Q4 2022 Paramount Global Earnings Call

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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 global Whiskey for 2022 earnings conference call at this time.

All lines have been placed Amit, but any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on the telephone keypad. If you would like to withdraw your question. Please press star followed by two.

And or does it get as many questions as possible. We ask that you. Please limit yourself to one question at this time I would like to turn the call I was I think the claim and T. How about Globals E. VP Investor Relations you May now begin your conference calls.

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 <unk> 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. It 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 that 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 and Australian 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 screaming investment this year.

I'm incredibly proud of our progress hitting and in most cases exceeding the key streaming metrics, we set out to achieve that.

The differentiated strategy, we committed to is working and we're going to continue to execute on our plan.

As we moved into 2023, we see a year of continued content and platform momentum ahead of us.

Ah you're 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.

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.

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 T I S in foreign countries and.

And popular Paramount plus original like Tulsa, King 1923, 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.

The results are powerful.

Our World Class content engine has 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 on 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 six Paramount Pictures films opening at number one.

And the strongest performance in broadcast fueling Cbs's 14 year streak as the number one network.

When you combine that with our cable performance, it's why Paramount regained the crown as 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 TV 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 are 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.

Network is on the verge of achieving number one status for the 15th straight broadcast year.

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 parallel plus original sure criminal minds tall skiing, 1923, and all your other favorites will return.

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, 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.

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 have 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.

But we have the scale and flexibility to support it.

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.

DTC revenue growth cause.

Content spending and operational efficiency let.

Let me tackle each in turn.

First we will continue to drive D C 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.

We will 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 2023, 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.

Put simply franchises give the people what they want we.

We see this with Paramount films with CBS theory, with the Taylor Sheraton universe with mixed kids product and more.

And while 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.

This increases the size of our total addressable market gives 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.

In Q4 U S viewers spent 370 billion minutes consuming CBS content alone on both linear and digital.

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 interest of three months 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 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 multiplatform 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 game.

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 altogether 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.

<unk>.

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>.

<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.

Continued 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 the year over year trend in affiliate and subscription revenue to improve relative to Q4.

Now, let's turn to advertising trends.

The 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%.

D to C 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 in D 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.

Yeah.

Moving on to 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 the year over year change in free cash flow in 2022 was better than the year over year change in OIBDA <unk>.

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.

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.

Yeah.

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 D to C 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 now know in 'twenty two 'twenty three we will implement a price increase at 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>.

Resulting in higher blended ARPA for P plus international.

Our international distribution strategy will also contribute.

We're hard bundled launches have successfully capitalized 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 2020 for the benefits of these strategies will become apparent in the P&L as our expected <unk> 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 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.

Give 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 would like to ask a question today. Please press star followed by why don't know till I think he pads. We ask that you. Please limit yourself to one question.

Hello, a question. Please press star followed by case.

To ask a question. Please ensure you'll find it doesn't meet it lightly.

Our first question today, because she 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 youre 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 TV like media TV 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'd note 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 illuminated on networks and streaming.

Clear advantage franchises.

Power 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 you see that 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.

Never took all our content and put it into a walled garden.

We continue to strategically monetize content outside our owned and operated ecosystem and that drives incremental return and frankly drive 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 trading margins.

So.

You know we continue to execute 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 to Michael Morris with Guggenheim. Michael. Please go ahead. Your line is open.

Yes.

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 how many subscribers does the paramount plus product need to get to scale.

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.

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.

Okay.

Hey, Mike It's a there's a lot in there so I'll try to take those in.

In order starting with.

The question's on subscriber growth.

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 will be the migration of Showtime subs.

<unk> latest later this year.

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 is to hit $9 billion of D to C revenue by the end of 2024 Ah Theres.

There are some puts and takes there 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.

<unk> exceeded our.

Our expectations on on that front.

So that's kind of a the story on on subs.

I think 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 are rolling in as well as the savings that we're unlocking by integrating Showtime and Paramount plus.

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 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.

Cash flow will be negative then.

2023, that's sort of the nature of some of the the context were operating in.

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're going to 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.

We finished last year with 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.

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 a big.

Big slate for 2003, and obviously you had a lot of success last year can you 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 this.

23 conversation you guys gave us some helpful guidance for Q1, EBIT OIBDA any help for the year on overall OIBDA versus 'twenty. Two just so we can think about the right free cash flow comparison as well. Thank you both.

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 real dividends.

<unk>.

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 and you look at Paramount plus movies are top performer on the service extremely efficient, particularly on a cost per start basis.

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 about titles Scream, which is come in this month in New York are 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 <unk>.

Totally out of control and I felt thrill ride probably be the biggest mission impossible yet.

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 is 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 band with respect to 'twenty.

Twenty-three OIBDA.

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 DTC 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 investments that we made in 2022, most of those related to content and market expansion.

On the T V 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 started talking about on our last call as well as some.

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, you know 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 guys what screen failed offline head partners Rich. Please go ahead. Your line is open.

Yeah.

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.

<unk> sort of how you thought about the value accretion of collapsing into Paramount plus versus just selling it for cash.

Any then.

I think if you listen to them on their earnings call and certainly 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 undifferentiated.

I mean in 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.

On Showtime look we think there's enormous value to unlock with the integration of Showtime and Paramount plus or 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.

Differentiation matters.

And the General Entertainment.

Pace, maybe not makes sense for everyone.

But general Entertainment clearly makes sense for us when you look at our asset composition and the 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 New 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 spot service in the U S. Since launch and the most adds in Q4 combined with 81% revenue growth.

That positioning is clearly working.

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.

There's 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 what our multi platform strategy and franchise focus insurer, 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 the 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.

Hi, 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.

More specifically on the pricing like how much what.

What's the amount that youre thinking of raising prices and timing.

And on.

The impairment charge whats included in that $1 3 billion loss.

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.

Process and obviously we won.

It provides a sky remember 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.

Accordingly, 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 it'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 the 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 we think it's going to be a nice plus for Paramount plus.

And I'll.

Ill 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.

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 with pricing across the industry.

And of course that value proposition will get even stronger with the addition of Showtime content into the premium tier of the Paramount plus.

We also learned that the.

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.

We'll go up by $2. So from 999% to 11 99 will have a $1 increase on the essential tier from $4 99 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 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, while 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.

Q3.

And then I think the last part of the question was on impairment the impairment charge, which will come in 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 kind of content that you would need if they were operating on an independent basis.

So that will provide.

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, Hey, Doug Mitchelson of Credit Suisse. Please go ahead. Your line is open.

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 I pointed that price increase to or how I think about the magnitude of the benefit to <unk>.

The second piece is on that impairment charge.

Could you share how that impacts 2023, EBIT da or how that kind of feathers in over time in terms of improving the content amortization.

And I guess these are all for Naveen, sorry, Bob I think the last sort of big one is could you help us understand when does that.

Cash content spend and the content amortization equalized, 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.

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 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.

Timing of price increases.

In those relationships will be determined on a case by case basis, and obviously, we're not going to comment publicly on.

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.

Content on our streaming services has an amortization period of.

Roughly four years plus or minus.

Depends a little bit on the type of content.

And so.

You know youre 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.

A couple of years into this mode, where.

The growth rate in cash content spend is going to be much lower than the growth rate that you'll see 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 does he say, okay sake of J P. Morgan. Please go ahead. Your line is open.

Hi, Thank you for squeezing me in.

First can you expand on your comment about stabilization in advertising.

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 for Pluto, Thanks very much.

Yeah sure Phil So in terms of the AD market.

When 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 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 direct side of the business.

The 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 related to what 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 bit of a headwind.

But net net.

We are 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 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.

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 in the interim.

Excuse me the international markets is certainly at an earlier stage of.

Development and monetization than where we are in the United States, but it.

It's growing at a at a nice rate. So 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.

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.

We have time for one last question.

Thank you. The final question I should cut down the morale of RBC capital markets. Please go ahead. Your line is open.

Great. Good morning, and thanks for taking the question I wanted to follow up on the international 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.

Best capitalize on the future of international streaming thank you.

Yes sure.

Let me take that.

And suffice to say I was schooled and international spent the better well really spent a decade running our businesses.

And.

So that's certainly important what we're doing here start.

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 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 .

Critics, and Netherlands, but not consolidate 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 led 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 did 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.

<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 line there that will certainly continue to play out in 'twenty three.

So we are very much looking at this market by market.

And 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.

That had some spillover effect to our financials, but as.

As we get past that 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 it 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.

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.

We'll see it in 'twenty three.

We are focused on the turn towards streaming profitability, our plant 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.

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. It's been said 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.

Okay.

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

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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 Paramount Library was key for 2022 earnings conference call. At this time all lines have been placed Amit, but any background noise.

After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press star followed by the number one on the telephone keypad. If you would like to withdraw your question. Please press star followed by two.

In order to get as many questions as possible. We ask that you. Please limit yourself to one question at this time I would like to turn the call over to obsolete the claim and T. How about global was a VP Investor Relations you May now begin your conference calls.

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. It 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 that 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 investment this year.

I'm incredibly proud of our progress hitting and in most cases exceeding the key streaming metrics, we set out to achieve that.

The differentiated strategy, we committed to is working and we're going to continue to execute on our plan.

As we moved into 2023, we see a year of continued content and platform momentum ahead of us.

A year of 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.

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 FBI, Ncis entire country and.

And popular Paramount plus original like Tulsa, King 1923, 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 approach, we'll lean into more and more.

The results are powerful.

Our World Class content engine has driven the biggest subscriber additions and paves dreaming 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 on Pluto TV in Q4 as Pluto TV grew not just in the U S.

<unk>.

In 2022, our content engine also drove huge success of U S box office with six Paramount Pictures films opening at number one.

And the strongest performance in broadcast fueling Cbs's 14 year streak as the number one network.

When you combine that with our cable performance, it's why Paramount regained the crown as 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 TV media earnings in Q4.

Spite ongoing AD revenue headwinds.

2022 was also an important year of expansion, where we gained important streaming 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 Canal, Flus chorus, Amazon Roku and others.

Rapidly become our streaming partner of choice and 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.

Network is on the verge of achieving number one status for the 15th straight broadcast year.

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 tell 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 key for 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, Ed market as we know has been tough.

And like our peers, we felt its impact in 2022.

But our portfolio puts us in excellent position to build on the early stabilization we are seeing.

And we are seeing early signs of stabilization in advertising.

Sports marketplace continues to be active across the NFL PGA and NCWA.

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 $5 $5 billion 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 TV 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 have 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.

But we have the scale and flexibility to support it.

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.

<unk> revenue growth.

Content spending and operational efficiency let.

Let me tackle each in turn.

First we will continue to drive <unk> 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.

We will 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 2023, 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 <unk> and.

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 ltvs puts.

Put simply franchises give the people what they want we.

We see this with Paramount films with Cvs theory, with the Taylor Sheraton universe, with mixed kids product and more and more.

We will of course continue to take selective swings on new IP. There is 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 gives 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 Cvs 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 CBS original cross platform content is performing at a level comparable to Netflix.

In Q4 U S viewers spent 370 billion minutes consuming CBS content alone on both linear and digital.

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 Sheraton 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 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.

<unk> will discuss in more detail economically the benefits include both revenue and costs on.

On the revenue side, the integrated product will be more engaging for consumers supporting price increases and associated RPG game.

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 altogether and it is accretive to the streaming path to profitability and it also helps ensure a stable transition of our TV 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 convene to break down the financials in more detail.

<unk>.

Thank you Bob and good morning, everyone.

Q4 demonstrated earnings resiliency in our traditional business along with robust revenue growth in our DTC 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 two.

<unk> three and beyond.

And third I will explain how continued execution of our strategy delivers meaningful bottom line growth in 2024.

In Q4, 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.

Continued 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 in churn.

Resulting in 85% growth in Paramount plus subscription revenue and 48% growth in total DTC 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 the year over year trend in affiliate and subscription revenue to improve relative to Q4.

Now, let's turn to advertising trends.

The 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 impact, while domestic advertising declined 2%.

D to C 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 in D C and early signs of a broader AD market stabilization.

As a whole we look to 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.

Yeah.

Moving on to 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 cost 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 this short term cash flow dynamic.

Importantly, our focus on working capital optimization meant the 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 and 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 than two 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 one three 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 $4 99 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 dynamics to negatively impact our D to C revenue expectations.

On average subscribers to the premium tier 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 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.

For 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 2023, we will implement a price increase at 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 to a multi tier offering resulting in higher blended ARPA for P plus international.

Our international distribution strategy will also contribute.

We're hard bundle launches have successfully capitalized 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.

<unk>, 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 2020 for the benefits of these strategies will become apparent in the P&L as our expected <unk> revenue growth rate exceeds a slowing growth rate in the content amortization expense.

2024 should also see operating leverage in other components of the DTC business.

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.

Give 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 would like to ask a question today. Please press star followed by why don't know Jonathan Keypad, We ask that you. Please limit yourself to one question.

We have a question. Please press star followed by case.

To ask a question. Please enter your phone is a me too likely.

Our first question today, I guess, you're buying in 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 some exclusivity in doing more licensing or resetting their approach in international markets are there any adjustments that youre looking to make the paramount streaming strategy or is the current course, the one that you plan to stay on from here.

Thank you.

Yes, sure Bryan 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 year is 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 TV like media TV 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'd note that many of these things.

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.

<unk> 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 E Pluto and lower priced AD supported tier a paramount plus essential it unquestionably grows the Tam in you've seen other people start to move in that direction.

Partnership.

We believe in the power of partnership.

It's a powerful element and leveraging their consumer connection.

That is 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 ecosystem and that drives incremental return and frankly drive 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 seating margins.

So.

We continue to execute 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 will take our next question. Please.

Thank you. The next question goes from Michael Morris with Guggenheim. Michael. Please go ahead. Your line is open.

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 how 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 'twenty three and the investment year can.

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.

Okay.

Hey, Mike It's Levine Theres a lot in there so I'll try to take those.

In order starting with.

The question's on subscriber growth so.

You pointed out 22 was 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.

Dynamics around subscriber growth in 'twenty, two will be a little bit different.

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 <unk>.

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 will be the migration of Showtime subs.

<unk> latest later this year.

As I mentioned in.

Prepared remarks, that's not a one for one theres 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 are increasingly focused on.

<unk> revenue.

And so when you look at the goals that we've outlined there in the past.

We are our goal is to hit 9 billion of <unk> revenue by the end of 2024.

There are some puts and takes there 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.

<unk> exceeded our expectations on on that front.

So that's kind of.

The story on <unk>.

Subs I.

I think the second part of your question was around free cash flow in 'twenty three.

And Theres 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 of 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 multi platform franchise focus rolling in as well as the savings that we're unlocking by integrating Showtime and Paramount plus.

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.

Quite a bit faster than content expense because of the nature of amarin.

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. 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.

What I'd say there is that our capital allocation strategy is.

Well aligned with our operating plan yes.

Cash flow will be negative in <unk>.

2023, that's sort of the nature of some of the Ah <unk>.

Context were operating in.

<unk>. The fact that we're going to be at peak losses for DTC 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're going to 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.

We finished last year with net leverage around four times, we don't have any near term debt maturities and we have $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 will 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 a.

A big slate for 2003, and obviously you had a lot of success last year. If you 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.

You guys gave us some helpful guidance for Q1, EBIT OIBDA any help 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 real 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 and you look at Paramount plus movies are top performer on the service.

Extremely efficient, particularly on a cost per start basis.

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'll look at the slate, it's increasingly franchise oriented.

We believe and franchises as you know.

Talk about titles Scream, which is come in this month, It's New York located a lot of buzz on that we've got.

<unk> Dungeons and Dragons movie, we're excited about that next transformer movie when we released the trailer that blew up the internet.

Our next mission impossible movie, which is totally out of control and it felt thrill ride probably be the biggest mission impossible yet the next turtles movie.

And the next Paw patrol movie, which I don't know if you can hang out with any preschoolers, but they love Paw patrol.

And then there is more to come so we're very very excited about.

What's going on at Paramount Pictures, and again leveraging at both ends.

Theatrical side and on the streaming side.

To great effect in the second part.

Yes, so bandwidth respect too.

23 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 DTC 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 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 TV media will also reflect the impact of a number of the cost savings initiatives that.

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 <unk>.

<unk> gun, which.

It was obviously a very large contributor.

Great. Thanks, Ben Operator, we'll take our next.

Thank you. Our next question guys, Hey, Rich Greenfield with offline said partners Rich. Please go ahead. Your line is open.

Yes.

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.

Curious sort of how you thought about the value accretion of collapsing into Paramount plus versus just selling it for cash.

Any then.

I think I hear if you listen to them on my earnings call and certainly on CNBC, He's backing pretty far away from General Entertainment content Hulu clearly for sale wondering once 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.

I guess, he called Undifferentiated 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 relative to 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 will 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.

Differentiation 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 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 New 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.

Across this country and really around the world.

And when you look at Paramount pluses consumer traction.

Including having the most ads of any spot service in the U S. Since launch and the most at in Q4 combined with 81% revenue growth.

Look that positioning is clearly working.

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 position.

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 insurer, we can build a differentiated content slate and simultaneously create a compelling content ROI.

So again general entertainment it totally works 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 guys, Hey, Jessica Reif with Bank of America. Jessica. Please go ahead. Your line is open.

Thank you I just wanted to make.

A clarification on some of the things you said about pricing and can you give some color on the economics of the partnership.

You would account for Delta in your sub numbers, but more specifically on the pricing like how much what.

What's the amount that youre thinking of raising prices and the timing.

And on the impairment charge whats included in that $1 3 billion loss.

Yes, 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.

Process.

And obviously we won.

It provides sky member Sky members Skymiles 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 it'll start to go to our sub count and drive revenue and all of 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 we think it's going to be a nice plus for Paramount plus.

And all.

Jump in on the questions related to.

How we're thinking about pricing.

We obviously.

Obviously, we have put a lot of thought into.

Since the launch of Paramount plus that.

That includes conducting a variety of conjoined analyses and also.

Really studying some of the historical price increases that you've seen in the industry more broadly.

What we learned from that was that Paramount plus remains an incredible value proposition for consumers.

Particularly given the upward trajectory that youre seeing 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 the Paramount plus.

We also learned that.

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.

We'll go up by $2. So from 999% to 11 99 will have a $1 increase on the essential tier from $4 99 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 an 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, while 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 Q1 is really all about content.

And it's driven by the fact as I as I said that when.

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 reduced and more on a go forward basis.

Thanks, a lot Jessica operator next question please.

Thank you. The next question guys, Hey, Doug Mitchelson of Credit Suisse. Please go ahead. Your line is open.

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.

Part of that price increase to or how I think about the magnitude of the benefit to <unk>.

The second piece is on that impairment charge.

Could you share how that impacts 2023, EBIT da or how that kind of feathers in over time in terms of <unk>.

Improving the content amortization.

And I guess these are all for Naveen, sorry, Bob I think the last sort of big one is could you help us understand when does the <unk>.

Cash content spend.

<unk> amortization equalized, 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.

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.

In order.

With respect to how the price increases apply to partnerships.

A couple of things the price increases will take effect across both our direct channels and all of our third party platform. So that includes.

Channel partners like Amazon, Roku, Apple et cetera.

With respect to the bundles that we have with commercial partners.

Timing of price increases.

In those relationships will be determined on a case by case basis, and obviously, we're not going to comment publicly on.

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.

The content on our streaming services has an amortization period of.

Roughly four years plus or minus.

And it's a little bit on the type of content.

And so.

Youre 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 is 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 OIBDA.

The answer there is we are going to move for the next.

A couple of years into this mode, where.

The growth rate in cash content spend is going to be much lower than the growth rate that you'll see 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 does he say okay of J P. Morgan. Please go ahead. Your line is open.

Hi, Thank you for squeezing me in.

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 for Pluto, Thanks very much.

Yeah sure Phil So in terms of the AD market.

When you look at Q1, which is probably the most I mean, most kindly 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 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 direct side of the business.

It's 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 related to what 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.

Or a headwind.

But net net.

We are 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 second half recovery.

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.

For you get the real improvement, which again, we're looking to back half of the year for.

There was a question about Pluto internationally.

Yes, I can take that if you like.

Pluto.

Excuse me the international markets is certainly at an earlier stage of <unk>.

Development and monetization than where we are in the United States, but.

It's growing at a at a nice rate. So 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 new.

Exciting partnership with Corus.

And from.

From a monetization perspective, as I said, it's still relatively small scale internationally, but.

A very compelling growth rates. So we're looking forward to it being a bigger contributor over time.

Okay. Thanks, a lot Phil we.

Have time for one last question.

Thank you. The final question guys you cut down the morale of RBC capital markets. Please go ahead. Your line is open.

Great. Good morning, and thanks for taking the question I wanted to follow up on the international DTC outlook more broadly Paramount has had a differentiated rollout strategy abroad, whether you've gone at it alone.

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.

Best capitalize on the future of international streaming thank you.

Yes sure.

Let me take that.

And so I say I was schooled and international spent the better well really spent a decade running our businesses.

<unk>.

So that's certainly important what we're doing here start.

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 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 the Nordics and Netherlands, but not consolidated in our numbers, so we're pretty well penetrated.

And we're going to really focus 23 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 led us early on and really first to this hard bundle concept.

Where we used existing relationships with what you can think of as Mvpds to turbocharge our market entry, we do that in the U K, we did that in Germany, we did that in Italy.

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 <unk>.

He 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.

We really like what we're seeing in the trend line there that will certainly continue to play out in 'twenty three.

So we are very much looking at this market by market.

And 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.

That had some spillover effect to our financials, but as we get past that.

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 as D to C. O N O in all of these independent markets around the world Themself.

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 it.

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.

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 rich.

24 so.

You everyone for your support and be well.

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