Q2 2023 Paramount Global Earnings Call

August 7, 2023

Hello, everyone that the Paramount Globals second quarter 2023 earnings conference call will begin in one minute time if.

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[noise] [music].

Good afternoon, my name is not yet and it'll be the conference operator today.

At this time I would like to welcome everyone to Paramount Global's second quarter 2023, adding French cool.

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At this time I would now like to turn the call over to Kristin Southey, how about labor was a VP Investor Relations you May now begin your conference cool.

Good afternoon, everyone. Thank you for taking the time to join US for our second quarter 2023 earnings call. Joining me for today's discussion are Bob back as our president and CEO and they've even shilpa. Our CFO . Please note that in addition to our earnings release, we have trending schedules containing supplemental information.

A little on our website.

Before we start this afternoon 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 sum up today's financial remarks will focus on adjusted results Reconciliations of these non-GAAP financial measures can be found.

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

Good afternoon, everyone and thank you for joining us.

We're looking forward to walking you through Paramount results for the second quarter and our views on the business.

Before we get started I want to touch on some exciting breaking news today, we announced an important milestone with our agreement to sell Simon and Schuster to KKR for $1.62 billion.

Jim will walk you through some of the details but in short we were thrilled with this transaction, which is an important step in our Delevering plan.

With that let's turn to the taste business.

Let me start by saying this without question there is an incredible amount of change happening across our industry.

But what I've learned is that when you have a coherent strategy strong execution and the ability to stay nimble your business will be built to weather periods of change and transformation.

That is our approach of Paramount what we remain focused on every day and starting with a key part of the transformation our direct to consumer business. This quarter. Our D to C business continued to scale with increased revenue and engagement and an improvement in earnings. In addition, with 2023 being our.

Peak investment year in streaming we remain on track to deliver significant total company's earnings growth in 2024, but let me zoom out a bit.

I'll start with the vision, we've laid out for Paramount, how we're making progress on it and how we are continually fine tuning our execution to navigate market conditions.

And then the reason, we'll talk through the financials and provide additional color on the business.

Despite what's happening across our industry at a fundamental level, what we do at Paramount is what we've always done create high quality content with mass popular appeal and monetize it across multiple platforms and multiple revenue streams.

We do all that with an unwavering focus on building a sustainable business model one built for growth, let me break that down further.

First content at Sumner Redstone famously declared and as we often echo content is king and a paramount content is certainly what we do best.

In fact in Q2, we were the number two in the industry in terms of total U S. TV viewership of our content across television and streaming.

It starts with our library, one that spans over 100 years and includes more than 200000 television episodes and for 4000 movies that Irreplaceable Library is a critical driver of Paramount plus clearly.

<unk> TV linear and licensing.

This is coupled with our production capabilities that span the world from Hollywood to key global markets, including the UK and Australia in scripted and unscripted and animation and live action in features and episodic and then live including news sports and events all of this helps to create it.

<unk> and localize enduring fan favorite franchises and formats from Transformers to mission impossible to last week's teenage mutant Ninja turtles release, so unscripted hits like Rupaul and the shores and the powerhouse CBS crime procedural like the Ncis and FBR families or the expanding.

Set of Taylor Sheraton originals in fact Taylor shared its newest series special Ops Lioness premiered a few weeks ago.

Paramount Pluses most watch global series premiere in its first 24 hours on the service.

A new season of fan favorite the Chi premiered this past weekend and the highly anticipated season premiere of billions is coming later this week.

Our franchises continue to grow in number and scale, we have a growing roster led by more than a dozen franchises that have grossed over $1 billion in revenue.

Add to that popular original such as yellow jackets, and some of the biggest sporting events in the world.

College football, where we'll soon have the debut of the Big 10, plus March madness, the PGA UEFA and of course, the NFL with the Super Bowl coming in February on CBS , Paramount plus and for the first time ever on Nickelodeon with a kid centric.

Alternate telecasts.

We and the league are very excited about.

I also want to note that given our international production capabilities, we have more than 85 international scripted and unscripted Paramount plus originals already produced in production or green lit.

As well as more than 20 local versions of global unscripted formats slated to debut through 2024.

In fact, we just announced a slate of internationally produced originals coming to Paramount plus in the U S, including bargain a Korean crime thriller that's already generating strong buzz and a number of British series like the gangster drama Sexy Beast.

The breadth of our content serves an impressively large addressable market within the household across the country and around the world.

That is the power and quality of our content engine and that's a key competitive advantage for us.

Beyond quality, we continue to focus on being one of the most efficient content producers in the world and we expect to demonstrate continued gains in this area in 2024 and beyond.

As part of that as Youll hear from Nuveen, we are evolving our streaming content slate to super serve key target audiences more efficiently.

Based on all we've learned since Paramount plus launched.

Speaking of content I'd like to take a moment to address the issue that is top of mind for all of us the ongoing writers and actors strikes.

We're certain that as an industry, we couldn't come to an agreement that would have prevented this our partnership with the creative community is critical to the health of our industry. So we remain hopeful for a timely resolution and we are committed to finding a path forward.

At the same time, we have a responsibility to minimize disruptions to our audiences and other constituents.

To that end.

We've adjusted our Cvs fall asleep by leaning into the full power of Paramount's content capabilities.

On top of a strong sports lineup new additions to the CBS schedule include Paramount network Kids, like Yellowstone and Paramount plus favorites like seal team.

As well as pairing the British hit comedy Ghost with CBS as own popular version of the show to name a few.

<unk> illustrates the strength of our global multi platform asset base and strategy and it's one of the ways, we're staying nimble.

The second pillar of our strategy is using multiple <unk> multiple platforms and multiple revenue streams to get the most value for our content.

This allows us to monetize our content in more ways, while giving us flexibility as markets audiences and economics continue to evolve.

That means accessing revenue streams across subscription and advertising.

And tapping into the very large global market of third party platforms through our strategic approach to content licensing.

And it means distributing our content across linear TV.

<unk> and streaming.

Leveraging our powerful owned and operated assets, including the largest broadcast footprint in the world one of the fastest growing premium asphalt services with Paramount plus and the most widely distributed fast service globally with Pluto TV let.

Let me give you a few examples of how this creates value for our company.

Just look at Cvs, which as you know is the number one network in all of television for the 15th straight season.

Whats lesser known is that CBS content accounted for nearly half of total minutes viewed on Paramount plus.

And one of the most underappreciated contributions of Cbs's value to our company is it power and content licensing.

Both domestically and abroad.

To put a finer point on it CBS produce content accounted for over $600 million of licensing revenue in the quarter.

This is an incredible asset.

Paramount Pictures, starting with its extraordinary library also drives a significant multi platform and multi revenue stream advantage and its pay one films are the most efficient programming and driving acquisitions on Paramount plus in the U S. A key asset as we continue to scale rapidly and move forward.

A word on the path to profitability.

And as you know, we've always embraced the combination of streaming and strategic licensing to third party platforms, both in linear TV and streaming.

Something that unquestionably produces economic value for us in fact over the past 18 months. The top 20 engagement drivers on Paramount plus also drove hundreds of millions of dollars in incremental third party licensing revenue through.

Through windowing and secondary market exploitation.

And when it comes to generating revenue I have to spend a minute on our strong position in the AD market.

Paramount has seen sequential improvement in year over year advertising in Q2.

And then the upfront we just wrapped paramount saw positive low to mid singles growth on volume.

And in both cases digital is a point of strength.

Paramount is a leader in the digital video AD space and I want to ensure you understand the extent and depth of our digital ad capabilities.

Our direct digital revenue is up by strong double digits year over year.

Howard by the premium content offerings on Paramount plus and Pluto TV.

Three years ago, we launched IQ, our digital AD platform as a simple and effective solution for advertisers to connect their brands to consumers at scale.

Since then it has seen incredible growth the IQ footprint now stands at more than 90 million full episode viewers domestically and.

And we expect to generate revenue approaching $3 billion this year.

Rivaling the best the biggest players in digital video and we're building upon that strength internationally as well, we've just announced that we're expanding the group global Pluto TV footprint with our launch in Australia, and we'll be launching AD supported tiers of Paramount plus in certain international markets as we move forward.

Yeah.

Importantly, the strength of our proposition is not just digital or post portfolio of sports, including Super Bowl 58, and tent pole events like the Grammys are differentiators for advertisers.

As our industry, leading capabilities in branded content.

Simply put world class brands want to be part of Paramount, where advertisers like Dodge Ram who's been ingrained in the fabric of Yellowstone since season, one or pizza hut, a key partner in the new turtles movie turn to our branded content capabilities to breakthrough the clutter.

This combination of strength Springs, Paramount advertising key advantages for the long term and helps to mitigate any near term challenges.

Finally, I want to speak to our hyper focus on creating a sustainable business model built for growth and achievable goal and one that powers our entire mission as.

We said over the past quarters. There are a few key levers we're focused on here.

<unk> revenue growth through continued subscription growth price increases ad monetization and more.

Cost and operational efficiencies efficiencies with a big focus on content and marketing spend and improving our operating leverage.

While <unk> will speak to our efforts to build a sustainable model in more detail I do want to touch on how Paramount plus with Showtime integration, which commenced on June 27th is an example of pulling all these levers yes.

Yes, it allowed us to secure consolidation driven cost savings that extend across streaming and linear.

More than $700 million in fat.

It also enabled price increases to further drive streaming ARPA.

Perhaps most importantly, it is creating a stronger product for consumers and our partners one that is more engaging with less churn.

<unk> this for the last year or so we've had a bundle of the Paramount plus and Showtime apps in the market.

Customers of that bundle consumed over 40% more titles. So we are clear predictive data that the integrated product will deliver enhanced consumer engagement in streaming.

Soon in linear.

In closing, let me take this opportunity to say how proud I am of this company and the incredible team at Paramount We continue to power forward.

Our strategy underpinned by compelling content and powerful platforms is working and our approach fine tuned to navigate the realities of the market is focused on efficiently maximizing our business.

We're doing all of this of course with driving shareholder value as our highest priority.

With that I'll now turn it over to intervene Levine.

Thank you Bob good afternoon, everyone.

Our Q2 results reflect strong momentum in our D to C business and continued focus on company wide expense management.

In my comments today I'll provide additional insights on key elements of our Q2 results and discuss our expectations for the remainder of 2023.

Then before we take your questions I will share some more color on our path to streaming profitability and improved financial leverage.

In Q2, we delivered total company revenue of $7 6 billion and adjusted OIBDA of $606 million in.

In our press release Youll find a comprehensive review of our key financial results.

I'd like to focus on today are four important areas.

<unk> and subscription revenue advertising trends filmed entertainment results and free cash flow.

Let's start with affiliate and subscription revenue, which grew a strong 12% in Q2, demonstrating once again that the combination of traditional and streaming yields net growth for our business we.

We delivered strong DTC subscription revenue growth of 47%.

Largely driven by Paramount plus where we benefited from subscriber additions improvements in <unk> and reductions in churn.

Paramount plus net adds in the quarter reflected seasonal softness as well as a strategic shift of content releases to better align with the launch of Paramount plus with Showtime.

Looking ahead, we expect healthy levels of year over year affiliate and subscription revenue growth to continue.

From a subscriber perspective, we expect Paramount plus growth will be higher in the back half of the year than the first half.

The quarterly cadence of net adds will reflect the timing of our content slate and the rollout timing of Paramount plus with Showtime with our third party distribution partners.

In addition, Q3 net ads will reflect the loss of just over 1 million subscribers relating to the restructuring of a unique legacy Latin American hard bundled deal, which will have an immaterial impact on revenue.

Now, let's turn to advertising.

Year over year revenue performance improved 150 basis points compared to Q1 <unk>.

To see advertising growth accelerated to 21%.

Fueled by subscriber growth and strong engagement across Paramount plus <unk>.

Along with improvements we are seeing in direct programmatic buying activity.

Looking ahead, we expect to see continued acceleration in DTC advertising growth in Q3.

And we're also bullish about the long term, which I'll speak more about in a moment.

The year over year change in TV media advertising was similar to Q1.

In the national domestic market, we are seeing strength in key categories, including pharma retail movies and travel.

That said, we see linear advertising recovering more slowly than digital and we expect the Q3 rate of change for TV media advertising will be relatively similar to Q2 with improvement in Q4.

Moving on to filmed entertainment quarterly revenue and OIBDA were down year over year, reflecting the tough comparison to top gun Maverick, which was released in the prior year period as well as the timing and mix of other releases.

OIBDA of $5 million was better than expected due mainly to the timing of licensing deals which benefited Q2.

As we've noted in the past licensing in any given quarter. It can be somewhat lumpy based on the on deal timing and the schedule of content deliveries.

Turning now to cash flow free cash flow was a use of $210 million in the quarter, which included modest impact from the strikes.

We anticipate continued delays in production for the duration of the strikes and as such we estimate free cash flow in the back half of the year will be significantly higher than previously expected.

Next I'd like to touch on leverage.

The $162 billion transaction, we announced today to sell Simon and Schuster to KKR is an important step in our Delevering plan.

We expect the transaction to yield approximately $1 $3 billion in net proceeds resulting in a roughly <unk> five X improvement in net leverage when the deal closes following regulatory review.

We expect to use the proceeds from the sale to pay down debt.

The transaction demonstrates significant value capture for Paramount.

The 162 billion sale price the $200 million termination fee paid by Penguin random house and the cash flow. We received during the pendency of the deal process, we will realize approximately $2 2 billion of gross proceeds.

In addition to the impact of the SNF sale, we expect leverage will further benefit from the dividend reduction and significant total company earnings growth in 2024.

Now I'd like to shed more light on our path to profitability and streaming.

Earlier, Bob described the three key pillars of Paramount's operating strategy, our strong content are multi platform and multi revenue content monetization and our commitment to deliver long term growth.

In 2024 improved streaming economics will be key to delivering earnings growth and will be accomplished through a combination of continued subscriber growth.

<unk> expansion.

And significant improvement in the efficiency of Paramount plus investments.

Let me dig a little deeper into that combination starting with <unk> expansion.

In 2024, we expect to deliver more than 20% growth in global Paramount plus ARPA.

As you know we implemented our first domestic price increase this quarter.

And we will see a full year benefit in 2024.

Internationally, we will also be rolling out new tiers and revised pricing in certain markets.

<unk> will also benefit from increasing DTC penetration in Western Europe , Canada, and Australia, where new subscribers are being added at a significantly higher <unk> than our existing international subscriber base.

Paramount plus with major Hollywood movies top tier sports and World Class Entertainment remains an incredibly attractive value proposition relative to other <unk> services and to other forms of recreation.

This compelling value proposition plus the stickiness of Paramount plus content.

It gives us confidence in our ability to further improve <unk> overtime.

We also see an opportunity to drive <unk> higher through enhanced ad monetization.

As Bob highlighted this year IQ will generate digital advertising revenue approaching $3 billion across our business.

A size and scale that are comparable to best in class peers, and the domestic connected television advertising market.

And the opportunity to enhance AD monetization extends beyond the United States.

We've just begun to scale, our international AD supported streaming business, having now launched Pluto and over 35 markets.

We also plan to launch AD supported tiers of Paramount plus in certain markets.

Monetization will benefit from expanded local partnerships and deeper integration with our own free to air broadcast stations.

Today, we're growing our digital advertising platform faster than many peers as demonstrated by the 21% growth rate we've achieved in DTC advertising in Q2.

Similarly, we saw 35% growth in total viewing hours across Paramount plus <unk>.

The combination of rapid inventory expansion and broad integration with leading buy side AD Tech platforms means we are now growing DTC advertising not just as a replacement for linear but as a compelling video alternative for the long tail of advertisers who have historically with <unk>.

Lied on social media and short form video advertising.

Why is this important.

Simply put it means that Tam for connected TV advertising is much larger than typically imagined.

And we're proving it by giving a whole new class of advertisers the ability to tell their story on the TV glass.

In order to drive accelerated earnings growth, we're focused not only on revenue, but also on delivering captivating consumer experiences, while using innovation to improve efficiency.

In streaming we're focused on optimizing spending in content and marketing.

<unk> two largest expense categories in our streaming P&L.

As Bob pointed out Theres no question, we made great content, but.

But it matters just as much that we do it efficiently.

And when it comes to streaming content, we've learned a lot from Paramount plus subscribers over the past two and a half years, what attracts them to the service what keeps them there and therefore, what we want to invest it.

And we've learned that success is not purely a function of content volume it.

It's having the right content for the right audience at the right time.

For example, we know that if a paramount plus subscriber watches for hours or more of content in a month or.

Or engages with more than two different series.

There are over 30% less likely to churn from the service.

With these types of learnings, we've carefully defined specific audience segments and have evolved our programming strategy to super serve them in an even more efficient manner.

Our programming slate is designed to ensure that each key audience segment has compelling content to enjoy throughout the year.

Not too little but also not too much.

The content charges, we took in the first half of 2023 reflect this go forward targeted programming strategy.

The benefits are already apparent in Paramount pluses content efficiency ratio or the services content expense relative to Paramount plus revenue.

In the first half of 2023, we have seen nearly 10 percentage points of year over year improvement in this ratio.

The integration of Paramount plus with Showtime together with an optimized programming strategy, we will continue to drive this ratio lower.

Will be a key driver of the margin improvement, we expect to realize in D. C. Over the next several years.

Beyond content, we also see room for efficiency gains in our marketing spend.

The approach I just described a targeted programming strategy also allows us to focus our marketing on key audiences and fewer shows.

And when it comes to marketing, we also leverage our huge Oh, no linear and digital footprint to promote our content at scale.

In fact in the United States, our O and O platforms have contributed over 30% of incremental Paramount plus starts since 2022.

As a result, we also expect to see significant improvement in marketing spend as a percentage of revenue in 2024.

In closing I want to underscore what we have said previously that we expect 2023 to be our peak year of DTC investment with significant growth in consolidated earnings in 2024.

We remain confident that the strategy, we put in place will enable us to maximize earnings from our traditional networks, while successfully building a profitable streaming business.

Moreover, successfully navigating this transition positions paramount for long term growth and shareholder value creation.

With that let's open the line for questions.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.

As a reminder, we ask you please limit yourselves to one question.

<unk>, which will have a question. Please press star followed by <unk>.

Pairing to ask a question please NGL side anything needed lately.

And our first question today I guess, he Jessica Reif outrage of Banc of America Securities. Jessica. Please go ahead. Your line is open.

Thank you.

Everybody.

You talked about a lot, but let's just focus on asset sales with the sale of Simon interest or you said you'd pay down debt.

Give us an update on other potential asset sales, including D T or anything else.

It just feels like this is the time, where it industry assets may move around other companies have talked about maybe doing stuff with their sports portfolio many of our assets.

Can you just talk about where you see your assets in the next couple of years and what you would do with the proceeds.

Yes, sure Jessica let me take that so on Simon <unk> Schuster, we're very happy with this deal.

Great outcome for our company as we've discussed before Simon Schuster is a fantastic asset, but from a strategic perspective, it's not core to our mission of creating and monetizing World class video Entertainment.

And we think we found a very good home for FNF with KKR.

Importantly, this transaction checks all the boxes from a financial perspective, we're selling the asset at an accretive valuation in the deal will meaningfully help delever our balance sheet.

And as we've said, we're going to use the proceeds to pay down debt. So again thrilled with this transaction.

With respect to other assets look we're always looking for ways to maximize shareholder value.

And as we said before that might involve divesting acquiring or potentially partnering on assets all of which we've done.

But other than that I'm, not going to comment on anything specifically.

The next question.

The next question to Michael Morris of Guggenheim. Michael. Please go ahead. Your line is open.

Yeah.

Thank you good afternoon wanted to ask.

Thank you.

Couple of questions about.

The direct to consumer business.

I appreciate all the details you just gave US first so your subscription revenue growth in the second quarter.

Paste your subscriber growth. So it seems like youre already seeing that or could benefit Arco acceleration can you talk about what drove the acceleration in the second quarter and then as we looked at the back half of the year I know this year.

You've guided.

At the peak losses, but given these top line drivers.

And the fact that you were already pretty similar year over year and your level of losses.

Yeah.

What's coming up on the cost side.

In the back half of the year.

Making you think that 2023 will be peak losses, instead of 'twenty, two and maybe I could just ask lastly strategically Bob.

There is some discussion about potentially seeing different media companies looking to possibly bundle.

Streaming services in the future for consumer benefits do you see do you see that on the horizon is that something that you think could happen.

Okay.

Yeah sure Mike Let me take the second part and then have you been talking about the first part so on the bundling side I mean look we've been.

Believers in bundling for a long time bundle has been one of the tried and true methods of value creation in.

In media.

Certainly as we enter the streaming space.

<unk> is part of our strategy and we really pursued it in different ways.

We for example, bundled Paramount plus with Showtime originally as a price bundle than sort of an upgraded tier this predates obviously the integration and we saw value creation there.

When you look at the deals we do with distributors, particularly outside the United States with respect to the streaming product. We've pursued hard bundle that is bundling paramount plus in as part of a.

If you will appear that and Mvpds might offer we did that with sky, we've done that with canal, we've done that with some others.

We more recently.

Another form of a bundle with Walmart.

Paramount plus became.

The video service inside of Walmart plus that's another bundle.

So we believe in bundling we are continuing to look at incremental opportunities in this regard and the only thing we know for sure is it will be a growing part of what we're doing you know.

As to the specifics of partnerships and timing et cetera, we will see but bundling is definitely a value added element of streaming because it gives you access to <unk>.

Consumer connections with other half AK allows you to penetrate the Tam and it has certain attractive margin characteristics. So we like bundling you mean.

Yeah, so with respect to the questions on <unk> and what it means in terms of.

The D to C trends in 23 versus <unk> 24.

Pointing out a few things so first.

The <unk> growth in Q2.

Was really driven primarily by improvements in I'll say subscriber mix, particularly in international markets, but also.

A little bit as between our AD supported and premium tiers here in the U S.

And.

Also.

It was benefited by growth in digital advertising, which obviously enhances <unk>.

For for both Paramount for Paramount plus and also Pluto.

The thing to realize about the trajectory of sort of on more of a full year basis.

Is that there is some seasonality in content expense.

No.

As an example in Q3 and Q4, we have more sports in season, and so you tend to see slightly higher content expense there.

Which is the answer to your question of why is 23 expected to be peak losses as opposed to 2022 now that being said I think the important takeaway here is that there is significant earnings improvement expected in D. C. As we move into next year.

There are a number of levers that will contribute to that obviously continued subscriber growth.

Significant <unk> growth that I talked about that a bit in my prepared remarks.

That's a combination of the price increase continued.

What I'll call accretive sub mix.

Continued improvement in advertising <unk> churn reduction and very importantly.

Getting more leverage on our content investments, we've already made a lot of progress on that front and I expect to see additional large efficiency gains.

Their next year, particularly as we focus on our key audiences, our key franchises and find more ways to leverage content across platforms.

So we're really looking forward to.

What we'll be able to deliver next year.

But also encouraged by what we're seeing in 2023.

Operator.

Yeah.

Thank you. The next question you guys see Ben Swinburne of Morgan Stanley . Please go ahead. Your line is open.

Thank you good afternoon.

Just picking up on a couple of the discussion point so far.

Can you guys talk about the 20% plus <unk> growth next year and sort of I know you mentioned a few of the drivers Devine, but.

A little more detail would be helpful on sort of what what delivers that and how are you thinking about elasticity or any elasticity of demand thats, probably more ARPA growth than we've seen.

From any other streaming service that I can think of all of this off the top of my head trying to figure out.

If you think you're going to drive it you can still grow customers with that level of price increases next year, and then I wanted to ask about cash content spend obviously you guys are highly focused on deleveraging that's pretty clear from your prepared remarks, and you've taken I think a $2 4 billion cumulative rights and programming charges this year, which would suggest.

To your point, you don't need too much content. So what's the outlook for cash content spending as you look out let's put the strike aside over the next couple of years. Thanks a lot.

Yes, Thanks Ben.

A few questions in there so I'll try to hit all of those.

First with respect to <unk>.

I think we laid out most of the drivers in our prepared remarks, but just as a reminder, there.

There is a significant benefit there from <unk>.

Price increase, which we will get a full year of benefit in that.

In 2024, we do also expect subscriber mix to be favorable, particularly in international markets.

Our base historically started in some I'll say, some lower <unk> markets and a lot of the growth next year will be in higher RP markets that probably explains some of the delta between.

Our <unk> growth rate versus what you may have seen elsewhere.

And also advertising we pointed to the fact that we are <unk>.

Delivering very high levels of.

Digital advertising growth.

There is a significant piece of that is driven by Paramount plus and we expect that to continue to be a driver next year.

In terms of the elasticity of.

The business.

As we have started to raise price.

I'll share a few things that we've.

<unk>, thus far although keeping in mind, it's still relatively early days since we implemented the price increase.

Thus far we've seen that new subscriber starts have basically been in line with our expectation.

<unk> and we're seeing some.

Really encouraging data around engagement.

Including a double digit increase in daily hours per subs since we launched the combined product.

Obviously consistent with our thesis for putting these services together.

And we're optimistic about the net churn impact but.

It's probably a little early to have enough data to really measure that in all of those.

Metrics are driven by very strong content lineup, which we've talked about.

So we're encouraged by what we see in terms of call it the consumer value proposition.

And then with respect to your question on what it all means with respect to cash content spend.

Say a few things.

First we've historically talked about cash content spend on a total company basis as growing call it low single digits.

But as you heard in my remarks, we are laser focused on improving the efficiency of our content spend going forward and that's true for both linear and for streaming.

We're accomplishing that goal by leveraging content across platforms more and more by leaning into franchises and now that we've got more data, we're increasingly able to use analytics to understand how to super serve these key audience segments.

And so we can get away from call. It a volume focus game and be more focused on making sure that we have the right content for the right audience at the right time.

Financially that means that there is opportunity to further improve the long term trajectory of cash content spend.

Now keep in mind the strikes obviously will create some timing shifts between.

Cash gets deployed in 23 versus 2024, but it doesn't change our commitment to improving that cash spend over a multiyear period of time.

Thank you operator.

Thank you. The next question go to rich Greenfield of light shed partners Rich. Please go ahead. Your line is open.

Hi, Thanks for taking the question.

There is a bunch of major sports rights are coming up including NBA WWE College football playoffs, which I guess saw some pretty dramatic changes.

Princes over the weekend.

The question is sort of as you look at sort of the balance sheet and even sort of the headwinds facing the traditional media businesses.

Or are you thinking about what you spend on sports versus what you spend on entertainment programming curious like sort of how that mix shifts and then just.

If I looked at overall advertising, both if I combine both D to C.

As well as your media networks it was down about.

It sounds like you think based on I think your comment that that's going to get a little bit better on a blended basis as.

As the year progresses.

He is happening with Pluto inside of that without the disclosure anymore. Just curious if there's anything sort of in terms of year over year that you could help us kind of within those numbers that would be really helpful to understand.

Yeah.

Yes, sure Rich, let me take the sports part and maybe I'll add on the Pluto side. So a couple of things on sports really embedded in your question.

One on the.

Announcements over the weekend look we view that as.

A very additive development for the big 10, and Paramount in particular.

Meaning our big 10 deal looks even better today than when we did it in terms of specific impact there'll be no change in the fees that we pay or the volume of the games that we get for CBS and Paramount plus but.

The expansion of the Big 10, clearly enhances the quality of games. The portfolio. If you will that we have to pick from.

We carry so essentially it increases the quality of our deal.

And I'd add that we very much look forward to beginning our partnership with the Big 10 in the fall and frankly, given everything else going on timing couldnt be better. So that's part one part two is.

Sports.

Is as you know integral to our strategy.

It's really a component.

Both CBS and Paramount plus from our content offering.

We liked that we find sports working very well for us driving distribution, attracting viewers and subscribers, enabling strong monetization in the AD market, providing powerful promotion schedule lead ins et cetera.

And we're in a great place because that works and our.

Schedule is essentially stable our deals are all locked through the end of the decade. So we're not in a place where we need to do anything.

And if you look at what we have we have broad and top tier quality sports.

We don't need for frankly want to do anything incremental.

Sports intentionally as I said are part of the equation and we do view sports and entertainment as a synergistic mix both in streaming and on linear and we spend a lot of time thinking about how do we connect sports viewers with other types of content, including our original slate to maximize the ROI.

For both so for us.

The marketplace is what it is but the answer is not more sports. We're in a great place from mix standpoint, instead, it's about continuing to focus on maximizing the impact of these highly valuable rights that we already have and again, we have stability, we're locked through the through the end of the decade Levine on Pluto.

I think so.

Rich as you know we delivered.

Very strong overall digital advertising revenue growth in the quarter.

And that was a combination of Paramount plus <unk>. So Pluto is absolutely a key ingredient to driving that growth.

And by the way, we expect that growth rate to accelerate next quarter.

And it's really all about driving engagement on both of those platforms that allows us to do that particularly in a world where as we talked about.

We see an opportunity to <unk>.

Bring a whole new class of advertisers onto our digital advertising platforms.

Theres been a lot of conversation about sort of the cannibalization of tele.

TV advertising by.

Other forms of digital we think that's not the right way to look at this.

We are very bullish about.

The volume of engagement that we're creating and what that means in terms of the digital advertising opportunity that exists in the future.

And that will be enabled by both Paramount plus in Pluto, we sell them together.

To our advertising clients and that.

It gives us a lot of opportunity to sell to both large and small clients. So.

<unk> is performing well and we're very excited to have it as part of our portfolio.

Operator.

Thank you. The next question Gucci, Brett Feldman of Goldman Sachs. Please go ahead. Your line is open.

Hi, Thanks for taking the question I'm going to ask about churn.

You shared some interesting anecdotes about.

Different types of subscriber cohorts and how much lower their churn profile can be than the base.

Sort of a two part question one.

What are the principal churn initiatives you have underway right now in other words, if investors are going to be watching your kpis and we see the next year or so.

Where we can see it is it mostly going to be something that supports sustained net adds or is this really about getting a lot more efficiency out of your marketing dollars in here, it's a little bit of both but I'm curious how you think about that and then it seems to me you're talking about sports.

Sports consumption factor into churn in other words, what's the churn profile of your customer cohorts that you're clearly now are coming to Paramount plus or sports versus people, who are a little more general entertainment focused.

Yeah, Hey, Brad.

I'll take those but probably in reverse order so first starting with <unk>.

Sports.

One of the reasons, we like sports on Paramount plus is that those do tend to be some of our highest LTV customers.

And that may be a little counterintuitive because.

Some people assume that sports viewers come in during the season and then they disappear, but the reality is sports viewers are not just sports viewers. They like other forms of content, but you got a program it in a smart and thoughtful way and so that's where we're able to use a lot of the data that we've collected over the last couple of years to understand.

And what are the types of programming that an NFL view or a champions league viewer is most likely to engage with and as long as we can get them to engage with one or two additional titles as I mentioned earlier, the churn rate drops dramatically hence the.

Attractive ltvs that we get from those types of subscribers.

With respect to the second part of your question.

Terms of churn initiatives.

It shouldn't surprise you to hear it's multi dimensional.

It's first and foremost about content, making sure that we have the right content for the key audiences that we're focused on but also timing that content correctly, and then programming and promoting it correctly, which is really about figuring out if in audiences starting with <unk>.

What is the next thing that you want to put in front of them to ensure that you can engage them. Once a particular series comes to an end. So it starts with content, but it is also about getting smarter on on the marketing side and then also using.

Bundles and partnerships to further improve the churn dynamics, we've talked in the past about some of the benefits of doing that so.

We're gonna be using multiple angles to continue to make improvements on churn and.

We've seen a great track record there to date.

Brett just to jump in I think it also goes to the fundamental premise behind our thesis and that has broad we talked about Paramount plus new sports and amount of entertainment and the fact of the matter is when we look at the data under the covers we are seeing conjoin analysis, if you will of sports viewers watched.

Entertainment programming and to <unk> point on efficiency for example, we probably need to do less for that viewer who's an NFL viewer in the fall and do more for that viewer outside default because we can rely on the NFL and that's an example of fine tuning our strategy.

And really that also goes to why are we doing paramount plus with Showtime again that broad product, which we're seeing 40% more titles consumed when Showtime and Paramount plus.

It's all about studying the data and leveraging this combination of sports and entertainment not doing either naked that is I believe the path to success because among other things. It helps you lower your churn, but it has a broader benefits as well in AD monetization subscriber acquisition.

In engagement et cetera.

Operator.

Thank you. The next question guys you bet.

<unk>.

Nathan. Please go ahead your line is open.

Thank you good afternoon, one for Bob and one follow up kind of theme.

Bob earlier this year you provided thoughts on the TV advertising landscape in terms of the secular and cyclical headwinds and recovery expectations I'd just be curious to get your updated point of view on the mix between the cyclical and secular headwinds and if anything has changed over the past few months.

And then Naveen can you just help us think about any timing benefit or maybe onetime in nature I think of as the 600 million that was called out from the Cvs licensing deals in the quarter or how we should think about licensing in the second half of the year, especially factoring in any strike impact, possibly impacting the regular delivery of your programming.

Internationally or even domestically.

Yes, Robert so on the advertising side, you're right, we see a combined impact of cyclical and secular.

On the cyclical side look rates are coming down a bit.

Things are marginally improving but what we've really been focusing on is the secular side.

And you see that in terms of how we're participating in really driving the digital ad market.

For us direct digital is very strong.

And it wouldn't be had we not configured our product line to.

Prosecute it basically and we're going after that with IQ, which is a combination of course of Pluto TV and Paramount plus.

We are seeing direct digital strong and we are seeing improvement in programmatic and we expect both of those things to continue so that's all about secular.

And as we roll forward through the year in Q3, we expect to see a slight improvement overall.

On a year year basis, but that will be driven by DTC. So back to the secular piece and then as we get to Q4.

Their sports are going to be a key driver, including the NFL the big 10.

That by the way that timing is turned out to be great for us as well as our modified CBS slate, which is strong and has plenty of scripted programming.

That should add meaningful benefit on the linear side and hopefully we continue to see some cyclical improvement but.

We are very much focused on this secular trend and we think we are extremely well positioned given the impression scale, we have in the marketplace with IQ and the revenue growth trends we're seeing.

So we're very excited about the road ahead.

Yeah, and Robert just real quick on the licensing questions that you asked I think the 600 million number that you referenced just to clarify that was just.

An indication of the contribution of CBS content to licensing in the quarter.

Not a timing benefit.

And next quarter CBS content, we will also be a major contributor to licensing the timing benefit that was called out was really in relation to the filmed entertainment segment.

Where we did have deals that.

Ended up getting closed in Q2 as opposed to Q3, so that accelerated some of the revenue, but as I said.

The licensing business in general tends to be lumpy. So it's very possible you could have something similar next quarter or thereafter so.

Really no major timing issues to call out.

Yeah.

Alright. Thank you operator, we will take our last question.

Okay.

Thank you our final question does she Bryan Kraft with Deutsche Bank. Brian . Please go ahead. Your line is open.

Thank you good afternoon I wanted to ask you.

On the film side I realized we don't know at this point when the strikes will end, but if we were to assume it ends at the end of the third quarter I was curious how you're thinking about your upcoming Paramount film releases for the remainder of the year and next year and maybe even into 25 would you expect any disruption or delays.

And on the Paramount plus side, assuming that that same timing.

Would you expect any disruption to sub growth at some point from the strike or do you think based on producing and advance and being able to kind of catch up you can make up for that five months disruption in production. Thank you.

Yes, sure Bryan so look.

I think we're all sand as an industry that we could not get deals done with the writers and actors to avoid the situation. We're in and I would reiterate that our partnership with the creative community is critical to the health of the industry. So we remain hopeful for a timely resolution.

That said with respect to our film slate the good news is we.

Have a significant number of films of which production is complete.

That includes killers in the flower Moon, Bob Marley, John Krasinski is if as well as a quiet place day, one and deer Sandler with Jack Black. We also have a mean girls musical for Paramount plus.

Strikes do present, some marketing challenges something we're working to assess with respect to our lease strategy, but again, we're well stocked and.

You heard the commentary on the CBS alternate schedule that to draws from our global multi platform asset base.

And he is very strong.

So from a content perspective, we're in pretty good shape again, it all comes down to duration and I want to reiterate that we're hopeful that we can solve this is an industry sooner rather than later, because we'd all like to get back in the content production business, but in the near term.

We are working to mitigate the impact to our consumers.

And other constituents.

And then I'll.

I'll just jump in on the PS plus impact specifically.

It's similar in the <unk>.

That we are we actually feel pretty good about our slate.

Our back half plan does include a number of formats that are either unaffected by the strike or things that were already in the can that include shows like special ops Lyonnesse switch.

<unk> is now on the service.

The next season of billions as well as our next Taylor Sheridan original woman.

We will continue obviously to get the benefit of NFL football the SEC and Big 10, all three of which will be in full swing.

During the fall and then we will still have our theatrical movies coming to the slate Transformers is doing well right now and then.

Both teenage mutant Ninja turtles Paw patrol will beyond the service later this year.

So.

Still feel good about the slate there will be some originals that were previously planned to hit Paramount plus in Q4 that will move into 2024 due to strike related.

Related production delays.

But it's really too early to.

Sort of estimate what the impact of that will be.

But we feel pretty good about our distribution plan and the slate in general.

Yeah, and I'd just add in closing I want to emphasize that we remain focused on executing our strategy and that means continuing to scale streaming while maximizing our traditional business to deliver significant total company earnings growth in 'twenty, four and create a more sustainable growth model and the process.

Through it all we will be nimble and navigating the current environment and the near term, while focusing on creating shareholder value for the long term and with that thank you everyone be well and we'll talk to you soon.

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

Yeah.

Okay.

Yeah.

Okay.

Yes.

[music].

Good afternoon, My name is not yeah, and I'll be the conference operator today.

At this time I would like to welcome everyone to Paramount Global's second quarter 2023, adding a conference call.

At this time all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there'll be a Q&A session.

We would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

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

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

At this time I would now like to turn the call I bet, you Kristin Southey, how about global with a VP Investor Relations you May now begin your conference call.

Good afternoon, everyone. Thank you for taking the time to join US for our second quarter 2023 earnings call. Joining me for today's discussion are Bob package, our president and CEO and if you can show Brown. Our CFO . Please note that in addition to our earnings release, we have trending schedules containing supplemental information avail.

On our website.

Before we start this afternoon 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.

Conciliation of these non-GAAP financial measures can be found in our earnings release or in our trending schedules, which contain supplemental information and in each case can be found in the investor Relations section of our website.

Now I will turn the call over to Bob.

Good afternoon, everyone and thank you for joining US Navy and I are looking forward to walking you through Paramount results for the second quarter and our views on the business.

Before we get started I want to touch on some exciting breaking news today, we announced an important milestone with our agreement to sell Simon and Schuster to KKR for 162 billion <unk>.

<unk> will walk you through some of the details but in short we are thrilled with this transaction, which is an important step in our Delevering plan.

With that let's turn to detain its business [noise] let.

Let me start by saying that without.

There is an incredible amount of change happening across our industry.

But what I've learned is that when you have a coherent strategy strong execution and the ability to stay nimble your business will be built to weather periods of change and transformation.

That is our approach of Paramount what we remain focused on every day and starting with the key part of the transformation our direct to consumer business. This quarter. Our D to C business continued to scale with increased revenue and engagement and an improvement in earnings. In addition, with 2023 being our peak.

<unk> investment year in streaming we remain on track to deliver significant total company's earnings growth in 2024, but let me zoom out a bit.

I'll start with the vision, we've laid out for Paramount, how we're making progress on it and how we are continually fine tuning our execution to navigate market conditions.

Then <unk> will talk through the financials and provide additional color on the business.

We do all of that with an unwavering focus on building a sustainable business model one built for growth, let me break that down further.

First content at Sumner Redstone famously declared and as we open echo.

Kent is king and a Paramount content is certainly what we do best.

In fact in Q2, we were the number two in the industry in terms of total U S. TV viewership of our content across television and streaming.

This is coupled with our production capabilities that span the world from Hollywood to key global markets, including the U K and Australia in scripted and unscripted and animation and live action in features and episodic and in live including news sports and events all of this helps to create.

Extend and localized enduring fan favorite franchises and formats from Transformers to mission impossible to last week's teenage mutant Ninja turtles release, so unscripted hits like Rupaul, and the shores and parallel CBS crime procedural like the Ncis and FBI families or the expanding.

Set of Taylor Sheraton originals in fact, Taylor Sheraton's newest series Special Ops Lyonnesse premiered a few weeks ago.

Paramount Pluses most watched global series premiere in its first 24 hours on the service.

A new season of fan favorite the Chi premiered this past weekend and the highly anticipated season premiere of billions is coming later this week.

Our franchises continue to grow in number and scale.

We have a growing roster led by more than a dozen franchises that have grossed over $1 billion in revenue.

Add to that popular originals, such as yellow jackets, and some of the biggest sporting events in the world.

Ultimate telecast something we and the league are very excited about.

I also want to note that given our international production capabilities, we have more than 85 international scripted and unscripted Paramount plus original <unk> already produced in production or green lit.

As well as more than 20 local versions of global unscripted formats slated to debut through 2024.

In fact, we just announced a slate of internationally produced original is coming to Paramount plus in the U S, including bargain a Korean crime thriller that's already generating strong buzz and a number of British series like the gangster drama Sexy Beast.

The breadth of our content serves an impressively large addressable market within the household across the country and around the world.

That is the power and quality of our content engine.

That's a key competitive advantage for us.

Beyond quality, we continue to focus on being one of the most efficient content producers in the world.

And we expect to demonstrate continued gains in this area in 2024 and beyond.

As part of that as Youll hear from Nuveen, we are evolving our streaming content slate to super serve key target audience is more efficiently.

This based on all we have learned since Paramount plus launched.

Speaking of content I would like to take a moment to address the issue that is top of mind for all of us the ongoing writers and actors strikes.

We're sad that as an industry, we couldnt come to an agreement that would have prevented this our partnership with the creative community is critical to the health of our industry. So we remain hopeful for a timely resolution and we are committed to finding a path forward.

At the same time, we have a responsibility to minimize disruptions to our audiences and other constituents.

To that end we've.

We've adjusted our CBS fall asleep by leaning into the full power of Paramount's content capabilities.

On top of a strong sports lineup new additions to the CBS schedule include Paramount network hit like Yellowstone and Paramount plus favorites like seal team as well as pairing the British hit comedy goes with CBS as one popular version of the show.

To name a few.

This slide illustrates the strength of our global multi platform asset base and strategy and it's one of the ways, we're staying nimble.

The second pillar of our strategy is using multiple multiple platforms and multiple revenue streams to get the most value for our content.

This allows us to monetize our content in more ways, while giving us flexibility as markets audiences and economics continue to evolve.

That means accessing revenue streams across subscription and advertising and.

And tapping into the very large global market of third party platforms through our strategic approach to content licensing.

And it means distributing our content across linear TV theatrical and streaming.

Let me give you a few examples of how this creates value for our company.

Just look at Cvs, which as you know is the number one network in all of television for the 15th straight season.

What's lesser known is that CBS content accounted for nearly half of total minutes viewed on Paramount plus.

And one of the most underappreciated contributions of Cbs's value to our company is it power and content licensing.

Both domestically and abroad.

To put a finer point on it Cvs produce content accounted for over $600 million of licensing revenue in the quarter.

This is an incredible asset.

Forward on the path to profitability.

And as you know, we've always embraced the combination of streaming and strategic licensing to third party platforms, both in linear TV and streaming.

Through windowing and secondary market exploitation.

And when it comes to generating revenue I have to spend a minute on our strong position in the AD market.

Paramount has seen sequential improvement in year over year advertising in Q2.

And then the upfront we just wrapped paramount saw positive low to mid singles growth on volume.

And in both cases digital is a point of strength.

Paramount is a leader in the digital video AD space and I want to ensure you understand the extent and depth of our digital ad capabilities.

Our direct digital revenue is up by strong double digits year over year.

Howard by the premium content offerings on Paramount plus and Pluto TV.

Three years ago, we launched IQ, our digital AD platform as a simple and effective solution for advertisers to connect their brands to consumers at scale.

Since then it has seen incredible growth the IQ footprint now stands at more than 90 million full episode viewers domestically and we expect to generate revenue approaching $3 billion. This year.

Rivaling the best the biggest players in digital video and we're building upon that strength internationally as well, we've just announced that we're expanding with <unk> global Pluto TV footprint with our launch in Australia, and we'll be launching AD supported tiers of Paramount plus in certain international markets as we move forward.

Yeah.

Importantly, the strength of our proposition is not just digital or portfolio of sports, including Super Bowl 58, and 10 pole events like the Grammys are differentiators for advertisers.

As our industry, leading capabilities in branded content.

Simply put world class brands want to be part of Paramount, where advertisers like Dodge Ram who has been ingrained in the fabric of Yellowstone since season, one or pizza hut, a key partner in the new turtles movie turn to our branded content capabilities to break through the clutter.

This combination of strength Springs, Paramount advertising key advantages for the long term and helps to mitigate any near term challenges.

Finally, I want to speak to our hyper focus on creating a sustainable business model built for growth and achievable goal and one that powers our entire mission.

As we said over the past quarters. There are a few key levers we're focused on here.

First revenue growth through continued subscription growth price increases AD monetization and more second cost and operational efficiencies efficiencies with a big focus on content and marketing spend and improving our operating leverage.

While <unk> will speak to our efforts to build a sustainable model in more detail I do want to touch on how Paramount plus with Showtime integration, which commenced on June 27 is an example of pulling all of these levers.

It allowed us to secure consolidation driven cost savings that extend across dreaming and linear more than $700 million in fact.

It also enabled price increases to further drive streaming our pool.

Perhaps most importantly, it is creating a stronger product for consumers and our partners one that is more engaging with less churn.

Consider this for the last year or so we've had a bundle of the Paramount plus and Showtime apps in the market.

Customers of that bundle consumed over 40% more titles. So we have clear predictive data that the integrated product will deliver enhanced consumer engagement in streaming.

And soon in linear.

In closing, let me take this opportunity to say how proud I am of this company and the incredible team at Paramount We continue to Power's forward.

Our strategy underpinned by compelling content and powerful platforms is working and our approach fine tuned to navigate the realities of the market is focused on efficiently maximizing our business.

We're doing all of this of course with driving shareholder value as our highest priority.

With that I'll now turn it over to intervene Devine.

Thank you Bob good afternoon, everyone.

Our Q2 results reflect strong momentum in our D to C business and continued focus on company wide expense management.

In my comments today I'll provide additional insights on key elements of our Q2 results and discuss our expectations for the remainder of 2023.

Then before we take your questions I will share some more color on our path to streaming profitability and improved financial leverage.

In Q2, we delivered total company revenue of $7 6 billion and adjusted OIBDA of $606 million.

In our press release Youll find a comprehensive review of our key financial results.

I'd like to focus on today are four important areas.

Filiate in subscription revenue advertising trends filmed entertainment results and free cash flow.

Let's start with affiliate and subscription revenue, which grew a strong 12% in Q2, demonstrating once again that the combination of traditional and streaming yielded net growth for our business.

We delivered strong <unk> subscription revenue growth of 47% largely driven by Paramount plus where we benefited from subscriber additions improvements in <unk> and reductions in churn.

Paramount plus net adds in the quarter reflected seasonal softness as well as a strategic shift of content releases to better align with the launch of Paramount plus with Showtime.

Looking ahead, we expect healthy levels of year over year affiliate and subscription revenue growth to continue.

From a subscriber perspective, we expect Paramount plus growth will be higher in the back half of the year than the first half.

The quarterly cadence of net adds will reflect the timing of our content slate and the rollout timing of Paramount plus with Showtime with our third party distribution partners.

Now, let's turn to advertising.

Year over year revenue performance improved 150 basis points compared to Q1.

DTC advertising growth accelerated to 21% fueled by subscriber growth and strong engagement across Paramount plus <unk>.