Q4 2022 Paramount Global Earnings Call
Good morning, My name is not yet and I'll be the conference operator today at this time I would like to welcome everyone to the power of my Labor was key for 2022 earnings conference call. At this time all lines have been placed Amit, but any background noise. After the speakers' remarks, I'd be a question and answer session, if you'd like to answer.
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Good morning, everyone. Thank you for taking the time to join us for our fourth 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.
Before we start this morning, 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 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.
Good morning, everyone and thank you for joining us today I'm excited to provide our perspective on Paramount's performance as we closed out 2022, and I'll give you a preview of where we're driving in 2023 and beyond.
Let me begin by noting that almost one year ago, we announced the Viacom CBS would become paramount, reflecting our determination to streamline operations and become a single integrated company.
We've increasingly work together as one Paramount with one vision.
To make popular content to make that content popular and to drive long term value for our shareholders.
And one Paramount has had one approach.
Multi platform strategy that leverages, our existing business, our distinct content strategy and our expansive relationships to evolve successfully through an industry wide transformation.
That approach is delivering and as will described made 2022 a milestone year for paramount with incredible momentum across our content and platforms.
As planned 2022 was also an investment year in our streaming business.
Those investments coupled with a challenging economic environment, including softness in the AD market impacted earnings and cash flow.
But it only sharpened our focus on delivering bottom line growth once we pass peak streaming investments this year.
I'm incredibly proud of our progress hitting and in most cases exceeding the key streaming metrics, we set out to achieve.
The differentiated strategy, we committed to is working and we're going to continue to execute on our plan.
As we move into 2020 three we see a year of continued content and platform momentum ahead of us are.
Your further scaling streaming as we hit the peak investment point.
A year, where we further harnessed the power one paramount, including importantly, with our Paramount plus Showtime integration.
And a year or we look to the AD market to turn as we get to the back half.
Importantly, the execution of our 2023 plan will set the stage for a return to significant earnings growth in 2024, and a return to positive free cash flow.
Let me get into this a bit more first looking back at 2022, and then looking ahead to 'twenty three.
In 2022 our content engine definitively proved itself at the highest level.
Thank the year's biggest domestic film top gun Maverick and five other number ones and then there's.
The number one show on television Yellowstone and it's expanding universe.
Mass market broadcast hits like F. B I N C I S in fire country and.
And popular Paramount plus originals like Tulsa, King 19, twenty-three and criminal minds evolution.
We know our audiences, which enables us to efficiently manage content spend across platforms.
And we focused on developing expanding and exploiting the premium content franchises fans love and.
And approach, we'll lean into more and more.
The results are powerful.
Our world class content engine, that's driven the biggest subscriber additions and paid streaming since launch, including an industry, leading $9 9 million, new Paramount plus subscribers in Q4.
It led to continued leadership in free AD supported streaming TV with six and a half million new monthly active users of Pluto TV in Q4 as Pluto TV grew not just in the U S but globally.
In 2022, our content engine also drove huge success of U S box office with fixed Paramount Pictures films opening at number one.
And the strongest performance in broadcast fueling C. B S. Its 14 year streak as the number one network.
When you combine that with our cable performance, it's why Paramount regained the crown is the most watched.
Media family on linear TV in Q4.
And important to note that our content engine combined with our disciplined execution and tight expense management also enabled continued stability of T V media earnings in Q4, despite ongoing AD revenue headwinds.
2022 was also an important year of expansion, where we gained important screaming footholds in international markets, including launches in the U K, Ireland, Italy, France, Germany, the Nordics, Canada, and South Korea.
And where we created new and expanded partnerships with the likes of Walmart Delta Sky can help lose chorus, Amazon Roku and others too.
To rapidly become a streaming partner of choice in the transforming media landscape globally.
Looking back at 2022, our differentiated strategy is clearly working and our execution is strong.
So let's talk about 2023.
2023 will be another year of content momentum.
Our 23 film straight is strong and driven by some of our most popular franchises.
Including Scream mission impossible Transformers, and Paw patrol.
And C. B S. As momentum is only getting stronger the network is on the verge of achieving number one status for the 15th straight broadcast here and.
And we see great stability in our schedule with very few slots to fill and thus limited and very focused pilot activity, which is also good for our economics.
On Paramount plus you'll see all of this plus more great Paramount plus original sure criminal minds Tau skiing, 1923, and all your other favorites will return.
Add to that great New series like fatal attraction with Lizzy, Caplan, and Joshua Jackson Rabbit hole with Kiefer Sutherland and lineup with Nicole Kidman and Morgan Freeman.
2023 will also be an important year with respect to advertising, where we are looking forward to an improvement in the market in the back half of the year yeah.
Yeah, Ed market as we know has been tough.
And like our peers, we felt this impact in 2022.
But our portfolio puts us in excellent position to build on the early stabilization we're seeing.
And we are seeing early signs of stabilization in advertising.
The sports marketplace continues to be active across the N F. L. P J and N C. Double a we like what we're seeing in travel and pharma and recent activity in auto is encouraging.
More importantly, because we bring together broadcast free and pay AD supported streaming on a turnkey basis.
Paramount is positioned to strongly benefit as the market improves.
2023 will also be an important year in the multi year evolution of streaming as a business.
We are now at the point, where we're getting to scale with streaming generating over five and a half billion dollars in annual revenue on a run rate basis as we exit Q4.
Since day, one we've executed against the plan to build a profitable streaming business one that achieves T V media like margins to get there necessitates an investment phase and now in 2023 entering the third year of Paramount plus in the marketplace. We are at peak investment and I'd note again that the recent macro headwinds.
I've only sharpened our execution and the discipline with which we are managing this investment.
As in 2022, the combination of streaming investment in the current state of the AD market will impact earnings and cash flow in 'twenty three but.
We have the scale and flexibility to support it and.
And importantly, we see narrow losses narrowing significantly in 2024, resulting in meaningful total company earnings growth and a return to positive free cash flow.
As you think about our streaming path to profitability, it's important to understand three distinct drivers.
To see revenue growth content spending and operational efficiencies let.
Let me tackle each in turn.
First we will continue to drive D to see revenue growth.
Subscriptions are important and the number of subscribers will continue to grow in 'twenty three but the real focus is revenue.
Revenue at scale is critical to building a profitable streaming business.
Across the globe, we will pursue this first and foremost by leveraging our compelling content.
Well also drive revenue growth with price increases.
We all know streaming represents incredible value for consumers and the Paramount plus offering is far from the industry price leader, we are on the value end of the pricing spectrum.
And so in 2020, three we will raise price both for Paramount plus premium and essential.
Both in the U S and select international markets.
We'll get into this a bit more.
Growth in advertising will also benefit D to C. Arco.
And finally, we see partnerships as another lever for revenue growth, including new relationships with Delta three and Orange among others.
Second we will drive towards profitability by continuing to efficiently manage our content spend.
By far our biggest lever to manage spending is to focus on franchises.
The higher levels of consumer awareness and built in fan bases associated with this IP drive strong subscriber acquisition volume lower acquisition costs, lower churn and extend L. T V's puts.
Put simply franchises forgive the people what they want we.
We see this with Paramount films with C. B S series with the Taylor Sheraton universe with mixed kids product and more.
We will of course continue to take selective swings on new IP Theres no question that franchises are a powerful advantage.
We will also manage spending by continuing to lean into our multi platform advantage.
This increases the size of our total addressable market.
US access to broader revenue streams and maximizes our return on content investments.
You see us doing this with Paramount films crossing theatrical and streaming.
Which are among the most efficient on a cost per start basis, you see us doing this with the C. B S late where we exposed product to a wider audience, including importantly, our streaming audience that is nearly 20 years younger than our broadcast audience.
As an aside I point out that C. B S. Original cross platform content is performing at a level comparable to Netflix and <unk>.
Q4 U S viewers spent 370 billion minutes consuming CBS content alone on both linear and digital that's virtually the same amount of time as viewers spent with Netflix is substantially larger entire slate of originals.
You also see unless doing this more broadly across our multi platform ecosystem as we've done with the Taylor Sheraton universe.
To give you a sense of the power of this approach at the consumer level in just a three month span from early November to late January more than 58 million Taylor Sheridan fans around the world watched over 32 billion minutes of the Taylor versus on both streaming and linear on our platforms.
The third way, we drive to profitability is through a continued focus on operational efficiencies and portfolio optimization.
As I've mentioned, our transformation as one Paramount is ongoing with recent initiatives around studios global operations and AD sales.
In the journey to become one Paramount our next step is to integrate Paramount plus with Showtime as.
As you know later this year, both our premium streaming tier on Paramount plus and the Showtime linear network will become Paramount plus with Showtime in the United States.
This move makes Paramount plus the definitive multi platform service in the streaming space.
We're showtime will contribute its distinctive content with more from the franchisees you up.
Hasn't it been will discuss in more detail economically the benefits include both revenue and cost on.
On the revenue side, the integrated product will be more engaging for consumers supporting price increases and associated RPG games.
We also expect that the integrated product with lower churn something we've already seen with our bundles.
On the cost side, there are multiple benefits which include tech.
Organization marketing and of course content.
Put it all together and it is accretive to the streaming path to profitability and it also helps ensure a stable transition of our T V media business, which remains a big revenue and earnings driver.
Stepping back from the particulars, let me just say how incredibly proud I am of what our team has worked together to accomplish in 2022.
And even more excited about what's to come in 2023.
With that let me turn it can be to break down the financials in more detail navin.
Thank you Bob and good morning, everyone.
Q4 demonstrated earnings resiliency in our traditional business along with robust revenue growth in our D to C business, the combination of which puts us on a path toward meaningful earnings and free cash flow growth in 2024, as we transition out of peak streaming investment in 'twenty three.
Today I'm going to cover three things first I'll provide additional color on a few elements of our Q4 results second I'm going to address specifics of our Showtime Paramount plus integration plan, including its contribution to future expense savings. So you can better understand how it affects our financial model in <unk>.
Three and beyond.
And third I will explain how continued execution of our strategy delivers meaningful bottom line growth in 2024.
In Q4 of Paramount delivered total company revenue and adjusted OIBDA growth, despite increased investment in streaming and a difficult macroeconomic backdrop.
Today's earnings press release includes a comprehensive review of key financial and operational results for the quarter.
I'm going to focus my comments here on three items, which deserve specific attention.
Affiliate and subscription revenue advertising trends and free cash flow.
Affiliate and subscription revenue was a highlight in the quarter.
Growing 8% year on year.
<unk> evidence that the ecosystem shift from pay TV to streaming yields net growth for our business.
We benefited from record Paramount plus subscriber additions combined with ARPA growth continued robust engagement and improvements insurer.
Resulting in 85% growth in Paramount plus subscription revenue and 48% growth in total D to see subscription revenue.
In Q1, we expect similar levels of D to see subscription revenue growth, reflecting ongoing net subscriber additions and improvement in ARPA.
At T V media, we also expect a year over year trend in affiliate and subscription revenue to improve relative to Q4.
Now, let's turn to advertising trends.
AD market continued to experience weakness in Q4, resulting in a 5% decline in paramount's quarterly advertising revenue.
The majority of the decline came from international markets and FX impacts while domestic advertising declined 2%.
DTC advertising grew 4% despite the soft demand environment as a result of robust consumption growth on both Paramount plus and Pluto TV.
As the marketplace improves we expect this growth to accelerate.
We're encouraged by the engagement trends and D to C and early signs of a broader AD market stabilization.
As a whole we looked at market recovery in the back half of the year.
Shorter term, we expect Q1.
To yield improved growth rates in the domestic national advertising business.
The underlying local AD business is also improving but lower political spend will be a headwind in Q1 relative to Q4.
International AD markets remained relatively weak and we expect a slower recovery there.
One final note related to advertising, we've now reached the point, where our digital go to market strategy combines Pluto and Paramount plus in a fully integrated advertising product.
As such going forward, we plan to simplify our reporting to focus on total DTC advertising growth.
This metric provides the best indication of progress against one of our key growth initiatives and so starting in Q1 of 2023 we will no longer report stand alone Pluto revenue.
Moving onto cash flow.
Free cash flow was a use of $500 million for the full year, reflecting streaming investment and weakness in the advertising market.
This figure also includes $289 million in payments for restructuring merger related costs and transformation initiatives.
Consistent with our plans for peak streaming investment in 2023.
We expect cash flow to continue to be impacted in advance of meaningful year over year improvement in 2024, when we returned to positive cash flow.
We will continue to manage our balance sheet with an eye to navigating the short term cash flow dynamic.
Importantly, our focus on working capital optimization meant that year over year change in free cash flow in 2022.
Was better than the year over year change in OIBDA.
A trend we expect will continue in 2023 as the gap between cash content spend and P&L content expense continues to narrow.
I'd also like to share some information to help you better model earnings in 2023.
In terms of the quarterly cadence of earnings we expect Q1, adjusted OIBDA to be similar to Q4 2022.
And we expect the year over year growth rate to improve in the back half of the year, reflecting the timing of several drivers Bob and I have discussed today.
In terms of some below the line items, our equity and invest the company's line, which primarily represents our investment in Sky Showtime.
Will result in a Q1 loss similar to what we experienced in Q4.
Additionally, we are forecasting an adjusted tax rate of approximately 25% on a full year basis.
Now, let's discuss the integration of Showtime at Paramount plus.
We're highly enthusiastic about this combination because it provides a better experience for consumers, while simultaneously unlocking material financial benefits for both our TV media and DTC businesses.
The most sizable these benefits will be realized as a reduction in content expense and related marketing.
Simply put a single service requires less content to acquire and retain customers then to independent services.
Additionally, our analysis revealed that an overwhelming majority of Showtime engagement.
Is driven by key franchises, which comprise less than half of the services content amortization expense.
By extending and evolving these powerful Showtime franchises.
And supplementing them with the breadth of content on Paramount plus.
We're able to deliver a powerful consumer proposition.
In both linear and streaming format.
Thereby preserving revenue while meaningfully reducing total content expense.
This strategic shift will give rise to an impairment charge in Q1 of 'twenty three as we realign the content portfolio.
We estimate this charge will be in the range of 1.3 to $1 5 billion.
When we launched the integrated service in Q3 subscribers to the premium tier Paramount plus will enjoy a greatly expanded selection of content, reflecting the full suite of Showtime and Paramount plus original library content movies live sports and events.
At that time pricing for Paramount plus will also evolve.
With our premium tier, which will then include Showtime moving from 999 to 11 99.
And our essential tier.
Which will not include Showtime content.
Moving from 499 to 599.
These price changes will apply to new and existing customers upon launch of the integrated service.
A couple of other important notes on this integration.
Our current Showtime OTT base include subscribers, who use the Paramount plus Showtime OTT bundle or subscribe to both services independently.
This means there will be some reduction in total subscribers.
When the services combined.
Importantly, we don't expect the subscriber dynamic to negatively impact our D to C revenue expectations.
On average subscribers to the premium tier of Paramount plus have higher <unk> and lower churn than Showtime OTT customers.
And our planned price increase for Paramount plus will further magnify the benefit of migrating customers to a single service.
Also with.
With the consolidation of Showtime and Paramount plus taking place later this year, we plan to remove total DTC subscribers from our external reporting starting in Q1 of 'twenty three.
As this metric will no longer be meaningful and tracking our subscriber growth trajectory.
We will continue to provide subscriber and revenue metrics for Paramount plus which will comprise the vast majority of our D to C subscriptions and revenue.
The Showtime Paramount plus combination also represents an opportunity to reduce operating expenses in marketing technology and operations.
Over time and in combination with reductions in content expense.
We expect to realize approximately $700 million of future annual expense savings.
As Bob noted the net financial result of the combination of Paramount Pluses Showtime as a key component of our plan to return the company to earnings growth in 2024, let.
Let me address that plan more holistically.
While it's easy to see losses will increase this year relative to 2022 we're approaching an important inflection point.
Where the revenue scale multi platform content strategy and distribution footprint, we've established together with the integration of Showtime and Paramount plus.
Allow us to turn the corner towards streaming profitability.
In combination with continued cost optimization in our traditional business and.
And recovery in the advertising marketplace, we're poised to deliver meaningful total company earnings and free cash flow growth in 2024.
As Bob outlined on the streaming side of our business. There are three key levers for earnings improvement.
Continued robust revenue growth slowing growth and content expense and other operating efficiencies I'll touch briefly on each of these.
As you know now in 'twenty two 'twenty three we will implement a price increase of Paramount plus which we expect to be a key driver of revenue growth with 2024, incorporating a full year of this benefit.
In addition to the domestic price changes. This year, we will also start to evolve pricing in core international markets.
From a single tier two a multi tier offering.
<unk> and higher blended ARPA for P plus international.
Our international distribution strategy will also contribute.
We're hard bundled launches have successfully catalyzed direct channel higher ARPA growth.
And we expect growth in advertising <unk> at Pluto and Paramount plus as.
As engagement trends drive inventory growth and expanded monetization opportunities.
And of course, we expect continued improvement in churn as our content slate expands and user behavior evolves.
Beyond 2023, our D to C. P&L also benefits from improved leverage on content expense.
Bob speak about the benefits of a content strategy that is inherently multi platform and franchise oriented.
It means we can generate more revenue for each dollar of incremental content and marketing expense.
By 'twenty 'twenty for the benefits of these strategies will become apparent in the P&L as our expected D to C revenue growth rate exceeds a slowing growth rate in the content amortization expense.
'twenty 'twenty four should also see operating leverage in other components of the D to C business at.
At that time, our plan includes reductions in the growth rate of head count product and technology expenses as we capture the full year benefits of integrating Showtime and Paramount plus and we lap a full year of costs associated with international expansion.
On the traditional side of the business, we continue to expect rate increases to partially offset ecosystem declines.
We're also intensely focused on operating more efficiently through execution of previously announced transformation initiatives like the reorganization of our AD sales team the realignment of our international operations and improved marketing efficiency.
I'll close by reiterating that the combination of what we built in 2022 and the financial impact of what we have planned for 2023.
It gives us confidence we can continue to deliver compelling content to consumers and distributors grow earnings and free cash flow in 2024 and.
And create long term value for shareholders.
With that operator can we open the line for questions.
Thank you if you'd like to ask a question today. Please press star followed by why don't know till I think he Pat we ask that you. Please limit yourself to one question.
Let's go to a question. Please press star followed by case.
To ask a question I'm sure you'll find it doesn't meet it lately and our first question today, because she's buying and Kraft Deutsche Bank. Brian . Please go ahead. Your line is open.
Hi, good morning.
Your peers are revisiting elements of their streaming strategies, whether it's E mountain types of content, they're making backing off from exclusivity and doing more licensing or resetting their approach in international markets are there any adjustments that you're looking to make to paramount streaming strategy or is the current course, the one that you plan to stay on from here.
Thank you.
Yeah sure Brian So look I'd say two main things here first I'd note that our streaming investment and differentiated approach is clearly producing returns at the consumer level I mean, Paramount plus is growing at the top end of the industry. It's clearly taking share our content on Paramount pluses on the rancor.
<unk> people are talking about it and really in less than two years, Paramount pluses become a service to be reckoned with and that's because it's a compelling product for the whole household across the country and really around the world.
Remember, we've always approached this space with a plan that was based on building a profitable streaming business one with T V like media Mart T V media like margins over time.
And that gets me to my second point, because we didn't have unlimited resources.
We went at this differently.
And in doing so I hope that many of these things.
The things we've been doing all along are now being embraced by others. So what does that include multi platform.
Power of films crossing theatrical and streaming of shows being what I call dual eliminated on networks and streaming.
Clear advantage franchises.
Our of IP that people know and IP that you can grow on a multiyear basis that gets your superior content ROI, including in streaming.
Advertising.
Both fast I E Pluto and lower priced AD supported tier a paramount plus essential it unquestionably grows the Tam and you've seen other people start to move in that direction.
Partnership.
We believe in the power of partnership.
It's a powerful element in leveraging their consumer connection.
See that in the performance of a hard bundles channel stores, and then add indeed to say, it's a powerful combination.
International discipline, we never believed that a one size fits all model, we believe in country specific execution, including at the limit joint ventures as were doing with Sky Showtime and finally content licensing we never took all our content and put it into a walled garden.
We continue to strategically monetize content outside our owned and operated an ecosystem and that drives incremental return and frankly drives incremental awareness.
Those elements are all important because they drive a mix of cost and revenue advantages that we've long pursued on the path to profitability because those advantages translate into lower aggregate investment levels and superior long term straightening margins.
So.
You know we continue to execute our we're very happy with our momentum to date, we see the light at the end of the tunnel.
Sure others are seeing some of the things we saw early but we're continuing to execute because we are going to be a profitable scaled player in the streaming game and it's exactly what's beginning to happen.
Thanks, Brian Operator, we'll take our next question please.
Thank you. The next question goes from Michael Morris with Guggenheim. Michael. Please go ahead. Your line is open.
Yeah.
Thank you guys. Good morning, I wanted to follow up a little bit on the subscriber component on this path to profitability you guys are at about 56 million Paramount plus subscribers.
As of year end, you had a number of market launches in 'twenty two.
Many subscribers does the paramount plus product need to get to scale.
And how does the growth trajectory for Paramount plus compared to the prior outlook you had 400 million plus combined subscribers by the end of 'twenty four.
And if I could also just on free cash flow as you think about 23 and the investment year can you give a little more color around how much cash investment you expect in 'twenty three before you inflect into 'twenty, four and whether that has any impact on how you think about your dividend payout. Thank you guys.
Hey, Mike It's a there's a lot in there so I'll try to take those in.
In order starting with.
Questions on the subscriber growth.
So you know as you pointed out 22 was a a very very successful year for Paramount plus in terms of subscriber growth.
And we're enthusiastic about what's coming in 'twenty three as well.
I would point out that the the dynamics around subscriber growth in 'twenty, two will be a little bit different on.
On the people side that growth is going to come from two main buckets.
First is organic sub growth.
Both in the domestic markets and internationally.
Domestic piece will be driven by a lot of the same drivers that we saw in in 'twenty two content partnerships churn improvement.
Internationally.
This year, we're going to focus on growing within the flagship markets that we launched in 'twenty two.
And then the second big bucket of growth for Paramount plus a will be the migration of Showtime subs.
<unk> latest that later this year and as I mentioned in our prepared remarks, that's not a one for one there's a little bit of overlap. There. We can take you through the details of that.
In the future.
So you know there are definitely a lot of moving pieces on the sub front in terms of where we see that going long term.
We're increasingly focused on our D to C revenue.
And so when you look at the goals that we've outlined there in the past.
Yeah. We are our goal was to hit $9 billion of D to C revenue by the end of 2024 Ah Theres. Some puts and takes there are the advertising marketplace has obviously been a little soft but on the other hand, when we look at the trajectory on Paramount plus growth.
We're extremely happy with that and I think has exceed.
Exceeded our expectations on on that front.
So that's kind of a the story on on subs.
The second part of your question was around free cash flow in 'twenty three.
And there's some important things to note there.
Most importantly, we expect our year over year change in free cash flow to be less than the year over year change in OIBDA.
And there's kind of a strategic explanation for that in our financial explanation that strategic explanation is really that it reflects the evolution of our streaming content investment, we obviously ramped it up quite a bit over the last couple of years now it's starting to stabilize as we build scale and you start to see our multiplatform franchise focus.
Rolling in as well as the savings that we're unlocking by integrating Showtime and Paramount plus now.
Now the financial answer to that is really that it reflects a reduction in content working capital.
Meaning that over the last couple of years cash content spend increased a quite.
Quite a bit faster than content expense because of the nature of our amortization.
But as we're reaching more stable levels of content investment that dynamic flips. So for the next couple of years, you will see content expense on the P&L will grow faster than cash content spend.
And in fact, as we move from 23 to 24 and this is important we expect to see growth in free cash flow that is measurably larger than the growth in OIBDA.
And then I think the last part of your question related to the dividend.
And what I'd say, there is that our capital allocation strategy is well.
Well aligned with our operating plan, yes, you know cash flow will be negative then.
Our 2023, that's sort of the nature of some of the the context were operating in a including the fact that we're gonna be at peak losses for D. C. In 2023, and there are some add headwinds, but both of those things are short term in nature.
Start to grow DTC earnings next year, and we do expect the AD market to recover starting in the back half of 'twenty three.
Which means that we were gonna see significant improvement in OIBDA and free cash flow in 'twenty four.
And in the interim we've got a very strong balance sheet that includes over 3 billion of cash.
On the balance sheet, that's prior to incorporating any future asset sales are we finished last year with a net leverage around four times, we don't have any near term debt maturities and we have a $3 5 billion revolver that remains undrawn. So we feel good about that.
Plan, both from a growth perspective and.
From a financial perspective.
Great. Thanks, Mike Operator, we'll take our next question.
Thank you. The next question I guess, you Ben Swinburne of Morgan Stanley . Please go ahead. Your line is open.
Thanks, Good morning, maybe to Bob could you talk a little bit about the outlook on film with Paramount you have Ah Ah.
A big slate for 'twenty, three and obviously you had a lot of success last year, just talk a little about the film strategy at Paramount and how you see that feeding Paramount plus growth over time, and then maybe just to try to finish.
The sort of 23 conversation.
Gave us some helpful guidance for Q1, EBIT OIBDA anyhow.
For the year on overall OIBDA.
22, just so we can think about the right free cash flow comparison as well.
You bet.
Yeah sure Ben So the first part of your question, obviously 2022 extremely successful year for Paramount Pictures six number ones at the box office in the U S. On an eight pictures slate, which gave us really a better hit rate certainly than the industry average no question. Our film investment is paying.
Dividends.
As you know, we both monetize it in the theater.
And on Paramount plus and so we were early to that strategy and others are sort of move in that direction.
When you look at Paramount plus movies are top performer on the service extremely efficient, particularly on a cost per start basis. So.
So we feel great about that as we look forward to 'twenty three and 'twenty four.
We're very excited about what's going on at Paramount Pictures, you look at the slate, it's increasingly franchise oriented.
We believe our franchise as you know talk.
Talk about titles Scream, which is come in this month, It's New York located a lot of buzz on that we've got our first Dungeons and Dragons movie. We're excited about that next transformer movie when we released the trailer that blew up the Internet. The next mission impossible movie, which is totally out of control and I felt throw around.
I'd, probably be the biggest mission impossible yet the next turtles movie.
And the next Paw patrol movie, which I don't know if you hang out where they preschoolers, but they love Paw patrol.
And then there's more to come so we're very very excited about.
What's going on at Paramount Pictures, and again, leveraging at both AR and the theatrical side and on the streaming side to great effect in the second part.
Yeah, So Ben with respect to.
Twenty-three OIBDA.
We're not providing any sort of specific.
The numerical guidance today, but I can give you a few additional notes to help you model the year.
If you think first about the the D to C segment as.
We've made clear this is the year of peak losses. So you should think about it is really reflecting the full year impact of.
The investments that we made in 2022, most of those related to content and market expansion.
On the TV media side of the business, we are looking to add recovery in the back half of the year.
I think T V media will also reflect the impact of a number of the cost savings initiatives that we.
We are we started talking about on our last call as well as some of the benefits that will unlock from Showtime and Paramount plus.
In the back part of the year.
And then on the filmed entertainment segment.
We do expect slightly lower OIBDA on a year over year basis. There just given the timing of our film slate, which is a little more backend loaded in 'twenty three relative to 'twenty two and then of course, we're comping against a 22, which included a top gun.
Which.
It was obviously a very large contributor.
Great. Thanks, Ben Operator, we'll take our next.
Thank you. Our next question does she want screen failed with offline said partners Rich. Please go ahead. Your line is open.
Hey, Thanks for taking the question I got a couple of sort of big picture questions for Bob and then a quick financial one so I've heard that there was credible multibillion offers for Showtime.
That's sort of how you thought about the value accretion of collapsing into Paramount plus versus just selling it for cash and Tanzania.
I think I hear if you listen to them on my earnings call internally on CNBC, he's backing pretty far away from General Entertainment content Hulu clearly for sale wondering one do you have interest in buying who could that be an interesting asset for paramount and related to that how do you react to sort of what would I guess he called undimmed.
French Navy General Entertainment programming, not being a great place to be and then the financial housekeeping just on the free cash flow are you committing to positive free cash flow in 2024, or just an improvement in losses in 2024, I wasn't quite sure how to take what you said I know that's a lot.
Sure Rich a three parter.
So.
On Showtime look we think there's enormous value to unlock with the integration of Showtime and Paramount plus both can be and I talked about that some today, so well to do that if we were to divest the asset it would have to create more value than our own operating plant.
And as stewards of shareholder value, we'll always listen, but frankly that bar is pretty high.
So beyond that I don't think anything to say moving to Mr. Iger, an undifferentiated et cetera.
French Asian matters.
And the general Entertainment space May not make sense for everyone.
But general Entertainment clearly makes sense for us when you look at our asset composition, and then really the nuances of our content engine.
And when we went to market with Paramount plus well actually before we went to market. We thought a lot about this question because we knew we needed to be differentiate it because we weren't first to market.
For US news sports and a mountain of entertainment was a clear route to differentiated position.
And one that we knew or at least strongly believed would resonate with consumers and appeal to the whole household.
And that's across this country and really around the world.
And when you look at Paramount pluses consumer traction.
Including having the most ads of any ethanol service in the U S. Since launch and the most adds in Q4 combined with 81% revenue growth.
Well that positioning is clearly working.
If you look under the covers of what's driving it it's the combination of Paramount films CBS Nickelodeon.
Nickelodeon franchises and our P plus original things like twenty-three in Tulsa, King criminal minds, Wolfpack Star Trek Strange real World I could go on.
Plus sports and news.
So theres no question that our content engine is delivering against our positioning.
And with respect to the cost of General Entertainment, which you didn't specifically ask but certainly was built into that conversation that you're referring to look our multi platform strategy and franchise focus ensure we can build a differentiated content slate and simultaneously create a compelling content ROI.
So again general entertainment it totally worked for us in general on streaming and maybe we're different because of our asset composition strategy, but.
But we're leaning into it.
And rich with respect to your financial question. Thank you for giving us a chance to clarify that our plan is to deliver positive cash flow in 2024.
Thanks, Rich operator next question please.
Thank you. The next question does he just kept brief outright of bank of America. Jessica. Please go ahead. Your line is open.
Thank you I just wanted maybe a clarification on some of the things you said about pricing and can you give some color on the economics of the partnership and how you would account for Delta in your sub numbers, but more specifically on the pricing like how much like what's the amount that you're thinking of raising prices and the timing.
And on the impairment charge, what's included in that $1 3 billion plus.
Yeah sure Jessica I'll take the first piece of that look we're super excited about the Delta partnership we did it was a competitive.
<unk> and obviously we won it.
<unk> Sky member Sky members Sky Mama members access to Paramount plus in the air.
And for a limited period on the ground.
So you can think of it as a promotional in nature importantly, the subscriber numbers will not be in our sub count.
So they will only what they do is they put in their frequent flyer mile and that gives them temporary access, but it's only if they actually become a real subscriber that'll start to go to our sub count and drive revenue and all that but we think it's an awesome promotional platform and I know that delta folks are really excited about it today because it really showcases.
What they've done in broadband in their planes in the air and.
And we think it's gonna be a nice plus for Paramount plus.
And I'll.
Jump in on the questions related to how we're thinking about pricing.
We are you know there's some obviously we have put a lot of thought into our.
Since the launch of Paramount plus that.
That includes conducting a variety of conjoined analyses and also our really studying some of the historical price increases that you've seen in the industry more broadly.
What we learned from that was that a paramount plus remains an incredible value proposition for consumers.
Particularly given the upward trajectory that youre seeing in with pricing across the industry.
Of course that value proposition will get even stronger with the addition of Showtime content into the premium tier of a paramount plus.
We also learned that you know the headwind from price increases tends to fall more on new subscriber acquisition.
And less so on on churn.
And that's something that is certainly guided our thinking.
Around the price increases.
So just as a reminder, the price on.
The premium tier Paramount plus which will now include Showtime.
<unk> will go up by $2. So from 999% to 11 99 will have a $1 increase on the essential tier from 499 to $5 99.
And we think that makes sense because effectively what we're doing is tying a bigger price increase on the premium tier to a significant expansion of content.
While keeping our and easily accessible entry point.
On the essential tier.
And we will continue to take advantage of promotional pricing annual plans and bundles as a way of both maintaining the funnel for new customer acquisition.
Optimizing churn and growing our booth.
So we're excited about the contribution from pricing.
And from a timing perspective that will kick in when the new service.
Launches.
In our early Q3.
And then I think the last part of the question was on impairment the impairment charge, which will come in our Q1 is really all about content.
And it's driven by the fact as I as I said that.
When we combine Showtime and Paramount plus.
We don't need the kind of content that you would need if they were operating on an independent basis.
So that will provide a benefit in terms of a reduced and more on a go forward basis.
Thanks, a lot Jessica operator next question please.
Thank you. The next question guys. She Doug Mitchelson of Credit Suisse. Please go ahead. Your line is open.
Oh, thanks, so much just a few clean up questions. One on the price increases how does that function with the partnerships I'm just trying to figure out kind of what percentage of subscribers are you know when I apply that price increase to or how I think about the magnitude of the benefit to <unk>.
The the second pieces on that impairment charge.
Could you share how that impacts 2023, EBIT da or you know how that you know kind of feathers in over time in terms of improving the the content amortization.
And I guess these are all for Devine, sorry, Bob I think the last sort of big one is could you help us understand when does the <unk>.
Cash content spend and the content amortization equalize so I understand it's going to improve in 2024 in particular, but can we look out you know pick a number three years and say, okay. We don't have a working capital burn related to content cash cost versus amortization. Thank you very much.
Ah Thanks, Mike and I say that on behalf of Bob So let him on for Doug excuse me Doug.
But thanks for letting Bob up easy I'll take those in are in order.
With respect to how the price increases apply to partnerships.
A couple of things the price increases will take.
Take effect across both our direct channels and all of our third party platform. So that includes our channel partners like Amazon Roku, Apple et cetera.
With respect to the bundles that we have with commercial partners.
The timing of price increases.
In in those relationships will be determined on a case by case basis, and obviously, we're not going to comment publicly on each.
Each of those deals.
Your question on the impairment charge and its impact in 'twenty three I think the way you should think about that is that in general our content on our streaming services has an amortization period of roughly.
Roughly four years plus or minus.
Depends a little bit on the type of content.
And so.
You know you're going to get the benefit over that period of time, it's going to be a little greater in 'twenty three and then.
Start to decrease a bit because there's more and more to roll off in the first year then in subsequent years.
And then I think your last question was about when we start to see.
Sort of neutralization of the working capital drag on.
Between cash and in OIBDA.
I think the answer there is where we're going to move for the next.
You know a couple of years into this mode, where are the growth rate in cash content spend is going to be much lower than the growth rate that you'll see on on the P&L.
And then beyond that point in time, you'll you'll start to see them move much more in line with each other.
Thanks, Doug Operator next question please.
Thank you. The next question guys, Hey, Phil Cusick of J P. Morgan Stanley . Please go ahead your line.
Hi, Thank you for squeezing me in.
Bob first can you expand on your comment about stabilization in advertising how should we think about indications for the current quarter and how you think about.
Deeper in the year comping versus the fourth quarter.
And then second can you expand on the contribution from international from from for Pluto, Thanks very much.
Yeah sure Phil So in terms of the AD market.
You look at Q1, which is probably the most I mean, most timely read on the market and.
As we said we believe our domestic national AD sales growth will improve in Q1 relative to Q4, you look at what's going on in the categories. There are some bright spots for sure.
Categories that are that are really working at the moment or food and beverage pharma travel and increasingly auto.
So we like that.
The strength really is much more so on the direct side of the business and that's a place where Paramount has a real advantage and in fact, we've.
Recently reorganized our AD sales force around specific teams aligned with holding companies to kind of streamline access for them make it more turnkey and that's been very well received so a direct side of the business.
It is a place where advantage indirect really the programmatic side its still soft.
And we're looking for that to turn as the market improves I'd also say in Q1 later towards the local underlying local AD business is improving as well it's not just a national thing. Although when you look at local obviously you don't have the same political in Q1 that you had in Q4, so that's a bit of a hedge.
Wind.
But net net.
We relative to Q4, we like what we're seeing kind of right at the moment in Q1.
And that does make us optimistic on this second half recovery.
And by the way the the second half recovery when we said, it's all about the growth rate.
We believe there'll be improvement in growth rate as the year goes on.
And it is worth noting that the comps ease a bit moving forward and so mathematically that helps but it's really the underlying tone that we think has stabilized and we think that we know that's the first step before you get the real improvement, which again, we're looking to back half of the year for.
There's a question about Pluto internationally.
Yeah, I can take that if you like.
Pluto on interest excuse me in the international markets is certainly at an earlier stage of.
Development and monetization than where we are in the United States, but it's.
It's growing at a at a nice rate. So we're we're enthusiastic about that we saw a decent chunk of.
The <unk> growth in Q4 was international including in Canada, where we launched a an exciting partnership with Corus.
And our you know from a monetization perspective as I said, it's still relatively small scale internationally, but.
A very compelling growth rate. So we're looking forward to it being a bigger contributor over time.
Okay. Thanks, a lot. So we have time for one last question. Thanks.
The final question I should cut down the morale of RBC capital market.
Please go ahead your line is open.
Great. Good morning, and thanks for taking the question I wanted to follow up on the <unk>.
National DTC outlook more broadly Paramount has had a differentiated rollout strategy abroad, whether you've gone at it alone.
Third party distributors or have partnered with the likes of Comcast or reliance in a fairly unique way. Some of your peers are exiting certain markets and others have talked about plans to take a harder look at where they operate as they reassess the economics, how do you see the opportunity abroad evolving and are there any changes Paramount is looking to make in this strategy.
To best capitalize on the future of international streaming thank you.
Yeah sure.
Let me take that and you know suffice to say I was schooled in international.
The better well really spent a decade running our businesses and.
So that's certainly important what we're doing here start with the fact that streaming is definitely a global opportunity in the international markets are an important piece of the equation and just to level set you know as we come out of 'twenty two.
We're obviously active in all Latin America, Western Europe , as well as Canada, South Korea, and Australia, and then we've got our Sky JV, which is in eastern Europe and in the Nordics and Netherlands, but not consolidated in our numbers, so we're pretty well penetrated.
And we're going to really focus twenty-three on deepening our participation in those markets, but to your point.
I believe in a global strategy, but local market execution and you have to look at the nuances in the market as you go.
Forward I also believe in the power of partnership.
That let us early on and really first to this hard bundle concept.
Where we used existing relationships with what you could think of as mvpds to kind of turbocharged our market entry, we do that in the U K, we do that in Germany, we did that in Italy. We've.
Done that a bit in Latin America.
And that's all about getting a large chunk of subscribers out of the gate zero acquisition cost and then now as as many.
<unk> said it really also was intended and in fact has catalyzed demand for the channel stores and the more direct business D to C O N O.
Which we really like what we're seeing in the trend lines, there and that will certainly.
To play out in 'twenty three.
So we are very much looking at this market by market and you know part of the peak operating losses by the way in 'twenty three is driven by the fact that we launched all of Western Europe in the back half of 'twenty. Two so you know that had some spillover effect to our financials, but.
As we get past that you know that.
Helps as well so really excited about the international market opportunity, we are going at it differently and yes, you're right I've talked to some folks were thinking about scaling back their presence, but they basically launched our D to C. O N O in all these independent markets around the world themselves.
And arguably are subscale too, so I'm not surprised or unwinding it but we didn't go into it like that we were very thoughtful in how we went into it again leveraging existing relationships and assets to both accelerate the growth of the business and really ensure its a its a attractive longer term.
And with that I, just want to wrap the call and leave you with a few key points to keep in mind.
We believe in our differentiated strategy, our unique portfolio of assets and our ability to make popular content and efficiently and I think you saw that in 'twenty two.
And you will see it in 'twenty three.
We are focused on the turned towards streaming profitability. Our plan always contemplated that and we are very much executing against that.
We look at our approach is already creating value for shareholders given the strong Paramount plus revenue and subscriber growth. Yes, you got to break it out separately look at it on some of the parts, but there's no question, we've already created a very material asset and it's got a long.
Attractive runway ahead of it and as we continue to execute our 'twenty three plan. It really sets. The stage is being set for a return to significant earnings growth and a return to positive free cash flow, thanks, which in 24. So thank you everyone for your support and be well.
Yeah.
Thank you. This now concludes today's call. Thank you so much for joining you may now disconnect your lines.
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