies Paramount is a truly global operating company.

With teams on the ground in more than 30 markets and it doesn't studios, creating original content around the world.

This international presence is unquestionably a powerful advantage when it comes to streaming and we have moved quickly to benefit from it in a number of meaningful ways.

Through our international operations, we have strong relationships, which we have quickly deployed to drive streaming distribution.

And we have an innovative distribution strategy, which comprises a mix of direct to consumer and hard bundles with distribution industry leaders like sky and can help boost in Europe .

These hard bundled relationships have compelling characteristics quickly unlocking material volumes of subscribers at zero acquisition cost and very low churn.

And they help maximize reach by complementing our higher RP direct channels and subscribers, we acquired through other streaming platforms.

At the same time, our local broadcasters provide a powerful channel for promotion and content synergies, which is also additive to penetrating the huge and growing total addressable market outside the United States.

All of this is feeding streaming market expansion.

This month, we are launching a new version of Pluto and the Nordics in a commercial partnership with net.

We bring our global platform and global content with meant a market, leading nordics broadcaster, adding local content and local AD monetization capabilities.

We believe this will be a compelling growth model and we see more like this to come as we work with local broadcasters in markets, where we don't have a broadcast presence that said our global growth has led of course by Paramount plus.

In 2021, we launched Paramount plus in 25 markets across Latin America, Canada, and Australia in.

In 2022, we're continuing to expand to more of the biggest markets in the world.

Next up is the launch of Paramount plus in the U K and South Korea in June and with a more major European markets, including Italy, Germany, France, Switzerland, and Austria in the second half of the year.

We will also begin to rollout sky Showtime are exciting capital efficient joint venture with Comcast Sky Showtime will bring a rich offering of IP from Paramount and NBC Universal to territories, encompassing 90 million homes, primarily in eastern Europe .

By the end of the year, our combined <unk> premium services, including Paramount plus and Sky Showtime will be available in more than 60 markets with more than 60 partners. In addition, we're announcing today the Paramount plus will be distributed in India via our joint venture Viacom eighteens platforms in 2020.

Three no.

Note that Viacom 18, just entered into an agreement related to a significant third party capital infusion and is poised to become an even more significant streaming player in the market.

In closing by going broad on content on streaming models on platforms and our global reach we have written and are executing on a differentiated playbook to grow a diversified entertainment company and build a financially attractive business with healthy long term margins.

With that I'll hand, it off to intervene to talk about the results. We're seeing this quarter and the path toward continued growth and even greater Heights Levine.

Thank you Bob and good morning, everyone. Our first quarter results reflect how our four strategic Differentiators can drive performance at Paramount.

Our balanced portfolio of media assets yields not only strategic benefits, but financial ones as well.

The strong OIBDA generation of our traditional businesses together with our fast growing DTC business make for a powerful combination.

Today I'd like to highlight some of the key financial and operational results in each of our new reporting segments.

Starting with direct to consumer.

Our dual revenue stream model delivered strong year over year growth of 82% with total DTC revenue, reaching nearly $1 1 billion.

This growth consisted of an increase in subscription revenue of 95%.

Aided by the addition of $6 3 million global subscribers in the quarter and 59% advertising revenue growth.

Total global streaming subscribers were $62 4 million at quarter end, resulting in $742 million of D to see subscription revenue.

Q1, DTC advertising revenue was $347 million, reflecting user growth increased engagement and monetization across our ad platforms.

Paramount plus added $6 8 million global streaming subscribers in Q1, bringing our worldwide base to nearly $40 million.

The net additions reflect a balance of domestic and international growth with international benefiting from both direct subscribers and hard bundled offerings. Another example of how our differentiated playbook is driving growth.

Paramount plus saw continued improvement in engagement in Q1, as the breadth of our content portfolio expanded.

This is evident in our domestic monthly active rate, which improved quarter over quarter and year over year. Additionally.

Additionally, we saw double digit sequential growth rates and hours per active and unique titles streamed per active.

Our multi platform programming expertise helps our customers spend more time with Paramount plus and explore more of our broad content offering.

And importantly, this behavior helped drive improvements in average domestic monthly churn in Q1, which declined quarter over quarter and year over year to reach its lowest level in two years.

Strong engagement also helped drive robust advertising growth, which contributed to total Paramount plus revenue growth of nearly 150% to $585 million with domestic and international <unk>, both higher quarter over quarter and year over year.

Net subscribers on our other streaming services declined in Q1, primarily due to the timing of new programming.

Pluto TV added $3 1 million users in Q1, bringing our global footprint to $67 5 million M. A use.

Revenue grew 51% to $253 million, which translated to strong year on year ARPA growth of more than 20% domestically and 7% on a global basis.

In line with our previously shared expectations D to C. OIBDA was a loss of $456 million in the quarter, reflecting the investments we are making in content marketing and our international expansion plans.

Turning to our T V Media segment, Q1 revenue declined 6% year over year, including an eight percentage point impact from Cbs's broadcast of Super Bowl 55 in the prior year period.

T V media advertising declined 13% versus the year ago quarter, which included a 17 percentage point impact from the Super Bowl.

Adjusting for the Super Bowl total TV media revenue grew 2% and T V media advertising revenue grew 4%.

TV media affiliate revenue grew 1% in the quarter, driven by incremental distribution and contractual rate increases, which were somewhat offset by ecosystem declines and.

And TV media licensing revenue was roughly flat in the quarter.

T V media OIBDA declined 13% in the quarter to $1 5 billion.

The year over year decline is largely driven by the comparison to the Super Bowl in the prior year.

And a return to a more normalized programming schedule in 2022 relative to 2021.

In filmed entertainment, we generated revenue of $624 million, which includes a resurgence in theatrical revenue generated from the release of three number one movies in Q1 compared to no theatrical releases in the year ago period.

These films are great examples of our broad platforms inaction for.

For instance, Scream, which was released in January outperformed our original box office expectations, and then moved to Paramount plus after 45 days, where it became a top five starts driver and where its contribution to subscription subscriber acquisition and retention is enhancing overall.

Sure.

Licensing revenue at filmed entertainment declined in the quarter due to the comparison against sizable transactions in Q1 of 2021, including coming to America and without remorse.

Filmed entertainment had an OIBDA loss of 37 million, which reflects marketing expense associated with in quarter and future theatrical releases.

Total company Q1 revenue finished down 1%, including a six percentage point impact from the Super Bowl.

Excluding the impact of the Super Bowl total company revenue grew 5%.

Total company adjusted OIBDA of $913 million is down year over year, which reflects increased investment in D. C. The return to theatrical releases and the comparison to the Super Bowl in the prior year period.

Regarding the year on year trend Q1 results are consistent with our prior commentary and which we noted that we expect the first half of this year to show a year over year decline in consolidated OIBDA, which will then flip to growth in the back half of the year.

Turning to the balance sheet, we finished the quarter with five 3 billion of cash on hand, and total debt of $16 8 billion.

This reflects the early repayment of nearly $2 billion of debt as well as the issuance of $1 billion in junior subordinated debt, which took place during the quarter.

In April we used proceeds from the junior subordinated debt offering to redeem approximately 1 billion of additional senior notes.

We continue to maintain significant financial flexibility, which will increase with the addition of proceeds from the sale of Simon and Schuster. We also maintain a committed $3 5 billion credit facility that remains undrawn turning to our outlook. We continue to expect healthy D to C subscriber and revenue.

And our full year OIBDA expectations remain largely unchanged with the exception of the impact from Russia's invasion of Ukraine.

As previously announced we have taken steps to suspend our operations in Russia.

This decision will negatively affect full year OIBDA by $70 million to $80 million, the largest component of which will fall to the T V media segment.

We're also in the process of reviewing existing hard bundled relationships in Russia and.

And starting in Q2, we expect these subscribers will be removed from reported D to C subscribers.

This change will reduce Q2 D to see subscriber growth by approximately 3 million subs.

Roughly two thirds of which are subscribers to a non paramount plus service specific to the Russian market.

Except for the removal of subscribers to our services in Russia are full year D to C sub growth expectations are unchanged.

Given the nature of the affected services. The financial contribution is immaterial and is included in the OIBDA impact I just mentioned and.

And importantly, we remain highly focused on using our differentiated playbook to build our streaming business in a way that can deliver sustainable long term economics.

As we've said previously our model targets long term DTC margins that approach T V media.

We are bullish about our long term goal of reaching over $100 million Global D to C subscribers and generating at least 9 billion in DTC revenue by 2024.

We continue to forecast D to C. OIBDA losses will be greatest in 2023, and then improve in 2024.

We have significant growth ahead, our broad content offering has proven appeal. Our dual revenue stream model is enhancing <unk> and attracting subscribers. Our content investments are capturing returns across both traditional and streaming platforms and our global footprint is delivering strategic.

And financial benefits.

With that operator can you. Please open the line for questions.

At this time I would like to remind everyone that in order to ask a question. Please press star followed by one on your telephone keypad.

In order to get as many questions as possible. We ask that you. Please limit yourself to just one question.

Our first question comes from Brett Feldman of Goldman Sachs. Bret Your line is now open.

Yeah. Thanks for taking the question I'll, just sort of jump into the big debate you know investors are increasingly concerned that the streaming market is becoming saturated and as you think about your own business and as you are looking to sustain the momentum we've seen in Paramount plus over the last couple of quarters. You know what are the key things you need to execute against this year.

Year to meet the subscriber targets that you've outlined and I'm curious, whether you've been making any adjustments behind the scenes to your go to market strategy or your content strategy based on any shifts you've seen unfold in the market or maybe just the macro backdrop.

Yes, sure Brett Let me, let me dive in there so definitely a lot of conversation about the space, but I'd make three points in response to your question. The first one is we continue to believe that the Tam today in streaming is huge and that it will continue to grow and related to that.

We believe the Tam that we target is even larger than most people think because as you know we believe in both pay and free offerings, including lower cost advertising supported options.

And that means we appeal to the broadest potential number of consumers.

While there's no question that market sentiment has moved around a little bit.

We continue to think that consumers are only moving in one direction.

We're very excited about the potential there.

And as a company we're early in penetrating the market. So there is tremendous runway ahead of us.

And if you look at the momentum that we're seeing including in the last couple of quarters, we feel very good about about getting there and.

And third in terms of how we're going after the market.

As we've said, we're running a differentiated playbook, taking our broad content. This broad screaming business model spanning free and pay with dual revenue streams AD and subscription.

Multiple platforms broadcast cable theatrical pluck streaming.

And this global operating footprint.

And we're putting all that together and in a unique model, which really drives streaming momentum and built us.

Two a more attractive financial model.

Where we're able to produce similar margins, we believe to legacy streamers at a lower scale.

So despite all of that conversation.

Nothing has changed in the context of our thinking again, we see tremendous momentum here and we're very excited about the road ahead.

Thanks, a lot Brett next question please.

Perfect. Our next question comes from Michael Morris of Guggenheim Michael Your line is now open.

Hi, Thank you good morning, guys.

I'll follow up on that question, Bob you just kind of touched on margins I'm, hoping maybe you could expand on that a little bit.

If you look at the legacy media business is a pretty broad range of margin a.

Profiles between theatrical broadcast cable nets etcetera.

This.

Netflix earnings call I think you know really brought up the topic of running into some margin expansion pressure on the streaming side. So I'd just love to hear maybe a little more about your response to that last question on what you think of the margin profile.

Overtime.

And then also if I could just sneak one more in because he brought up the India expansion, which was new I'm, hoping maybe you could share a little bit more detail on the opportunity that you see there and remind us of the assets you have in place that could be a foundation for success. There. Thanks guys.

Yes, sure why do we do it in reverse order I'll take India, and then I'll flip the margin question to the mean, so on India look that's a fundamentally attractive market. It's a market that's already at scale and has a tremendous future ahead of it in the context of media.

As I think you know since its inception Viacom 18.

<unk> has been a significant player in the market.

And the recent agreement with Bodhi tree, we look at that as a compelling way to really drive the next level of growth and obviously, there I'm going to make a significant capital infusion into the business.

When we when we look at India, and we think about our current situation I would really just highlight three things. The first thing is we really like Viacom 18. Its the model we like it has broad reach television networks, including the market leading colors brand.

Combined with our film business Hindi film business, it's both national and regional and of course.

Streaming assets as well all underpinned by a strong local content engine. So that's the model we like in general.

Thing is our core partner there is reliance.

That's arguably the strongest and most powerful companies in India and they also own the telecom market leader G O.

So we think that's great.

And as I said now Viacom is the 18 set up to be even a bigger player in the market.

Including in streaming so we look at that as a great opportunity for Paramount plus as we said as I said in my remarks.

Going to enter in 2023 are in AR, and we're going to do so in a very capital efficient hard bundle way and so we think that's a great route into that market.

And I would also note that India will be incremental to our 100 million sub guidance.

It's early days so we're still at the point of deciding what we want to put out there, but it's definitely incremental to our guide Levine on the margins yeah. So with respect to the question about margins in streaming I think it's very important to understand that as a diversified media company.

We have the ability to fundamentally change the economics of the streaming I think we're the only player that is truly scaled across broadcast cable and both pay streaming and free streaming services and that has real economic benefit for us.

And I'll give you a couple of examples.

With respect to content.

You see a lot of pure play streamers to have to spend billions of dollars a year renting library content, we have that in house.

And library content is responsible for a large share of viewing on streaming services and it's absolutely critical to subscriber retention.

And so for US we're able to not only avoid billions of dollars in rental expense. We've actually now learned that we can use our own library for retention, while also getting paid by third parties.

For a nonexclusive right.

So that's a significant benefit to our streaming P&L. If you will another example in.

The marketing area as many people know launching new shows is expensive are not uncommon to see a big scripted original need tens of millions of dollars of marketing support to build an audience.

But our model helps avoid those costs really in two ways we.

We have a lot of our existing IP well known IP large franchises that have built in audiences that we can bring to streaming think of paw patrol are in 18 83 coming off of Yellowstone franchise like Sonic.

And even big CBS shows like F. B, I, Ncis et cetera, we've been able to bring those to streaming with very limited incremental marketing expenses and then second on the marketing front, we have access to a lot of very valuable very powerful promotional inventory across the broadcast cable digital and so.

<unk> channels.

That we run you saw if you utilize this during the AFC Championship game, where we were promoting halo with some great.

Integrated experiences and Thats, a broadcast that reached over 30 million viewers on that.

It would be very expensive to leverage if you were a pure play streamer and you didn't own that promotional inventory.

So you take those kinds of benefits, which again are unique to our position.

As a diversified media company and you can see how that really adds up to a significant difference in overall streaming economics.

Great. Thanks, Mike next question.

Our next question comes from Bryan Kraft of Deutsche Bank, Brian . Your line is now open.

Hi, good morning.

I wanted to ask you a question on content spend it looks like total cash content spend last year was about $2 $5 billion higher than total programming and production expense.

Looks like that difference will probably be about the same this year and that represents about a 60 percentage point drag on free cash flow conversion in both years. So.

I wanted to ask you first I guess do you agree with that observation that math and if so could you just maybe help us think through when we might start to see meaningful decreases in the drag on free cash flow conversion from that content investment or put another way when do you see that that ratio of cash content spend P&L expense decrease materially.

Yes, Thanks, Brian .

AH, Yes, there is a gap between a cash content spend and our.

Content expense or <unk>, but we do expect that to improve and therefore overall free cash flow I should say.

Liked it to narrow and therefore overall free cash flow conversion to improve.

The GAAP youre seeing today between cash and <unk> is primarily related to.

Two dynamics number one.

The return of our production to more normalized levels post Covid and then number two continued growth and investment around streaming content.

And I think on the Covid piece, we expect to see that easing through the remainder of 2022.

Streaming investment will obviously continue to ramp through 2024, though the growth rate does slow over time and as that growth rate slows the gap between cash and expense will start to narrow.

And then in parallel we also as I've spoken about before continue to drive a number of different working capital improvements that should help overall free cash flow conversion.

But hopefully that gives you some sense of.

What to expect on the trends there.

Thanks, Brian next question.

Our next question comes from Rich Greenfield of luxury partners Rich. Your line is now open.

Hi, Thanks, I'm going to ask a couple of questions I don't get to ask them any questions on conference calls.

So.

Bob I think you made a pretty active decision last year to.

Move Halo from Showtime over to Paramount, plus which I think has done pretty well the way you've talked about halo.

It does seem though.

When you look at sort of Showtime, losing subscribers this quarter I presume, it's sort of just raises the question of like why is it important for paramount to own Showtime. It seems like it's a pretty obvious asset either to be incorporated into Paramount plus but it also has real I havent see strategic value like you could spin it off you could probably merger.

With someone like stars like it just seems like there is a it's confusing in terms of you have to figure out where to put content internally. So if you could just help us think through the strategic logic of keeping Showtime as a separate brand inside of Paramount that would be great and then two more of just a housekeeping point the our pool of Paramount plus globally like $5 39 that include.

Ads and subscription and when you look at sort of the strength of the connected TV AD market overall over the last year, just curious like where are you in terms of an <unk> is there anything you could sort of highlight what is dragging down that overall, ARPA, which looks like it's down a few percent year over year, what's weighing on that is that international is that distribution deals like team is.

Just help us understand why the <unk> isn't a lot higher than $5 39 would be great.

Yeah sure Rich I'll take the first one and then I'll then Devine will take the <unk> question. So on a total company basis. We as you know we saw added $6 3 million subs Paramount plus added $6 8 million. So the fact, though the other category, which is what we report.

We report Paramount plus and total so by definition other declined about 500000 that other category includes Showtime also includes B E T plus and noggin and some other smaller international streaming services.

If you look at that category of other yes. It declined 500000 in the quarter, but it added 5 million subs last year. So it's not inconsequential to the success and momentum of our streaming business.

And it's not just Showtime.

If you look at Q1, a couple of those services were impacted by timing of programming availability.

So that was one factor, but big picture, we view a combination of our broad service in this case, Paramount plus plus specific service services, which target specific consumer segments things like noggin things like Showtime and additive to going after.

They're the largest Tam.

And again.

Our streaming history has proven that they are additive ex Q1.

So we continue to believe that's a good strategy, we do make decisions of where to put programming as you pointed out last year, we moved halo from Showtime to Paramount plus because we viewed paramount plus as the broader platform and that was a better place for that show, we moved man who felt the earth. The other direction, we thought that was a better place for that show.

So we think about these things, but we really look at the constellation of services. The other point I'd make is we are on a path to integrate these much more sure. We do a commercial bundle today with Paramount plus and Showtime, but as we've said in the summer you are going to be able to get Showtime within Paramount plus adds an additional.

<unk> option and that'll set us up because we have the opportunity to do that with other brands as well, so again, serving super fans with a super broad offering, but still offering some ala carte options. We think is the right strategy. So that's how we're thinking about it rich on the RP point Nadeem, yeah. So a couple of things on <unk> in terms of.

The year on year trends that you were asking about rich.

That really is a function of the mix between international and domestic.

You've obviously grown.

Well I should say, we've launched in a number of international markets and grown our subscriber base there over the course of the last year and so.

That mix is skewing, a little more international than it was a year ago.

And given that it's the mix that is driving that number I think it's more helpful to look at the individual components, which is to say look at.

What happened with domestic <unk> and international <unk> separately and when you look at it that way.

Both of those numbers domestic and international <unk> improved both quarter over quarter and year over year in Q1, the drivers of each are a little bit different on the domestic side.

That RFP benefited from the fact, we had a lot of folks in our free trial state in Q4, and as we said back then we expected they would convert become paid subscribers in Q1, which which did happen and on the international side.

<unk> continues to benefit from the fact that the subs, we're adding are coming from markets, where <unk> tends to be higher than sort of our installed base, where we started in some smaller Latin American market.

So that's sort of the trend for Q1 in terms of where we see that going in the future and how big could it get relative to other industry peers. We do think there is upside potential it's a combination of.

Both growth in and at <unk> as well as a continued strength on the on the subscription piece of it.

To remind you that.

As we said last quarter domestic paid <unk>.

Is around $9 and that actually grew in Q1 relative to Q4 as well. So that gives you some sense of sort of the long term potential.

When you look at it separately between domestic and international.

Thanks, Rich, we'll take the next question.

Our next question comes from Benjamin Swinburne, Morgan Stanley Benjamin Geelong is not what happened.

Thanks, Good morning, two questions one on the AD market and then one on on D to see through the rest of this year.

Obviously, a lot of concern around the macro backdrop could you guys talk a little bit about what youre seeing in advertising both as you head into the upfront and and also curious on the on the fast food upfront if theres been any slowdown.

Slowdown or anything you're picking up on the advertising side and how we might want to think about that for Q2, and then you have a lot going on this year in D. C. You've got a lot of new market launches some hard bundle launches, particularly with sky.

Could you just help us think about the rest of the year in terms of cadence, which quarters, you think might be bigger than others based on what you have you know today around your partnerships and anything on the content slate, we should be thinking about thank you.

There have been a lot in there let me try to take it quickly. So on the AD side look on an apples to apples basis I E. If you take if you adjust for the Super Bowl comp Q1 was a solid growth quarter for US we were up 4% in TV media and that was based on strength in local and international.

<unk> sports too.

If you add the D to C business in the tone again ex Super Bowl business grew about 8%. So that's solid in terms of under the covers.

It was a bit mixed we had strength in a bunch of categories like travel like movies like retail. We also saw some weakness categories like wireless auto pharma and those were driven that weakness was really driven by a mix of kind of supply chain and what I'd call general ramp out of out of <unk>.

<unk> headwinds.

I'd point out that as we look at the market, we see political as very significant plus in the second half of the market Hum. So that's how we're looking at it you did mention the upfront I will say we are super excited about the upfront as you know we're coming back to Carnegie Hall in real life live and in person on May 18th.

We will showcase the power of Paramount.

We'll show our full range of demographics, the combination of our linear and digital platforms, including of course, IQ, which gets your 80 million full episode views viewers.

We'll show you advanced advertising solutions, including the use of three alternate measurement currencies to get some optionality in the marketplace, obviously will bring our best in class AD creative and integration.

And it's gonna be built off it is built off just a truly incredible content lineup entertainment sports tent Poles.

So we're very excited are going into this upfront.

If you want to touch on Pluto, and then I'll come back to the international point.

Yeah sure.

Look in terms of Pluto.

There was a little bit of softness in Q1, but similar to Bob's comments I think that was driven.

Entirely by market dynamics and in categories that are impacted by supply chain or in some cases comping against categories that had a real COVID-19 bump in the prior year period, and I wouldn't lose sight of the fact that pollute.

Pluto revenue still grew more than 50% off a billion dollar base.

Which by the way is despite some changes that we made to reduce ad load.

In order to continue to improve and evolve our user experience.

Which I think will benefit long term engagement and monetization.

That all translated to compelling ARPA trends in the quarter I mentioned, our domestic <unk> being up more than 20% international <unk> growing at an even faster clip than that.

And so looking forward, we think are the strong user engagement.

User growth and engagement trends.

Probably we'll continue to drive monetization.

There will be some impact from the overall ad market.

Based on some of the dynamics that Bob described there, but big picture you know Pluto is a business where.

The combination of structural growth and our significant leadership position.

Allow us to offset some of those cyclical headwinds by a very very significant margin.

Yeah, and then real quick yes, the back half of the year is as busy in D. C. Obviously, we got a great content slate coming very excited about that are the real volume of activity arguably in a change versus prior year basis International launches U K and South Korea in June then we roll to Italy, Germany.

We are Switzerland, France.

Through the remainder of the year all of that enabled by our obviously, our streaming platform and content lineup, but very importantly, our local teams on the ground.

Hum building on relationships, we have including hard bundled relationships, so tremendous amount of activity as we scale Paramount plus very quickly.

Gonna be an exciting year.

Great.

We'll take our next question.

Our next question comes from Phil Cusick of J P Morgan, Phil Yolanda Smart weapon.

Thank you good morning, one follow up on streaming and wanted to ethical first Avon and add light models seem to becoming the norm rather than the exception does that change your view on your differentiation Paramount plus include up and then second can you comment on the state of the box office, you had two or three stronger.

Releases recently, where do you see appetite sincere to growing today in the U S and globally versus 2019 and.

And do you think Tentpole movies can do a large percentage of our 2019 potential at this point thanks guys.

Yeah sure so.

I guess in reverse order because the first one is quicker so box office, we're feeling very good about it we just got some research that on the domestic side consumer comfort is at 87% that is the highest level since the pandemic began and you know we've released a number of films all of which are number four number one to date.

The third one la city was a real Canary in the coal mine in a good way because that was an older female audience that came to the theater. The first two were younger male audiences, which we were less worried about showing up.

And of course, Sonic our fourth one did very well that's a broader family audience. So we like what we're seeing our sense now is box office for 2022 will probably be down about 20% versus 2019, which we think is pretty good. So we feel good about it and we're super excited going into.

To Memorial day weekend with top gun Maverick, we're actually going to the San Diego Premier on Wednesday Night, we think that's going to be awesome. We showed it at cinema Con in Vegas to the theater owners and literally I've never read tweets like that.

People were just incredibly crushing about it the perfect Tentpole was one of the comments I thought so we're feeling good about the Asheville, we're very happy to be in the business. We think it's good stand alone business and clearly drives.

Streaming to your first question on streaming and advertising look we were early to that game, we let it because we believed in it when other people didn't and we still believe and we are a leader and we are differentiated this is not an easy business.

To replicate it starts with an integrated strategy that spans free and pay streaming and leadership in free for sure and growing on the pay side, including obviously Paramount plus essentials. It also extends to multi platform advertising goes across broadcast cable and streaming and we have leadership positions in broadcast.

Cable too.

And its non trivial to stitch all of that together add to that content, which is both libraries, primarily libraries on the free side with Pluto and original if you've heard some of the stats, Mike sorry, Paramount Global libraries power, our streaming platforms and.

And again very difficult to replicate and then on the platform side, you know Pluto is pretty advanced connected TV platform and we continue to to add features including AD Tech features to it like dynamic AD management AD load management. So.

So that's differentiated marketing to being talked about at the power of our cross platform management marketing and the cost effectiveness of that.

And then lastly international as we're rolling it out whether it's.

The hard bundled model, which we talked about or what we're doing this month with net where we're rolling out this local model, where we bring platform and big libraries of neighboring local content and local ad monetization.

Yeah, where we reviewed all the discussion on advertising as a validation of our strategy.

But we are the leader and we have real assets here and we will continue to.

To push ahead and lead this market.

Great next question please.

Thank you. Our next question comes from Jessica Li.

Both Bofa securities Jessica you'll understand what happened.

Yeah.

Oh, Thanks, I have two questions first going back to MTR.

Which was news today, there's been tons of press coverage.

On the alliance hitting for IPL I think that comes up.

Next month would that be part of Paramount plus.

It's critical content, but obviously it would be super expensive.

And then the second question is you talked about the multi platform advantage, which.

Clearly benefits advertising, but I'm wondering if you could just talk a little bit about how that impacts your conversations with distributors as you move content between platforms and given the kind of I don't know.

Step up in sub losses, you know this past quarter or.

So if you could just talk about that impact that would be great. Thank you.

Sure Jessica.

So on the India side. The point you make is why we said what we're doing in India. So capital efficient. So youre right Theres cricket is going to trade in the marketplace and beyond that I'm not going to say.

But no our intent is not to put cricket on Paramount plus but remember what I said, it's a hard bundle strategy, which means Paramount plus will travel with all their assets and therefore, we believe there's a real opportunity to.

To benefit from cricket without having to pay for it on Paramount plus so that assumes of course that.

That ends that ends up in a certain place, but that's the answer on India again, we're tremendously excited about that market about our partner reliance about bodhi tree coming in.

In a route and are benefiting from our leadership position they're in.

To your second question.

On cross platform and content.

Say a couple of things one is we think about our T V media that business every day, we're a leader.

Again, CBS number one network. Despite the fact that one of our competitors had the Olympics and the Super Bowl that speaks to the power and strength of our programming slate there in likewise on the cable side.

As of Q1, we continued to lead on virtually every demographic on share.

So and the reason is because we put a lot of great programming on those platforms.

Lot of exclusive first on those platforms, which which we're happy to do because we partner with distributors, who are providing those services to consumers. So so again our strategy is for sure to continue to reinforce value there as.

As we simultaneously build our streaming business and by the way our distributors are active with us on the streaming side to every N V. P. D V M. B P. D deal we've done certainly in the past year, but really longer than that I'm pretty sure include the streaming component might include a Pluto component might include a paramount plus component might include.

<unk>.

But it's really working with.

With distributors to both ensure stability and.

And predictability in the.

The linear side, while simultaneously, helping them transform their business to the broadband video side.

Jessica we have time for one last question.

Okay.

Perfect. Our final question comes from Robert Fishman of Moffett Nathanson Robert Your line is now open.

Good morning. Thank you Bob maybe just following up on Jessica's question can you expand on how you plan to specifically use sports as a differentiator across the company's portfolio of linear in D C and whether your legacy linear sports contracts.

It might make it harder to renew rights going forward with the proper ROI if cord cutting does accelerate and just lastly, if you could touch on Amazon and Apple increasing its investments in sports and how that might affect future negotiations. Thank you.

Sure. So look we like sports as a component of our programming strategy across platforms CBS sports clear market leader in it a great portfolio of sports assets, including NFL, including NCWA, including golf.

Including by extension on Paramount, mostly on Paramount plus but also a bit on CBS UEFA, that's all obviously U S.

And we have been selectively adding sports properties outside the U S. We do all this in a very disciplined.

Disciplined way looking at Rois sure Theres some stuff that's traded that we haven't done because we didn't think it was worth the price point, but we very much like it is part of a component of our strategy.

It's performing very well in the broadcast market.

On viewership and advertiser perspective, and it's clearly as.

As I said in my remarks, driving streaming as well.

You know the first quarter benefited once again from sports on Paramount plus so we like it.

You know in terms of negotiations all negotiations have their challenges, but you.

You know, we were just with and internationally last week.

Talking to them about the power of Paramount in the context of our platforms our production expertise our monetization capabilities.

And really showcasing the value of sports to us and.

It's a compelling package, we offer and I'm very happy playing that plan. So it's part of our strategy is clearly not our whole strategy, but its additive.

With that I, just want to close by thanking everyone for joining for our Q1 call and thank you for your continued support.

As I hope you've seen Paramount as high growth streaming business underpinned by real strength in film broadcast and cable is a powerful combination and it has clear momentum. So our differentiated strategy. As we said is creating advantage. We're excited about the road ahead until the next time, we speak everyone stay well.

<unk>.

Ladies and gentlemen. This concludes today's call you may now disconnect your lines.

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