Q3 2022 Paramount Global Earnings Call

November 2, 2022

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Good morning. Good afternoon, My name is Adam and open the conference operator today at this time I would like to welcome everyone to Paramount Global's Q3, 2022 earnings conference call all lines have been muted to prevent any background noise. After the speakers' remarks, there'll be a Q&A session if you'd like to ask a question. During this time simply Christophe followed by one on the telephone.

Pat.

If you would like to withdraw your question. Please press star followed by two.

In order to get to as many of your questions as possible. We ask that you limit yourself to one pop Hudson at this time I would now like to turn the call over to Anthony Diclemente permanent levels EVP Investor Relations you May now begin your conference.

Morning, everyone. Thank you for taking the time to join US for our third quarter 2022 earnings call. Joining me for today's discussion are Bob <unk>, our president and CEO and Naveen Chopra. 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 on our earnings release or in our trending schedules, which contain supplemental information and in each case can be found in the Investor Relations section of our website and now I will turn the call over to <unk>.

Bob.

Good morning, everyone and thank you for joining us today I'll share some highlights from our third quarter and give you my perspective on the road ahead Levine will then take you through the numbers and then we'll open it up for questions.

In the third quarter parallel continued to execute on our differentiated strategy.

To deliver compelling entertainment experiences for the world's consumers, while creating value for our partners and shareholders.

That strategy is firmly grounded in three key strengths first our broad range of popular content.

Our unmatched array of platforms and third our truly global operating reach.

I'm happy to report that our robust content engine firing on all cylinders in the quarter producing a broad range of captivating stories with engaging characters and settings for lovers of content of all kinds.

As the only media company with five different platforms. We've delivered this content to an exceptionally large consumer market. Our businesses include the number one broadcast network CBS .

Our portfolio of industry, leading cable networks, many of which are number one across their respective demographics like Nickelodeon and bep.

The number one free AD supported streaming TV service in the U S. Pluto TV <unk>.

Our rapidly scaling subscription service, Paramount plus and a Hollywood studio with six number one hits this year Paramount Pictures.

And for US it's not just about the U S. Our global operating footprint includes the largest number of broadcast homes in the world content production capabilities across Latin America. The U K Europe , the Middle East Africa, and Asia Pacific Cable network reach in virtually every key market and deep commercial relationships.

<unk>.

And once again these assets delivered in the third quarter, we sustained our strengthened TV grew nicely in film and drove rapid growth in streaming around the world.

That said as I think everyone is aware this is a complex environment and economic period and our results for the quarter do reflect some macroeconomic headwinds that are affecting our industry.

For us however, managing through near term volatility does not mean radically diverging from the strategy that is producing real momentum and positioning paramount to win in the long run as we execute however, we are also taking aggressive precise actions to gain additional efficiency across our cable networks streaming platforms advertising.

<unk> marketing and global operations.

These will yield cost savings next year as well as long term strategic benefits.

And we're taking advantage of this current market to accelerate these efforts.

With that let's take a closer look at the quarter and our plans ahead.

It all starts with our world class content with a powerful mix of scripted and unscripted original hit movies News and live sports, we've got something for everyone in the household.

Let's start with the incredible run at Paramount Pictures this year.

I can't talk about producing great content without mentioning our theatrical releases were Paramount pictures is dominated with six number one films.

That string of hits as led of course by top gun Maverick. It is now the fifth largest domestic release of all time and the only film in history to be number one on memorial day weekend and number one on labor day weekend in the United States.

It was the number one title in the U S and digital home Entertainment. Its first week of release as well and we know we'll continue to draw big audiences. Once it comes over to Paramount plus later in the year.

And now our horror thriller Smile released at the end of September has hit it big as our six number one box office film of the year.

<unk> made for just $17 million, it's now on track to gross over $200 million globally.

Smile will also be the next example of our 45 day theatrical to streaming fast follower strategy.

It gives fans the chance to have a big screen experience before enjoying at home on Paramount, plus and which gives us a very compelling return on investment.

Next we'll move to broadcasting CBS 2020, Two's number one broadcast network, whose fall season is off to a strong start on.

On the entertainment side, we have seven of the top 10 shows and more shows in the top 30, then all other broadcast networks combined.

This performance is seen in returning favorites were close to 11 million viewers tuned to the season two premier of Ghost for example, and as seen in new shows like fire country. The season's number one new show.

Paul also means football and for us that means the NFL on CBS and on Paramount plus the.

The 2022 season kicked off in September with viewership off to its best start on CBS since 2015, and its best start ever on Paramount plus.

College football is off to a strong start as well.

And in August we announced Paramount will are big 10 football games on CBS and on Paramount plus that will kickoff next season.

That means the biggest and best in college sports will continue to call Paramount homes through the end of the decade.

We don't just have American football, we've got European football too.

In August we extended the rights to air the UEFA Champions League keeping this marquee property on Paramount plus and CBS for the next eight years.

I'm thrilled Lou did as.

So far this season, Paramount plus had dramatic growth in average audience in streaming minutes and in total households.

So the outlook is strong and we are excited that some of the best soccer and the world will keep kicking it on Paramount plus.

With more games and an expanded playoff format. The deal creates an even more efficient investment for many years to come.

Paramount plus also saw strong acquisition in the quarter from our slate of original series.

Seal team and for movie releases, including the psychological horror film orphan for skill and the triumphant return of our favorite losers in Davidson Butthead do the universe.

It's powerful array of popular content is the fuel that continued to drive growth in subscriptions across our streaming platforms in the third quarter.

Total global direct to consumer subscribers rose to nearly $67 million in the third quarter and the key driver here was once again, Paramount plus which attracted $4 6 million new subscribers, reaching 46 million total subscribers for our flagship streaming service.

In fact year to date Paramount plus has led the industry in U S sign ups and gross subscriber additions. According to antennas September 2020 to report.

Year over year revenue from Paramount plus grew 95%.

Importantly, these third quarter numbers only begin to reflect the impact of the exciting first of its kind partnership with Walmart.

As you probably know we have a decades long relationship with Walmart and merchandise and consumer goods.

When the world's largest retailer was looking to enhance its Walmart plus package with streaming offering.

We are thrilled they saw a natural fit with Paramount plus.

Starting in September Walmart plus members could begin opting into a paramount plus essential streaming plan at no extra cost.

Early results have been very encouraging.

<unk> plus has great potential to accelerate Walmart plus growth and retention.

And we expect the partnership to grow as the marketing program ramps up including an in store presence for the more than $100 million retail customers, who pass through Walmart in the U S. Every week.

Innovative partnerships like this are important element of our pursuit of the largest total addressable market and.

And it's a strategy we've taken globally in the third quarter, we joined forces with powerful partners to debut new streaming offerings in several international markets.

We celebrated the Italian launched Paramount plus in September in partnership with Sky Italia and later this year, we'll introduce Paramount plus in Germany, Austria, and Switzerland, with Sky Deutschland and in France with Canal, plus and we continue to strike. These kinds of innovative partnerships in the UK. We are pleased to announce a new multi.

Year multifaceted distribution agreement with Virgin media under that agreement Paramount plus will debut on Virgin TV in 2023 and.

Pluto TV will be more widely distributed on Virgin TV, $3 60 and stream service.

In the third quarter, we also launched Sky Showtime, our joint venture with Comcast in Denmark, Finland, Norway and Sweden.

For Us this partnership represents a capital efficient way to go after smaller markets for.

The viewers it means access to the best entertainment from the entire Paramount family as well as from NBC and Universal Studios.

Pluto TV already the top three AD supported streaming TV service in the US Also continues to go global in September we announced that Pluto TV will launch in Canada on December one.

Here too we have joined forces with another long standing partner Corus Entertainment, who bring local content Canadian audiences love and a powerful local AD sales channel to drive monetization.

Of course, we are all aware of the ongoing macroeconomic pressures that continue to affect our industry and the AD market in particular.

As we navigate this period Paramount will continue to rely on the fiscally disciplined approach and that's been our advantage in good times and bad.

We have always been mindful of cost management as a company and we are now taking additional steps to improve efficiency across our organization.

For example, we recently announced our intention to reorganize Showtime networks, Showtime OTT and Paramount television studios into other parts of the company.

This will further align our studios networks and streaming operations in ways that it enables significant cost reductions and advance our strategic agenda.

We're also doing work with respect to international operations marketing and AD sales.

And speaking of AD sales, we know that advertisers see us as a cornerstone marketing solutions provider in the U S.

I want to be where the top hits are and even more so and complex economic times.

And our combination of the number one broadcast network a rapidly growing streaming service and the number one free AD supported streaming TV service offer our reach and frequently proposition that no one else can match.

In the end what matters most to our advertisers is the same thing that matters most to our viewers the product on the screen.

That's why we couldnt be more excited about the sensational content coming to Paramount plus and our other platforms in Q4.

Of course, there is the much anticipated return of the biggest hit on television Paramount networks Yellowstone.

And through coordinated cross platform marketing, we will capitalize on the excitement around the premier of the fifth season to help boost the launches of two new tailor Sheraton creations on Paramount plus.

None of them, then Helen Mirren, and Harrison Ford will lead $19 23.

The next installment of the thrilling origin story of Yellowstone Saga and.

And Sylvester Stallone is premiering in Tulsa, King about a mafia capo building accrue far really far from his old mob family. We're also excited to premier the revival of the popular FBI drama criminal minds this quarter exclusively on Paramount plus with the help of several members of the beloved original cast we're looking forward to <unk>.

Activating the franchise's large existing fan base, which we see paying big dividends for Paramount plus.

As I mentioned earlier, our big theatrical hit Smile, and top gun Maverick will come to Paramount plus in the fourth quarter and everywhere Maverick goes it just crushes. So we think that'll be a big draw on Paramount plus as well.

All in all we expect all of these new titles and highly anticipated events will entice more and more subscribers to paramount plus in the coming months.

In closing by delivering extraordinary experiences for our consumers. We will continue to demonstrate the long term value of our broad multi platform model at the heart of it that's the real proposition behind our strategy and with the momentum we're seeing in the year in the quarter, It's clearly working.

With that I'll turn it over to Nadeem to walk you through a more detailed look at our third quarter results and I look forward to continuing the conversation in our Q&A.

Thank you Bob and good morning, everyone. Our third quarter results demonstrate continued execution of our long term strategy to create broad content for diverse audiences across multiple platforms on a global basis.

It's a strategy that offers significant incremental opportunity relative to our traditional business in three important dimensions.

First as we've noted previously streaming offers a total addressable market, which is more than twice the size of linear excluding China and India.

And the incredible ease of consumption with a vast array of content available at home or on the go in whatever format, you want add free or AD supported means we can connect more consumers with paramount content than ever before.

Second we expect streaming to be accretive to <unk> over time in fact streaming <unk> already exceeds linear ARPA in some international markets. For example in the U K P plus <unk> in the current quarter is over 20% higher than our UK linear pay TV <unk>.

And our total reach has grown relative to the linear only world.

In the United States, It's worth noting that there are streaming services in the market today with RP comparable to or higher than the monthly revenue we generate per linear household.

And we believe Paramount plus will achieve these levels of <unk> overtime with the implementation of price increases and continued growth in engagement and advertising monetization.

Third we believe long term operating margins and streaming will approach TV media margins as the benefits of our multi platform strategy play out.

This strategy yields significant efficiencies in marketing expense, where our linear networks provide a great promotional platform for Paramount plus.

And in content expense, where we monetize content like movies and sports across multiple platforms.

Our streaming content expense also benefits from a wealth of fully owned library content and world renowned franchises that are a highly efficient driver of acquisition and retention.

These cost efficiencies do not exist in a pure play streaming business model.

Of course, our investment in streaming does impact near term profitability, but given the combination of a bigger market opportunity incremental <unk> and compelling margins.

We believe there is significant long term shareholder value to be created and we remain committed to this strategy. Despite the impact of near term cyclical advertising headwinds.

Now, let's get into our third quarter results, which reflect strong DTC growth and box office success, but also macroeconomic conditions and FX impact on advertising revenue growth.

Total company revenue grew 5% in the quarter affiliate and subscription revenue rose, 8% continuing to demonstrate that the ecosystem shift from pay TV to streaming yields net growth for our business.

Theatrical revenue was also a significant contributor to total company growth in Q3.

Licensing revenue declined 1% and advertising revenue declined 2%.

FX was a headwind to advertising revenue in the quarter, resulting in a 300 basis point impact on the advertising growth rate.

On a constant currency basis advertising revenue grew 1% in the quarter.

In direct to consumer we added $4 7 million global subscribers, which drove 59% subscription revenue growth.

As of September 30th we had a base of $66 5 million global D to C subscribers, including $46 million Paramount plus subscribers.

Paramount plus added $4 6 million global subs in the quarter.

Note that our quarter end total subscriber count reflects the elimination of $1 9 million Paramount plus subs in the Nordics. Following the launch of Sky Showtime in September which replaced Paramount plus in that market.

Ubiquitous distribution remained a key theme for Paramount plus this quarter.

Domestically, we became the video service for Walmart plus and.

And in Europe , we launched Paramount plus in Italy, including a hard bundle offer with Sky Italia.

These bundled distribution partnerships, where both important contributors to Q3 sub growth.

And despite a lighter slate of new original series in Q3 compared to Q2 other content formats, including sports like NFL and UEFA movies, such as orphan first kill and core CBS programming, where significant acquisition drivers.

In addition to healthy subscriber growth Q3 also saw robust engagement among paramount plus subscribers.

Daily viewing hours and paid conversion were strong.

Paramount plus domestic churn improved both sequentially and year over year.

Paramount plus <unk> was up year over year in the quarter.

As we've previously indicated we are benefiting from a dramatic increase in international <unk> as we continue to expand the <unk> plus subscriber base and higher <unk> International markets.

Subscriber additions ARPA growth and improved retention helped paramount plus deliver 100% subscription revenue growth.

Shifting to the advertising side of the <unk> segment, Paramount plus benefited from robust impression growth, improving CPM and consistently high sell through rates.

Pluto TV <unk> added $2 4 million globally may use in the quarter, bringing our global reach to $72 million in may use and total viewing hours grew strong double digits year over year. In fact, Pluto TV became the first free AD supported streaming service to represent a significant enough portion of <unk>.

<unk> total U S TV viewing to be included in Nielsen's monthly gauge report.

Together Paramount plus in Pluto TV delivered total DTC advertising revenue growth of 4%.

Advertising revenue was impacted by the macroeconomic environment, but given the engagement trends across our D to C platforms, we're confident growth will reaccelerate when the digital AD marketplace improves.

As a whole the DTC segment delivered 38% year over year revenue growth.

With total DTC revenue, reaching over $1 2 billion in the quarter.

D to C. OIBDA was a loss of $343 million in the quarter, reflecting investments, we're making in content marketing and international expansion as well as the impact of macroeconomic advertising headwinds.

Moving to the TV media segment revenue declined 5% in the quarter.

TV media advertising revenue was flat on a constant currency basis.

The combination of pricing growth and strength in local station advertising helped offset the impact of lower linear impressions and a softer scatter market.

TV media advertising declined 3% on a reported basis due to 300 basis points of FX headwind.

TV media affiliate revenue declined 5% in the quarter Sim.

Similar to last quarter the trend in total affiliate revenue for TV media was affected by the restructuring of international affiliate deals.

Which proactively shift revenue from our pay TV to DTC services.

TV media licensing revenue declined 9% year over year due to a lower volume of programs licensed relative to the year ago period.

As we've noted in the past licensing revenue in any given quarter. It can be lumpy based on the timing of program deliveries.

TV media OIBDA declined 11% in the quarter to $1 2 billion.

Largely reflecting the flow through of lower licensing revenue and the decline in affiliate revenue.

Our filmed entertainment results continue to benefit from the success of top gun Maverick, which was a key contributor to a 48% increase in segment revenue and the delivery of $41 million and segment OIBDA.

Top gun continues to deliver at the box office was a huge hit in the home entertainment market.

And we expect will be a driver of subscribers on Paramount plus when the movie comes to the service later this year.

On a total company basis, adjusted OIBDA was $786 million in Q3 down 23% year over year, reflecting the investments we're making in streaming.

Turning to the balance sheet, we finished the quarter with $3 4 billion of cash on hand, and total debt of $15 8 billion.

We also maintain a committed $3 5 billion credit facility that remains undrawn.

Let's now turn to our outlook for Q4.

Starting with DTC subscribers, we're enthusiastic about both domestic and international momentum at Paramount plus and expect to see healthy Q4 sub growth driven by the combination of a powerful content slate expanded partnerships and new market launches.

We now expect to exceed our full year global DTC subscriber growth expectation of 75 million global subs, excluding the removal of subscribers to our services in Russia.

With respect to financials, we expect continued macroeconomic weakness, particularly in the advertising marketplace will affect Q4, TV media and D to C. OIBDA.

As we now anticipate the year over year rate of change in total company advertising in Q4 to be similar to what we reported in Q3.

Longer term, while we continue to invest to support strategic growth as Bob noted, we're also accelerating opportunities to improve efficiency in multiple parts of the business.

In addition to reorganizing Showtime networks, we're taking steps to further align our U S and international operations.

Playing a more global mindset to content and platforms, which will yield both economic and strategic benefits.

On the marketing side, we're prioritizing resources in media spend to those segments with the highest growth potential.

And finally, we're taking the next step in the evolution of our advertising sales organization streamlining our relationships with the major holding companies to provide single point access to our industry, leading array of advertising solutions.

The financial expression of these changes will start to manifest in 2023, while also benefiting us in future years.

Bigger picture, our financial discipline, our unique asset mix, our differentiated strategy and the significant incremental opportunity presented by streaming.

Give me confidence we can navigate the complex near term macro environment, while positioning the company to maximize long term value.

With that operator, we can now open the line for questions.

As a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now.

France asking a question. Please ensure you were on mute locally and as a reminder, I think you are requested to limit to one question per person that star one on your telephone keypad.

The first question today comes from Michael Morris from Guggenheim Partners. Please go ahead. Your line is open.

Thank you good morning, guys.

Bob I'm wondering if you can share any updated thoughts on the Showtime service as compared to the Paramount plus service maybe specifically.

How you feel about continuing to run them as separate businesses with the potential for a bundle versus having.

A more integrated service between the two.

Where what are you thinking about that going forward.

And if I could Levine, both you and Bob talked about a number of puts and takes going forward, including.

Central for some more aggressive cost savings.

Can you opine at all on how you are feeling about free cash flow into 2023.

Whether you think there's opportunity for any growth there with these savings or whether you think the.

You talked about peak losses at the DTC side next year, whether you expect that to be heavier. Thank you.

Yes, sure Michael So I'll take the first part of that as you know we've been offering a showtime Paramount plus bundle for a while that was initially priced bundle and there we saw some nice churn benefit and now we are really early success with integrated bundle.

Definitely exceeded our expectations in terms of net adds and engagement.

And the reason, which we've proven over and over again is that broad works and upgrading to Showtime inside of Paramount plus adds even more to that experience and if you haven't you really should check out that version of Paramount plus.

A version of <unk>.

Great.

Bigger picture I think this next chapter of Showtime is going to be particularly compelling.

As we mentioned we have a set of in process organizational moves and that we'll see Showtime benefit from further integration with the rest of the company.

It will potentially introduce new ways really to create incremental value for both consumers and for distributors.

It's going to unlock some significant cost synergies.

And.

I think beyond that what I am excited about too is how this slate of content for Showtime is going to evolve there's been some early conversations around that start with the fact that the.

<unk> brand will stand really more than ever for thought provoking kind of distinctive often edgy content.

And that means it'll it'll continue to be a home for great creative ideas, but in parallel I believe you will see us extract more from some core franchises.

We know their franchises at work and we think Thats a good play for Showtime as well.

And there'll be some incremental benefit from broader Paramount IP.

So.

Road ahead for Showtime is really exciting.

We will keep you update along the way.

Yes, so to the questions on.

Free cash flow in 2023, and what what to expect there.

I would note a few things I mean.

First of all in terms of.

The broad trends that are influencing free cash flow.

It's really about the ramp in production.

Marketing investments related to streaming and then obviously.

Some of the macro impact on the.

The advertising marketplace offset by.

<unk>.

Improvements that we're making both with respect to the.

The cost side of the equation as well as improvements that we're seeing in working capital and that's an important point because we are very focused on.

Ultimately drew.

<unk> improvements in both earnings and free cash flow.

And I think what you'll see in.

In 'twenty, two and both in 2023 is that the.

Changes in OIBDA.

Don't necessarily reflect the changes in free cash flow, which is to say the changes in free cash flow are better lower than the changes in OIBDA, because we have made improvements from a working capital perspective.

So while it's premature to put any specific numbers on that for 'twenty three.

I would note that.

We are still <unk>.

<unk> on peak D to C losses next year and continuing to apply that formula of improved working capital and realizing the benefit of the cost reductions that we noted.

All of which should put us in a position to.

Ultimately improve cash flow and OIBDA trajectory.

Great. Thanks, a lot Mike.

Let's take our next question.

The next question comes from Bryan Kraft from Deutsche Bank. Your line is open. Please go ahead.

Hi, Good morning, I guess wanted to ask you first on the wall excuse me the Walmart partnership.

Can you comment on how often performance has been so far since the launch in September .

Finding that Theres high awareness, among Walmart plus subscribers and any other color on that and then also just.

Wanted to ask you I mean, given the success you've had with the wholesale distribution of Paramount plus combined with the macroeconomic pressure on advertising how should we think about Paramount plus <unk> growth and the trajectory. It's on going forward. Thank you.

Yes, sure Brian So as I mentioned in my remarks, we really have a decades long relationship with Walmart. It's a relationship that's rooted in consumer products and home video and yes, we have an office in bentonville.

And so when they were looking to add video offering we were really thrilled that they saw a paramount plus is the right choice and part of the reason there.

And they really describe to us was that they see both brands I E Walmart and Paramount as representing all audiences. The codes at the center of the country Young old.

<unk>.

And yet again, I think thats confirmation of the power of our broad positioning built on popular content.

So we launched our Walmart plus Paramount plus partnership in September .

And just for the room, any Walmart plus customer can choose to opt into Paramount plus and that gives them access to the Paramount plus essentials product at no incremental cost once they opt in they become a paramount plus subscriber and we get paid.

Partnership is off to an excellent start we really have not seen a more collaborative relationship between two big companies than what we have here right now and Thats phenomenal.

And we are exceeding our early objectives in terms of number of subscribers that have joined through Walmart plus.

I think the more important point is the partnership has a long multi year road ahead of it to.

To date, we've only done a limited marketing really leveraging some E mail list they have and some some of our media.

Full in store Paramount plus presence for example, which will reach I believe it's $140 million ish customers visiting a Walmart store in the U S. Every week.

Yet to kick off and by the way they are $1 four employees also get access or the ability to opt into Paramount plus.

And so we look for this partnership to be driving not only paramount plus subscribers, but importantly, Walmart plus subscribers as well.

As they get access to this great benefit for quite some time.

I would note that we also plan to execute on a multi platform basis around our IP.

And that's things like in store Activations around all I don't know Paw patrol and turtles next year and many other great franchises.

So this is a super powerful example of our belief in partnership.

And again, we're thrilled with the early results.

And I'll jump in on the <unk>.

<unk> side of that question.

Okay.

I think simply put we are very bullish about the.

Ability to continue to grow <unk>.

In the streaming business, particularly around Paramount plus as we've spoken about before there are a number of elements to that some of which.

Youre already seeing and some of which you'll see in the future. So for example, as I noted in my remarks.

We are already seeing the benefit of continued expansion in higher RP markets on an international basis, and Thats already benefiting <unk>.

And as we go forward, we see continued <unk> growth through the combination of both.

Expansion and AD monetization.

And pricing on the subscription side.

And the AD monetization piece.

While in the short term has impacted by the marketplace.

The mental engagement metrics that we see there give us great confidence.

That.

Increasing consumer engagement will ultimately drive.

<unk> and <unk> as the market returns and then on the subscription pricing side of it.

We definitely see opportunities to increase price on Paramount plus and you will see us do that in the future I think it's fair to say that pricing is moving higher across the industry you see that with a number of competing services.

And we think that that means we have room to increase price and ultimately drive <unk>, while preserving our value position relative to others and I think thats true both in the U S and in key international markets.

Of course, we'll be smart about how and when we raise price because we'll be looking to do it in ways that.

Minimize any sort of negative churn impact and that means we'll definitely take advantage of our dual tier offering which allows us to adjust pricing on each tier.

Independently.

And means that the essential tier can continue to serve price sensitive users while still generating.

Compelling levels of <unk> through AD monetization.

And we'll also think about pricing in conjunction with <unk>.

How it interacts with our content slate so.

We are.

So confident we can raise price and that's one part of the bigger <unk> equation that includes continued growth in AD monetization and.

Sub growth in high value markets.

Thanks, Brian .

Our next question please.

The next question comes from Rich Greenfield from luxury partners Rich. Your line is open. Please go ahead.

Okay.

Hi, Thanks for taking the question.

When you look at sort of the success of top gun and smile. It clearly shows us that you made the right decision and pushing both or waiting for both of those titles and putting them into the box office versus putting them directly onto the streaming service.

I think when you talk about sort of scale and reach of theaters that was a clear benefit to both of those titles, but if.

If you shift gears and you look at something like Halo or <unk> hundred 83, I guess I wonder with those titles have benefited from being on a platform with more scaled and Paramount plus meaning something like Netflix.

NBC you shipped <unk> five Eva from Peacock over to Netflix and I'm. Just wondering how do you think about sort of the pluses and minuses tied to reach and scale when you're deciding whether to put a piece of content onto your own service versus sell it to a third party and how do you make that decision.

Yes sure rich.

Look I actually think we and others have talked about this a number of times over the year, because it's really in a way it is.

Arms dealer question embedded in it and I think it's fair to say People's view on that topic has moved around over time. So as you know we have two objectives, producing cash flow and margins from traditional media and simultaneously building scale in the most important growth sector in media, which is streaming really the network for the <unk>.

The <unk> century.

So our strategy around film to the first part of your question, which is really theatrical leading to streaming.

Absolutely the right call in general and it certainly worked for those titles.

<unk> and smile.

Because both titles.

<unk> benefited significantly from the theatrical window and Thats, both financially and from a marketing franchise building perspective.

And as you know both are coming to Paramount plus this year and I am confident they will be.

Significant drivers.

It will really continue our momentum as we scale streaming.

That goes to your second point, if we're going to build scale streaming asset.

As you know we believe is fundamental in the long run.

As I said streaming is the network for the 20, <unk> century, and networks always had incremental economics to studio and they will again. So if we're going to do that we obviously need to leverage great content. So titles like $80 83, and Halo frankly, they need to be on Paramount plus and by the way they both proven very effective on.

The platform in terms of subscriber acquisition and engagement.

So they are working and that the objective is not about maximum reach their key to creating asset value in streaming and again, we believe thats. The superior strategy from a long term shareholder value perspective versus being a studio only operation.

And that's really the studio only operation as the path you'd be on if you started moving those to other places so bottom line, we remain committed to traditional including theatrical and streaming.

Including through titles like $80 83, and for that matter our films and we believe that's one of our advantages in the pursuit of shareholder value.

Thank you Rich next question please.

The next question is from Brett Feldman from Goldman Sachs. Please go ahead. Your line is open.

Yeah. Thanks for taking the questions. So first devine, thanks for giving us some help in terms of thinking about the relationship next year between cash on EBITDA for this year, you're essentially breakeven on cash flow through the first three quarters of the year. What are the key swing factors, we need to be thinking about for the fourth quarter, because sometimes you know nailing down working capital for us can be.

A little bit difficult and then you've had a lot of momentum and you expect to still have some momentum in the Paramount plus subscriber base leveraging the new distribution in new markets. You are in I'm wondering at what point.

You expect to be fairly fully distributed whether through partnerships or geographic such that the incremental driver of subscribers is going to increasingly be about driving greater penetration to your content delivery in those markets is that something we should be thinking about in 2023 or do you still think <unk> got a lot of distribution opportunities.

As we move into next year. Thank you.

Maybe you want to start with a Q4 thing and then I'll take the streaming one.

Sure so on.

Expectations for Q4 cash flow.

I've mentioned, a few things again, just going back a little bit to what's driving cash flow in Q3.

Which as I noted earlier is really about.

Ramp in production spend in marketing and international launches.

And I think of those as sort of negative working capital drivers.

Q4 will obviously improve relative to that because we will get past some.

Those needs now.

Some of that improvement I expect will be offset by the macroeconomic factors affecting Q4 OIBDA.

Some of that.

We will flow to cash flow.

And therefore, I think it's probably most helpful to think about free cash flow on a full year basis.

And when you look at it through that lens as I said earlier, you'll see that the year over year change in free cash flow will be significantly smaller than the year over year change in OIBDA, which again reflects the progress that we're making.

And improving working capital.

Which is very important to us we're highly focused on.

The importance of generating free cash flow, while we continue to invest in growth. So hopefully that gives you little bit of sense of how to think about.

For the full year.

Yeah and as to.

Your second question on subscriber growth et cetera.

Let's start at the high level, we have absolute confidence in our subscriber growth potential and really the length of the runway here and there.

It's not just an opinion, it's really informed by data remember, we led the U S. In 2022 and subscriber additions as we simultaneously expanded globally, notably this year to western Europe .

With respect to the streaming opportunity, we really have a double benefit start with the market is large and it is still growing.

And then add to that we're clearly taking share you see that in 'twenty two unquestionably through the numbers.

I'd also point out it's not just about sub growth for us.

We see real ARPA growth and maybe you can comment on that a bit already so in general we feel good now when you unpack it and you look at streaming and you look at the drivers of your charter think about 'twenty three and beyond.

It's really.

And it sounds simplistic, but it's content whats your slate doing.

What are you doing in terms of market expansion, and then and how you think about partnerships.

So our content slate continues to build its killer in Q4, we could talk about that some if you want.

And that's going to run right into 'twenty, three and that's not just in the U S. That's on a global basis. So we feel very good about that and obviously, we have a longer term content plan, where we continue to build series Paramount movies et cetera, If you look at market expansion.

Ending 'twenty three with.

The completion really a western Europe .

Which means that's going to drive.

'twenty two sorry, with the completion of Western Europe , and that's going to drive 23.

We're going to do some stuff in terms of additional market expansion in 'twenty, three and we haven't talked about that yet so put opinion it.

But I also want to point out that just because you launched in a market that doesn't mean you get all the subs right away take the UK as an example, sure we launched with Sky and hard bundle and that's performing very well, we're happy our partners happy et cetera.

We've also launched and channel stores and direct you to see and then now today, we announced that Virgin is going to put.

Paramount plus on Virgin TV. So these markets will build over time.

It's not just about the entry point, it's about deepening your participation market by market and by the way, including in the U S. Benefiting from both your content slate and intra incremental partners.

So again big picture, we feel very good about the size of this market, we feel very good about our ability to take share we're doing we're doing that today and.

And we feel very good about the road ahead. This is going to be one of the cornerstone services.

For the world's consumers.

We are most certainly on that path.

Thank you Brett next question please.

The next question comes from Douglas Mitchelson from Credit Suisse. Please go ahead. Your line is open.

Thank you so much good morning, everybody. So Bob so a multi part question on advertising so Bob any further context around advertising trends youre willing to offer you seen broad weakness or certain categories pointing back anything on how that softness is sequencing.

<unk> some companies are saying, they're seeing stabilization on the declines others are saying.

To use the weekend so anything there and then you talked about improving advertising monetization what are the big big debates for distributed in CTV recently, obviously is what level of CPM as can be achieved.

Especially as targeting has improved and I think some of the <unk>.

Premium CPM goals out there for some of the newer services are well above what you guys might be getting.

Currently so I'm just curious so what are the AD monetization efforts when do they start to layer in and specifically.

What kind of upside do you see as you were targeting efforts improve thank you.

Yeah sure. So look as I said in my remarks.

A difficult macroeconomic environment is certainly impacting AD sales in the quarter.

It is a function of what we're seeing in the scatter market, where there is softness more so on the digital side versus TV.

Noting that as you know TD has the additional benefit of a large upfront base and our audience share growth really the performance of our brands, notably CBS in the broadcast year allowed us to take more dollar volume in the upfront.

I'm very happy about sitting here today.

In terms of categories.

We're seeing travels good electronics are good.

Are those still Hasnt moved but I would point out auto is a very interesting study because they've been building all the cars. They are just missing the last chip or maybe a couple of chips and once those chip show up there are there are zillions of cars out there that are going to have to move so I don't know when that's going to happen, but when it does it can be very good for the AD market, which.

It goes to the broader point.

And look I'm, not an economist, but I think our history can be instructive here. If you look back we've had three down out AD cycles. Since 2008, we had one coming out of 911, one in 2008, and then one more recently and Covid and 2020, and they're all different but the note.

<unk>, they all ask that a few quarters.

All when there was negative GDP growth in each of those cycles led to a number of quarters with particularly robust ad growth coming out.

So yes, we do have some macro driven softness in all the people are talking about it but as it always does this market will turn and Thats when youll see real benefit from our positioning as a market leader with a number one broadcaster cable group that includes leaders in young and diverse audiences number one fast service in the U S.

<unk> rapidly scaling streaming service is Paramount plus it's all wrapped around compelling content that people want to be associated with.

And available more so than ever with what we're doing right now through a single point of access for the whole code from clients.

With best in industry creative support and AD Tech so it's powerful positioning.

It will really show itself again as this market turns which inevitably will.

And Doug with respect to AD monetization.

Few comments.

First of all I would say the main drivers of AD monetization from sort of an <unk> perspective, I mean, obviously on the topline subscriber growth plays into it but from an <unk> perspective.

For us, it's really engagement driven.

And I would say that.

Really just getting started despite a lot of the.

Great metrics that were already pointing to in terms of consumption, both on <unk>, plus and <unk> and all of those trends moving up very positively.

And churn continuing to come down.

I think we have a lot of headroom to continue to drive engagement, which will ultimately result in higher levels of <unk>.

Advertising monetization.

Second thing I would note is that.

With respect to CPM and you asked about.

Sort of how realistic some of the expectations may be out there.

Note that we've been in this business for a long period of time, where in it at scale our D to C businesses today are.

Sort of a 1 billion and a half dollar advertising run rate and what that means is that we have been very focused on.

What is the largest part of that market we're.

We're not necessarily going for the very premium CPM, we don't think.

That's where the biggest pool of dollars exists.

And that means that we are focused on two things number one continuing to drive scale and we price our advertising in order to achieve that and number two we're focused on packaging and that's one of the big Differentiators that we bring to the equation is the ability to package.

Multiple types of D to C inventory streaming inventory along with the full spectrum of <unk>.

Both cable and broadcast inventory.

Ultimately.

The answer that advertisers are looking for.

Thanks, Doug Operator next question please.

The next question comes from Ben Swinburne from Morgan Stanley . Please go ahead. Your line is open.

Thanks, Good morning.

Just to pick out a couple of topics you guys have already covered a bit should we expect a restructuring charge or charges in the fourth quarter, just given the cost activity you talked about any sizing of either that or what kind of magnitude of savings you guys are sort of targeting as you look into next year I know its probably early but figured I'd ask and then for.

Either of you just continuing on advertising.

The linear business is holding up pretty well relative to digital and maybe into your last point on engagement engagement was up a lot at Pluto I think strong double digits I'm not sure what that means quantitatively, but that sounds pretty strong but.

But we're seeing the AD revenue is really slow.

Why do you guys think linear is holding up better than digital is that all of the upfront or are there other factors and Bob do you have a perspective on how Netflix launch, which I think is this week and Disney coming.

<unk> your business and how you position your inventory and your AD Tech as those guys now come to market and compete for AD dollars.

Yeah, Hey, Ben.

I'll start on the cost side, and then turn it over to Bob to take the advertising side of that question.

So.

I guess first just to the specifics and then I'll talk.

A little bigger picture on.

What we're doing from a cost perspective.

As I said.

The benefit of the moves that we're making on the cost side will mostly manifest in Q excuse me in 2023.

I do think that there.

There is potential for a restructuring charge in Q4, we will see depending on exactly the timing of finalizing some of these.

These decisions.

I'm not going to put any specific numbers on.

Those cost savings, but I would say that.

These are meaningful and sizable they are things that we think.

Not only have an economic benefit to us, but frankly.

Help.

Put us where we want to be strategically in terms of both how we want to operate in where we want to focus our resources.

And we shared some of the examples of what that looks like it includes.

Both labor and non labor expenses it spans a lot of different parts of the business and I point out that incremental too.

The ongoing work that we've spoken about previously that helps drive efficiencies on the linear side of the business. So.

It is meaningful and.

I think it can be.

Helpful contributor to 2023, particularly in light of some of the macroeconomic challenges that exist right now.

Yes, and then on the AD market you are right. The television side has held up better than the digital side I think there are a variety a couple of reasons for that one is yes upfront base and.

Remember our strategy in the upfront because we didn't know what the market was going to be light, but we had some concerns.

That.

Things could soften.

And we're in a place where we had taken I think 18 points of broadcast share year to year. So we decided to.

Have a volume upfront versus a price upfront.

We did business with high singles, but we took significant volume and that was a good thing and that's certainly helping TV for us.

Second and somewhat related to that you always have a place where TV.

Has limited supply broadcast obviously, the most limited supply than cable, but effectively those vehicles are sold out and.

That supply pool, it's not getting any bigger let's say.

And add to that you got proven effectiveness if you're.

An advertiser with either product or service and certainly in the United States and you want to make an impact on a national level. There really is no better demonstrated media and TV and people know that so when they have to make choices television still.

Is relatively well positioned in that.

More broadly speaking the market at the moment is a bit demand constrained.

And that definitely works against the digital side Thats kind of the flip side or the television.

There is digital supply out there.

When you have strong demand market, you can really benefit and you've seen us benefit, but when there is a demand constraint that tends to be rougher I would point out that based on the numbers I've seen reported.

<unk> number plus four actually compares quite favorably.

With some other large digital guys and what they've put on the table.

That's good.

We're happy about that but at the moment, there's definitely some demand constraint.

Working through as to your question on Netflix.

I'd say two things I'd say I'd start with the fact that new entrants.

<unk>.

Going into the AD supported streaming it's really <unk>.

Alidades again, what we've long believed that ads ads are a critical component of our broad streaming model, we see that as.

We have a totally free product <unk>, and we have a lower priced product and Paramount plus essentials.

Those are enabled by AD sales and they broadened consumer access when consumers make choices some pay more some payless and add helps you do that so again validation of our strategy.

When you talk to advertisers they will.

Really care about the content.

And they want to be wrapped around popular content, but they want to also get the right mix of reach and frequency. It's not just reach its also frequency and we have an integrated server that lets us deal with that that's part of what <unk> was talking about when he said the value ultimately of our multiplatform strategy.

People like our diverse collection of content Entertainment Sports news.

They like our track record in.

And working with clients integrated advertising, we're doing a lot in the advanced space in fact, the fourth quarter as the first quarter ever where all the holding companies had at least one piece of business on non Nielsen guarantees. So we are working with them on that.

And we are dependent but we have a long track record of partnership. So yes. There is new entrants. The AD market has always been competitive we feel great about our position we've been there for decades, we have an industry unique portfolio no. One else has broadcast network fast and.

A high growth subscription streaming service all wrapped around really the suite of content we have so.

It's not about a new entrant I think near term, it's really about the state of the market that's going to the whole thing is going to pivot on.

But we're not suppliers they are joining the market and we're happy to compete with them.

Thanks, Ben Operator, we have time for one last question.

Our final question today comes from John Hodulik from UBS. Your line is open. Please go ahead.

Great. Thanks for the question.

On the media side, Yeah, we've hit the advertising piece.

On the affiliate side I guess for Nadeem can you quantify that.

The impact that the reclassification of Sky had on the acceleration.

Affiliate declines in the quarter maybe.

Maybe what youre seeing in terms of in terms of cord cutting and then.

Just any outlook you can provide.

On that on that line that'd be great. Thanks.

Yeah, Hi, John Thanks for the question.

I'd start by saying that with respect to the affiliate and subscription side of the business.

And TV media.

I actually don't think that the Q3 rate of change is particularly helpful indicator of what we expect to see longer term.

The reason for that is that there are a number of.

Nonorganic factors that affect the year over year comps.

It includes the suspension of our.

Linear channels, and Russia, Theres, a fairly sizeable FX impact there is differences in the number of pay per view events in the comp quarters.

And as I mentioned, there is ongoing restructuring of.

Primarily international affiliate deals that moves revenue from TV media segment into the direct to consumer segment.

I'm not going to size each of those independently, but I can tell you that if you adjust for sort.

That group of.

Inorganic items.

<unk> media affiliate revenue.

Would have been down 3% in the quarter versus the 5% reported and I think that 3% is probably a better indicator of the underlying trend that we see on the <unk>.

<unk> affiliate side.

That being said I think the real important takeaway here is that.

The better number to focus on is total company affiliate and subscription revenue, which as we noted in our remarks grew 8% in the quarter.

That's an important number because it demonstrates that the growth we're seeing in streaming is more than offsetting the declines that we're seeing in the linear ecosystem.

And we expect that that trend will continue.

Yeah look I.

Just like to close by saying I understand there are concerns about the macro environment impacting our financials, but again they are cyclical and they will inevitably turn and more importantly, our world class content engine is driving unquestionable momentum across our platforms and by that I mean streaming TV and theatrical we're really putting points on.

The board and all of them and we're going to continue to lean into this momentum as we execute our differentiated strategy. We continue to feel this is the best path to value creation.

Of course, we will always look at any option, but we will continue to do that as we execute and we look forward to continue dialogue with all of you as we do thank you for your support have a great day.

Thanks Al.

This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.

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Good morning, or good afternoon. My name is Adam and I'll be the conference operator today at this time I would like to welcome everyone to Paramount Global's Q3, 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 the telephone keypad.

If you would look to be Julia question. Please press star followed by two.

And I wanted to get to as many of your questions as possible. We ask that you limit yourself to one pop Hudson at this time I would now like to turn the call over to Anthony Diclemente permanent Chlebowski VP Investor Relations you May now begin your conference calls.

I wanted 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.

Bob.

In the third quarter Paramount continued to execute on our differentiated strategy to deliver compelling entertainment experiences for the world's consumers, while creating value for our partners and shareholders.

That strategy is firmly grounded in three key strengths.

Our broad range of popular content second our unmatched array of platforms and third our truly global operating reach.

That's the only media company with five different platforms. We've delivered this content to an exceptionally large consumer market are.

Our businesses include the number one broadcast network CBS .

Portfolio of industry, leading cable networks, many of which are number one across their respective demographics like Nickelodeon and bep.

The number one free AD supported streaming TV service in the U S. Pluto TV.

Our rapidly scaling subscription service, Paramount plus and a Hollywood studio with six number one hits this year Paramount Pictures.

And for US, it's not just about the U S.

Our global operating footprint includes the largest number of broadcast homes in the world content production capabilities across Latin America. The U K Europe , the Middle East Africa, and Asia Pacific Cable network, reaching virtually every key market and deep commercial relationships.

And once again these assets delivered in the third quarter, we sustained our strengthened TV grew nicely in film and drove rapid growth in streaming around the world.

That said as I think everyone is aware this is a complex environment and economic period and our results for the quarter do reflect some macroeconomic headwinds that are affecting our industry four.

<unk> marketing and global operations.

These will yield cost savings next year as well as long term strategic benefits.

And we're taking advantage of this current market to accelerate these efforts.

With that let's take a closer look at the quarter and our plans ahead.

It all starts with our world class content with a powerful mix of scripted and unscripted originals hit movies News and live sports, we've got something for everyone in the household.

Let's start with the incredible run at Paramount Pictures this year.

I can't talk about producing great content without mentioning our theatrical releases were Paramount pictures is dominated with six number one films.

That string of hits as led of course by top gun Maverick. It's now the fifth largest domestic release of all time and the only film in history to be number one on memorial day weekend and number one on labor day weekend in the United States.

And now our horror thriller Smile released at the end of September is hit it big as our six number one box office film of the year.

It made for just $17 million, it's now on track to gross over $200 million globally.

Smile will also be the next example of our 45 day theatrical to streaming fast follower strategy.

Gibbs fans the chance to have a big screen experience before enjoying at home on Paramount, plus and which gives us a very compelling return on investment.

Next we'll move to broadcast in CBS 2020, Two's number one broadcast network, whose fall season is off to a strong start on.

On the entertainment side, we have seven of the top 10 shows and more shows in the top 30, then all other broadcast networks combined.

This performance is seen in returning favorites were close to 11 million viewers tuned to the season two premier of Ghosts for example, and as seen in new shows like fire country. The season's number one new show.

Paul also means football and for us that means the NFL on CBS and on Paramount plus the.

The 2022 season kicked off in September with viewership off to its best start on CBS since 2015, and its best start ever on Paramount plus.

College football is off to a strong start as well.

And in August we announced Paramount will are big 10 football games on CBS and on Paramount plus that will kickoff next season.

That means the biggest and best in college sports will continue to call Paramount homes through the end of the decade.

We don't just have American football, we've got European football too.

In August we extended the rights to air the UEFA Champions League keeping this marquee property on Paramount plus and CBS for the next eight years.

I'm thrilled that we did so.

So far this season, Paramount plus had dramatic growth in average audience in streaming minutes and in total households.

So the outlook is strong and we are excited that some of the best soccer and the world will keep kicking it on Paramount plus.

With more games and an expanded playoff format. The deal creates an even more efficient investment for many years to come.

Paramount plus also saw strong acquisition in the quarter from our slate of original series like seal team and for movie releases, including the psychological horror film orphan for skill and the triumphant return of our favorite losers and Beavis and Butthead do the universe.

It's powerful array of popular content is the fuel that continued to drive growth in subscriptions across our streaming platforms in the third quarter.

In fact year to date Paramount plus has led the industry in U S sign ups and gross subscriber additions. According to antennas September 2020 to report.

Year over year revenue from Paramount plus grew 95%.

Importantly, these third quarter numbers only begin to reflect the impact of the exciting first of its kind partnership with Walmart.

As you probably know we have a decades long relationship with Walmart and merchandise and consumer goods.

When the world's largest retailer was looking to enhance its Walmart plus package with streaming offering.

We are thrilled they saw a natural fit with Paramount plus.

Starting in September Walmart plus members could begin opting into a paramount plus essential streaming plan at no extra cost.

Early results have been very encouraging.

<unk> plus has great potential to accelerate Walmart plus growth and retention.

And we expect the partnership to grow as the marketing program ramps up including an in store presence for the more than $100 million retail customers can pass through Walmart in the U S. Every week.