Q3 2024 Paramount Global Earnings Call
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Nadia: Good afternoon my name is Nadia and I'll be the conference operator today. At this time I would like to welcome everyone to Paramount Global's Q3 2024 earnings conference call.
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After the speaker's remarks, there will be a Q&A session.
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Speaker Change: At this time, I would like to turn the call over to Jaime Morris, Paramount Global's EVP, Investor Relations. You may now begin your conference call.
Jaime Morris: Good morning, everyone. Thank you for taking the time to join us for our third quarter 2024 earnings call. Joining me for today's discussion are Paramount's co-CEOs, Brian Robbins, Chris McCarthy, and George Cheeks, and our CFO, Naveen Chopra.
Jaime Morris: Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website.
Jaime Morris: 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.
Speaker Change: 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 Chris.
Speaker Change: Thank you, Jaime, and good morning, everyone. I'm Chris McCarthy, and I'm joined here by my fellow co-CEOs, George Cheeks and Brian Robbins. Together, we'll share the results of another very strong quarter, demonstrating the progress we're making against our strategic plan.
Then Naveen will take us through the financials.
Okay, let's start with some headlines.
Speaker Change: We are pleased with our very strong performance this quarter, fueled by our hit content and our focus on execution.
Speaker Change: In DDC, we saw Pluto reach record engagement, and on Paramount+, we had 3.5 million subscribers, reinforcing our position as the number four global streaming service.
Speaker Change: Paramount Plus continued its momentum with revenue growth up 25% year-over-year.
Speaker Change: This quarter marks the second quarter in a row where D2C achieved profitability, with adjusted OEBDA improving more than a billion dollars over the past four quarters. And we remain on track to reach Paramount Plus domestic profitability in 2025.
Speaker Change: We also made progress in streamlining our organization as we continue to successfully execute cost reductions that will result in $500 million in annual run rate savings.
Speaker Change: And at the same time, we have not slowed down on doing what we do best, continue to produce some of the biggest and broadest hit films and television series.
Speaker Change: In addition, the Skydance transaction achieved a few key milestones, including the conclusion of the GoShop period, the expiration of the HSR waiting period, and on November 4th, we filed our S-IV registration statement with the SEC.
Speaker Change: We continue to expect the deal to close in the first half of 2025, subject to regulatory approvals and other customary conditions.
Speaker Change: And now, I'll pass it to George to update us on distribution and advertising.
Thanks Chris. I'll start with distribution.
George Cheeks: In an evolving landscape, we continue to renew long-standing agreements with key partners, including a number of distribution renewals this year.
George Cheeks: Our track record of getting deals done speaks to the power of our entertainment, news, and sports content, and we'll continue to work with our partners to innovate and deliver for audiences.
George Cheeks: As an example of that, our Paramount Plus ad-supported tier is now available to Charter customers.
enhancing the value we're delivering across linear and streaming.
George Cheeks: Now, it's early days, but we're pleased with the response so far.
Now turning to advertising.
George Cheeks: Q3 benefited from record political spend, as well as the return of NFL and college football.
George Cheeks: Digital ad growth remains strong, showing notable increase in demand year-over-year, which reflects our valued position from a price, quality, and scale standpoint, and will continue to drive growth.
George Cheeks: The scale of our digital advertising platform, spanning Paramount+, Pluto, as well as other digital properties, is one of the largest addressable footprints in the domestic marketplace.
George Cheeks: And it represents nearly half of our national domestic advertising revenue when you exclude sports.
Major brands continue to tap into the power of Paramount.
George Cheeks: Recently, we launched The Summit, a new offering that connects our key ad partners with priority Paramount launches across theatrical, linear, and streaming.
George Cheeks: For our first summit partnership, we brought Pepsi together with Gladiator 2. The campaign launched with the NFL on CBS and included a media blitz across all Paramount Global linear, digital, and social platforms.
George Cheeks: Yet another example of how we're leveraging our creative assets and capabilities to deliver unmatched impact for our biggest advertisers.
George Cheeks: I also want to touch on our ongoing dispute with Nielsen.
George Cheeks: We remain engaged with them and we're hopeful for a resolution.
George Cheeks: So far, we're encouraged by our partners' willingness to lean into innovation and adopt alternative measurement solutions.
George Cheeks: Bottom line, our brand and agency partners are the number one priority, and we're proving every day that content, scale, and value are what matters most to advertisers.
George Cheeks: And with that, over to Brian for an update on our strategic plan.
Brian Robbins: Thanks George. We are pleased with the progress we have made in advancing our business by transforming D2C and streamlining our organization to reduce costs.
Brian Robbins: Starting with D2C, the segment was profitable again in the quarter.
Brian Robbins: Sports, including the return of the NFL and UEFA, originals like Mayor of Kingstown and Tulsa King, as well as post-theatrical releases such as A Quiet Place Day One and If, all drove acquisition in the quarter. For Pluto, we're continuing to see a strong performance.
Brian Robbins: Year-to-date, Pluto delivered its highest consumption ever of 5% to 5.6 billion viewing hours.
Brian Robbins: Growth is being driven by increased use of video-on-demand with more available content, enhanced discoverability, and a better user experience.
Brian Robbins: And as we said before, we are evaluating potential partnerships in streaming through a lens of creating value for the business and our shareholders over the long term. And given the complexity, we are being deliberate and thoughtful in our approach and assessment.
moving to streamlining our organization.
Brian Robbins: We have made progress on realizing $500 million in non-content cost savings.
Brian Robbins: which will reduce our U.S.-based workforce by 15%. To date, we have executed 90% of these reductions and expect to have a remaining completed by the end of the year.
Brian Robbins: Our objective has been to unlock operational efficiencies and right-size the cost base, while continuing to invest in the growth levers that are the key to the future, including content, streaming, and advertising.
Brian Robbins: In addition, we remain diligent as we optimize our asset mix. The sale of our equity interest in Biocom 18 is a great example, which will result in an attractive financial return on our investment. We expect the sale to close in Q4.
Brian Robbins: Now let's move to the core of what we do best.
Brian Robbins: making some of the biggest and broadest hit films and TV series.
Speaker Change: Thanks, Brian. Let's start with Paramount+, where this fall, we kicked off one of our most ambitious slates to date, seeing the return of our biggest hit series, like Mary Kingstown and Tulsa King, which returned to great fanfare, each quickly soaring into a top-ten streaming original across all S-HOD services.
Speaker Change: and Tulsa King also broke records as the number one global debut in Paramount Plus history.
Speaker Change: Internationally, where we have South Park exclusively for SVOD, it ranks as a top five star driver and the number two engagement driver. And we're excited to have the South Park series return to Paramount Plus here in the U.S. starting in June of 2025.
Speaker Change: We're confident this momentum will continue throughout the quarter, with the return of Lioness, which premiered October 27th, and is off to a great start, scoring as a top five global series premiere in Paramount Plus history.
Speaker Change: followed by Landman, a new series from Taylor Sheridan which will premiere November 17th and stars Billy Bob Thornton, Demi Moore, and Jon Hamm. This series has all the makings of a great big hit and promises to do for the oil industry what Yellowstone did for ranching.
Speaker Change: Now, moving over to our premium tier, this quarter marks the beginning of a new, adrenalized Showtime slate with cinematic, high-stake originals and the return of some fan favorites.
Speaker Change: starting with The Agency, a new global espionage series from executive producer George Clooney starring Michael Fassbender, Richard Gere, Jeffrey Wright and Jody Turner Smith which will premiere later this month.
Speaker Change: And that's followed by the return of Showtime's most successful franchise ever, Dexter, with a new origin story titled Dexter Original Sin.
And on cable, we also saw some impressive results.
Speaker Change: The Challenge, the series that created the reality competition genre, celebrated its 40th season with the highest share in franchise history, up 60% versus the previous season.
Speaker Change: This was followed by the MTV Video Music Awards, which attracted its biggest audience in four years on Linear. And on social, it broke records as the number one most social entertainment telecast in television history, besting all entertainment and sports.
Speaker Change: And on The Daily Show, the return of Jon Stewart continues to pay off, having won our second Primetime Emmy in a row. And on Monday nights with John of the Helm, The Daily Show remains the number one late night show across linear and social. And it's working hard for us on Paramount+, with engagement up 10x.
Speaker Change: And John's not going anywhere. As we just announced, he's extended a stay through 2025.
Speaker Change: And to continue our momentum, this Sunday, Yellowstone, one of the most eagerly anticipated shows of the year, will return on the Paramount Network in the U.S. and internationally on Paramount+, where it's been the number one star driver and the number one engagement driver for the full year to date.
George Cheeks: And now, I'll turn it over to George to walk us through CBS Entertainment Sports & News.
George Cheeks: For CBS, fall means football and the launch of our new primetime schedule.
George Cheeks: The network's coming off a record-setting 23-24 NFL season, as well as a top-rated primetime schedule that includes the return of last year's number one show.
George Cheeks: In the first five weeks of the season, the NFL and CBS is averaging more than 20 million viewers. That's up 5% from last year. And streaming of the games on Paramount Plus is up over 50% year over year.
George Cheeks: CBS Primetime, which just launched its new season, is off to a great start.
George Cheeks: Tracker's once again the most watched series on TV, Matlock is the number one new show, and Georgie and Mandy, a spin-off of Young Sheldon, is the most watched comedy.
And our shows are winning across platforms.
George Cheeks: Matlock's first episode reached more than 22 million viewers in its first 30 days.
George Cheeks: Tracker's season 2 premiere delivered over 15 million multi-platform viewers in just its first seven days. That's up 25% from its time period premiere last year.
George Cheeks: Now, turning to news, the total minutes watched on our CBS News 24-7 streaming network continues to grow, up 56 percent over 2023 and up 78 percent versus third quarter last year.
George Cheeks: We expanded and rebranded the platform with more live programming and the increased presence of key CBS News talent.
George Cheeks: All of this speaks to the collective power of broadcast and streaming, working together to aggregate more unduplicated viewership while optimizing the value and efficiency of our content investments.
Brian Robbins: Our programming strategy remains laser-focused on entertainment, news, and sports that excel on both CBS and Paramount+. Over to you, Brian.
Brian Robbins: On the Paramount Pictures front, at the end of the second quarter, A Quiet Place Day One opened to nearly 100 million worldwide and set the franchise record for the biggest opening at the global box office.
To date, the film has grossed $261 million worldwide.
Brian Robbins: Transformers 1 also debuted as the first animated Transformers film in nearly four decades, grossing $127 million at the global box office to date.
Brian Robbins: And, most recently, the October release of Smile 2 from homegrown talent Parker Finn saw a record-breaking global premiere, out-earning its predecessor's debut weekend.
Brian Robbins: It also makes Smile 2 Paramount's fourth number one opening this year after Mean Girls, Bob Marley One Love, and If.
Brian Robbins: We're confident that the rest of Q4 will build on this momentum.
Thanks to an impressive roster of upcoming releases
including, next up, Ridley Scott's Gladiator 2.
Brian Robbins: One of the most anticipated films of the year, with a phenomenal cast, including Paul Muscal, and Academy Award winner Denzel Washington.
Brian Robbins: Early tracking and first reactions are generating optimism and excitement for the movie's release and award season prospects.
Brian Robbins: Now, rounding out our diverse slate, we're excited to be bringing audiences the journalistic thriller September 5, which has been on the festival circuit, generating awards buzz.
Brian Robbins: Also, the third installment of fan-favorite, Sonic the Hedgehog, with Jim Carrey and the original cast reprising their roles.
Brian Robbins: and then Better Man from the director of The Greatest Showman, Michael Gracie and based on the life and music of Robbie Williams.
Brian Robbins: And looking ahead to 2025, we have a fantastic, robust lineup with something for everyone. That includes an 8th Mission Impossible, the reboot of the Naked Gun franchise starring Liam Neeson,
Brian Robbins: New installments of beloved animated franchises like Smurfs and Spongebob, which is celebrating its 25th anniversary And Running Man, from director Edgar Wright and starring Glenn Powell, to name just a few
Brian Robbins: Taken together, all of our content reinforces that we have so much to be excited about in this period of evolution and transformation for our business and the industry.
Brian Robbins: It is what continues to create value for our partners, investors, and the broader media landscape, both now and well into the future.
Speaker Change: With that, let me turn it over to Naveen for more detail on our Q3 financials. We'll then look forward to taking your questions.
Speaker Change: Thank you, Brian. Good morning, everyone. Q3 demonstrated the progress we've made in transforming Paramount for the future.
Naveen Chopra: We delivered adjusted OEBDA of $858 million in the quarter, up 20% year over year, reflecting significant improvement in our D2C business, which continues to deliver healthy top-line growth and improved operating leverage.
Naveen Chopra: As always, you'll find a comprehensive review of financial results in our press release.
Naveen Chopra: For today's call, I'll focus on a few areas of note, starting with advertising.
Thank you. Thank you.
Naveen Chopra: Total company advertising grew 2%, powered by direct-to-consumer, which delivered strong growth of 18%, an acceleration versus the 16% growth we saw in Q2.
Naveen Chopra: D2C advertising growth was driven by a double-digit increase in sold impressions and higher CPMs.
Naveen Chopra: And these trends have continued in Q4, where we expect another quarter of double-digit B2C advertising growth.
Naveen Chopra: In TV media, advertising revenue declined 2%, an improvement versus last quarter, reflecting the return of football and higher political spend.
Naveen Chopra: Similar to last quarter, international advertising benefited from the recognition of revenue that was underreported by an international sales partner in prior periods.
to be similar to the reported growth rate in Q3.
And Q4 growth will benefit from record political spend.
Naveen Chopra: But we'll also have less sports inventory compared to the prior year.
Naveen Chopra: Our forecast for Q4 does not assume any additional revenue true-ups from third-party under-reporting.
Naveen Chopra: Next, let me turn to affiliate and subscription revenue, which declined 1% in Q3. Now, as a reminder, last year's third quarter included Showtime pay-per-view events that did not recur this year as we exited Showtime Sports at the end of 2023.
Naveen Chopra: This comparison reduced the Q3 growth rate by 270 basis points.
Naveen Chopra: Absent the impact of Showtime pay-per-view, affiliate and subscription revenue increased 1%, with growth in direct-to-consumer more than offsetting declines in linear.
Naveen Chopra: In the TV media segment, affiliate revenue declined 6.6% year-over-year, reflecting ecosystem trends and the Showtime pay-per-view headwind I just mentioned.
Thank you.
DSC subscription revenue grew 6.8% in the quarter.
with Paramount Plus subscription revenue up 27% year-over-year.
Naveen Chopra: Paramount Plus added 3.5 million subscribers in the quarter, reaching 72 million subscribers overall.
Naveen Chopra: Subscriber trends benefited from the expansion of an international hard bundle deal and the return of NFL and college football, new originals, and theatrical releases.
Naveen Chopra: And in Q4, we expect continued subscriber growth at Paramount+, driven by a strong slate of originals and the CBS fall schedule.
Naveen Chopra: Unlike Q3, we do not expect to add new hard bundle partnerships in Q4.
Thank you. Thank you. Thank you.
Global ARPU for Paramount Plus grew 11% in the quarter.
Naveen Chopra: Our pre-growth was tempered by the lapping of last year's price increase and a greater than expected shift in the mix of our subscriber base toward our essential tier and hard bundle subscribers.
Naveen Chopra: Additionally, the price change we announced in August of 2024 will take some time to be reflected in ARPU due to the grandfathering of existing essential tier subscribers.
Naveen Chopra: And these dynamics will continue to influence ARPU growth in Q4.
Naveen Chopra: The combination of continued healthy revenue growth and expense discipline in Q3 helped deliver our second consecutive quarter of D-to-C profitability.
Naveen Chopra: In Q4, we expect continued top-line growth, however, the timing of content marketing spend will result in a quarterly loss for the D2C segment.
Naveen Chopra: That said, we like the trajectory of the business over the last few quarters and believe we're well positioned to reach Paramount Plus domestic profitability in 2025.
Next, I'll touch on licensing.
Naveen Chopra: Licensing and other revenue declined 9% in the quarter, primarily reflecting a lower volume of licensing in the secondary market and lower home entertainment revenues.
Naveen Chopra: Now, as I've previously noted, licensing revenue can be fairly uneven from quarter to quarter.
Naveen Chopra: And for the full year 2024, we expect licensing revenue to decline relative to 2023.
Naveen Chopra: More than half the year-over-year decline will come from made-for-third-party productions.
Naveen Chopra: And these productions are strategically valuable, but the scale of our business has been impacted by the decision to steer more content to internal platforms.
Naveen Chopra: A smaller part of the year-over-year decline in licensing is related to our second run and library licensing activity.
partially reflecting lingering strike impact on the business.
Naveen Chopra: Even though we'll benefit from the return of the CBS false slate in Q4, it will take longer than expected to return to our pre-strike level of output.
Naveen Chopra: Turning to the balance sheet, in Q3 we delivered $214 million of free cash flow and reduced leverage to 3.8 times.
Naveen Chopra: Free cash flow in Q4 will be negative given the timing of content spend.
Naveen Chopra: and the headwind of approximately $150 million of cash restructuring payments.
Naveen Chopra: However, this shouldn't negatively impact leverage, as we expect to receive nearly $500 million of proceeds from the Viacom 18 transaction, which is expected to close this quarter.
Naveen Chopra: Putting it all together, we remain on track to achieve our key financial goals for 2024.
Naveen Chopra: That includes significant growth in total company OEBDA enabled by the progress in D2C profitability you've seen over the last few quarters and the execution of cost savings initiatives across the company.
Naveen Chopra: Similarly, our expectations for full year free cash flow growth remain unchanged.
Naveen Chopra: Overall, I think 2024 will demonstrate meaningful progress in the ongoing transition of Paramount, encompassing streaming growth, enhanced cost efficiency, and of course, continued investment in our renowned content portfolio.
With that, Operator, please open the line for questions.
Speaker Change: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove your question, please press star followed by 2.
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We ask that you please limit yourself to one question.
Speaker Change: Our first question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead.
Good morning.
Speaker Change: Brian, you talked about being deliberate, the complexity around consumer and partnerships. I just wondered if you could talk a little bit more, now that you guys have been working on it, as to sort of what you're solving for, what are the key variables you're looking for, what would lead the company to kind of pull the trigger on...
Speaker Change: either a partnership or a change in how you're kind of working internationally. I think that's been kind of one of your focus areas in streaming. And then, you know, Naveen, it's been I think almost a year since you talked about domestic streaming profitability next year.
Speaker Change: Given the progress we've seen this year and the cost action you've taken,
Speaker Change: you know, how far away are you from overall D2C profitability? Any way to kind of update us and dimensionalize sort of the international versus domestic D2C situation as we look at 25 would be helpful. Thank you guys.
Speaker Change: Hey Ben, how you doing? This is Chris. I'll take your first part of your question and then I'll pass to Naveen for the second part of that.
Naveen Chopra: First, let me start by saying that we're very proud of the success that we've had with Paramount Plus. This quarter saw revenue growth up 27%. It's our second quarter of profitability. And for 2025, we're on track for full-year domestic profitability.
Naveen Chopra: So we feel good about our position and our ability to remain a stand-alone. Now, that being said, you can absolutely count on us to be opportunistic.
Naveen Chopra: We're looking at partnerships from a strategic lens to drive more value, and you can be sure that in deciding that, we'll take key factors into consideration, but the ultimate value will be, is this going to drive increased value for our business today, our consumers, and our investors?
Naveen Chopra: But as it stands today, we have our momentum driven by our strategy, our execution, and our driven by our hit content. And so we feel good about our position as a stand-alone, and we'll continue to look for opportunities.
Have a good one.
Great. Thanks, Chris. And hey, Ben.
Speaker Change: With regard to your question on D to C profitability in 25, as you said, we've made tremendous progress this year. Chris mentioned some of the stats.
Speaker Change: improvements in ARPU, strong digital advertising growth, and, by the way, some real efficiency improvements on the marketing side of the equation.
Speaker Change: So, I think we're well set up for 2025, and as you heard us say, we do continue to expect the business to get to domestic profitability next year. In terms of how that translates to the segment as a whole, I'd note a few things. First, domestic, we do expect to be profitable next year.
Speaker Change: Pluto is already a profitable business and so the real variable is what the P&L for the Paramount Plus international business looks like.
Speaker Change: And I've generally described that as tracking somewhere in the sort of 12 to 18 months behind the domestic business Just given the the relative maturity and the timing of when we launched internationally versus domestic
Speaker Change: and I think that's still the the right way to to think about the business as a whole and obviously we'll keep you updated on progress as we continue to move down that path.
Thanks Ben. Operator, next question.
Speaker Change: The next question goes to Brian Kraft of Deutsche Bank. Brian, please go ahead.
Oh, thanks. Good morning.
Speaker Change: So I wanted to ask if at this point there is a clear path forward yet for Paramount Plus.
Speaker Change: International markets and if so, if you could talk about what that looks like and how it's differed from the approach up until now
Speaker Change: And then just a housekeeping question, Naveen, and sorry if I missed it, but would you be able to quantify for us the impact of the revenue for prior period international ad sales under that partner underreporting? Thank you.
Speaker Change: Hey Brian, how are you doing? This is Chris. Listen, let me start by saying we think it is very important to globally monetize our content in the widest possible basis and our success today really proves that out.
Speaker Change: Now, we're taking a market-to-market approach when we're looking through the lens of how do we drive the most value. In some cases, that'll be an owned and operated situation where we control. In other cases, it'll be a hard bundle with a market leader.
Speaker Change: And in other cases, it may make more sense for us to really go in a licensing model.
Speaker Change: But you can rest assured, our goal here is to maximize the value for our hit content and look at all opportunities very opportunistically through that lens. And now I'll pass to Naveen for the second half of that.
Yeah.
Speaker Change: Brian, would you like to ask a question on the size of the underreported revenue?
in Q3.
Speaker Change: year-over-year trend for international advertising similar in magnitude to Q2 actually I think a little larger in magnitude in Q3 versus Q2 you know it's I'd size it in the call it plus or minus 50 million range
Speaker Change: And, importantly, as I said in our prepared remarks, our forecast for next quarter assumes that there is no further chew-up required due to the underreporting.
Thanks Brian. Operator, next question please.
Speaker Change: The next question goes to Rich Greenfield of Lightshed Partners. Rich, please go ahead.
Rich Greenfield: Hi, thanks for taking the question. I've got a couple. First on Nielsen, I think you dropped, I think it's been, you know, now over a month, maybe it's been five weeks. I think the last time you had an impasse, it was only like 14 or 15 days.
Rich Greenfield: I think there's been a lot of speculation in the market that the run rate savings are hundreds of millions of dollars on the cost side.
Rich Greenfield: But, on the other side, I want to understand what's happening in terms of not being able to sell advertising against Nielsen data. Have you seen any material impact in Q4 from not having Nielsen data, and I guess related to that, any top advertisers that have left?
Rich Greenfield: CBS or your cable networks because you can't sell against Nielsen and I think you're using video amp and then just maybe a housekeeping Question for for Chris or George I guess on the TV media side of the equation
Speaker Change: I think everyone's trying to understand sort of the potential of cost-cutting longer term. Could you just give us a sense in TV media today, how many employees roughly do you still have in that division after all of the cost cuts that you've done to date? Thanks.
and Robert Bakish.
George Cheeks: Hey Rich, it's George, I'll take this. So, starting with Nielsen, I want to level set, this really is not about affordability.
George Cheeks: It's about getting the value we need for what we pay.
George Cheeks: And I think it's important to consider all of this in the context of the media industry. I mean, as we all know, linear audiences, especially basic cable linear, are declining and shifting to streaming.
George Cheeks: This, of course, is going to affect how we look at the appropriate spend here. I mean, for example, we wouldn't want the Nielsen fee for certain networks to be greater than the ad revenue those networks actually generate.
George Cheeks: Now as to your point on impact, we haven't seen any adverse impact on ad revenue to date and we don't expect a material impact in Q4, but I do want to be clear that we do recognize that Nielsen can be a valuable resource, it's just that the economics have to make sense for the business.
Now, as to your second question, you know...
George Cheeks: Right now the number is about 6,000 plus in domestic and about 3,000 plus in domestic.
Now, you have to remember that that all...
Speaker Change: Big sports production infrastructure and our 27 local stations, which obviously requires a lot of employees as well. But, you know, as Chris mentioned before, we're very
organization.
Is there a second question about TV media?
and Andrew Green.
Oh, I'm sorry.
Operator, next question please.
[inaudible]
Speaker Change: The next question goes to Stephen Carhall of Wells Fargo. Stephen, please go ahead.
Stephen Carhall: So, I'm wondering how you think about that, you know, one of your peers also has a streaming product that has a lot of sports, has a good film library, seems like.
Speaker Change: And then, Naveen, just an accounting question, what's the method for allocating content costs like sports and series between DTC and TV media when they air on both? You know, you're growing revenue and subscribers so strongly at Paramount+.
Speaker Change: and you've given the domestic profitability guidance, so just wondering if there's a way for us to think about how content expense grows there since it's shared between the two segments. Thank you.
Speaker Change: Hey Steve, it's Chris. I'll take the first part of that question and then I'll pass it to Naveen.
Chris Mccarthy: As we talked about, we are seeing real momentum at Paramount Plus and across Pluto. We've got great growth, second quarter profitability, and on track in 25. So we feel really good about the position and, frankly, our ability to remain as a standalone.
Chris Mccarthy: Now, you talk about bundles, and we've got some great partnerships and some great bundles in the way of Walmart and with Delta Airlines.
Chris Mccarthy: Now, these are ones that are very specific, that add incremental value to us, they bring new consumers, and really enhance the value proposition from a total business perspective for us.
Chris Mccarthy: Now, that being said, you can always count on us to be strategically looking through the lens of creating value.
Chris Mccarthy: Now, part of that exercise is really to be opportunistic about both looking at things from a market-to-market perspective and from a broader partnership perspective.
Chris Mccarthy: And in doing that, we ask ourselves, you know, is this the right market or is there something better that we can get and something more value? And you can count on us to continue to do that. But as of today, there's no change. We feel great about where we are, and we feel really strong about the position moving forward.
You mean?
Thanks Chris
Speaker Change: Steve, the question regarding how we allocate the cost of content that is shared between our streaming business and our traditional linear businesses, I think there's a couple of important concepts to understand. Number one, it does differ somewhat based on the type of content.
Speaker Change: But it's all based on the principle that the allocations of that cost should reflect the relative value of the content windows that each of the platforms has rights to.
Speaker Change: So what that means is that effectively as more of the viewership moves to streaming, you will see more of the cost being allocated to streaming and moving away from linear.
Speaker Change: and that's certainly been reflected in the way that we do that allocation for sports, for movies, you know, library and the like.
Thanks, Steve. Operator, next question.
Speaker Change: The next question goes to Michael Morris of Guggenheim. Michael, please go ahead.
Thank you, good morning, and thanks for all the answers.
Speaker Change: Wanted to ask first about the DTC trends and specifically you said you were pleased with the response so far from charter customers
Speaker Change: I'm hoping you can share a little bit more detail on whether the third quarter results reflected the full impact from that charter partnership.
Speaker Change: at both TV and DTC, and anything you can share about customer activation and any churn from charter subs who are already Paramount Plus subs. Those types of things, we'd love to hear any additional detail you can share.
And then secondly...
Speaker Change: It was a very strong EBITDA quarter, you know, growing 20% year-over-year. It kind of begs the question whether we should expect any incremental cost in 4Q to maybe offset the strength that you had in the third quarter, or whether this outperformance kind of flows through to the full year. Thank you, guys.
Naveen Chopra: Yeah, hey Mike, it's Naveen. I'll take both of those. Starting with the question on...
3rd Quarter Sub-Growth
Naveen Chopra: and specifically the impact of charter. So, just zooming out a little bit, you know, the three and a half million subs that we added in the quarter, I'd note that there's contribution from both international and domestic, as I noted in prepared remarks international.
Naveen Chopra: did have a new hard bundle that we signed, so that was an important contributor.
Naveen Chopra: And on the domestic side, we did see some sub-growth coming out of the charter bundle.
Naveen Chopra: Though, I would note that it's still relatively early in terms of time since the launch of that bundle.
Naveen Chopra: and I expect the contribution will continue to grow over time.
Naveen Chopra: That being said, when we look at the first few months, if you will, we're actually quite pleased with the results, both in terms of the take-up from charter subs and the impact on direct sub acquisition. So we continue to like the trends there.
Then move into your
Naveen Chopra: Second question on fourth quarter and how that is impacted by some of the overperformance in the third quarter.
Let me give you sort of a...
Naveen Chopra: a big picture answer on that too. If you think about the third quarter, the overperformance was really driven by the D2C segment, which came in better than we expected. As I mentioned earlier, that's multidimensional.
Naveen Chopra: But in particular, we saw some real strength in marketing efficiency that we were able to realize in the quarter.
Naveen Chopra: I would say that the restructuring work had a relatively modest impact in Q3, just given the timing of when those actions were taken.
Naveen Chopra: realized in Q4. So then if you if you think about Q4 specifically, there are some moving pieces that are probably worth calling out. First, some of the tailwinds. We will see more of that restructuring benefit that I mentioned.
Naveen Chopra: There will also be, as you would anticipate, some real strength in political advertising that will benefit Q4. And Q4 tends to be, relative to the first three quarters of the year, the strongest quarter for advertising generally. And so I think that will benefit us relative to Q3.
Naveen Chopra: There are a couple of headwinds to keep in mind. We will have higher content expenses in Q4 than we did in Q3, just given the timing of sports and some of the streaming originals.
Naveen Chopra: And as I mentioned, we do not expect to have any incremental.
Naveen Chopra: true-ups for past period under-reporting on those third-party advertising partnerships. And then there is some shift of marketing expense from Q3 into Q4.
Naveen Chopra: But when you put all of that together, I think the key takeaways for you should be that number one, the vast majority of the overperformance that we saw in Q3.
Naveen Chopra: I do expect to flow through to the full year, and number two, I think we're really well set up for 2025, particularly given the progress in D2C and the significant improvements that we've made in profitability for that part of the business.
Thanks, Mike. Operator, we'll take one last question, please.
Speaker Change: Thank you. The last question goes to Michael Ng of Goldman Sachs. Michael, please go ahead.
Michael Ng: Hey, good morning. Thank you for squeezing me in. I wanted to just follow up on...
Speaker Change: The last question around DTC efficiencies, you know, Naveen, you talked about the marketing efficiencies. I was wondering if you could just expand on that a little bit in DTC because obviously DTC FX was an area of positive surprise.
Speaker Change: And then relatedly, I was wondering if any of the programming charges taken earlier in the year had any potential benefit to cost amortization for DTC in the quarter as well. Thank you.
[inaudible]
Yes, sure. Hi, Mike. I'll take both of those.
Speaker Change: You know, the D to C improvement that we saw, as I mentioned, did benefit from marketing efficiency, but there's kind of a bigger story behind that, which relates to the composition of our subscriber base. You know, we've talked about for some time now...
Speaker Change: The importance of having a diverse subscriber base that spans multiple channels, the direct channel, partner-based distribution on platforms like Amazon, Roku, Apple, hard bundles, both domestically and internationally.
commercial bundles like what we have with with Walmart Plus.
Speaker Change: and when you have that sort of go-to-market approach there are some real benefits with respect to acquisition costs and churn and I think we're starting to see those in fall into the P&L of the business.
Speaker Change: which is why I called out the marketing efficiencies. That is enabled by the fact that we have these channels where we're able to acquire and keep subscribers very, very efficiently. And that's really flowing through to the bottom line.
Speaker Change: And then, with respect to your second question regarding programming charges, you know, yes, that does obviously have some amort benefit in future periods.
Speaker Change: but I think we're really focused on driving the top-line growth, continued sub-growth, ARPU growth, and capturing these improvements in marketing and churn reduction as a way of continuing to drive the business toward profitability.
Brian Robbins: Thanks, Naveen. This is Brian, and on behalf of my fellow co-CEOs, we'd like to thank you all for joining the call today.
Speaker Change: We had another very strong quarter with continued strength in streaming, improving momentum in advertising, and meaningful progress in making the business more efficient. All of which sets us up well for the future.
Speaker Change: All at the same time, while we've been doing what we do best, which is making some of the biggest and broadest hit TV series and blockbuster films, thanks to our tremendously talented teams and creative partners.
Speaker Change: We look forward to updating you all on our progress again soon. Thank you and have a great day
Thank you.
Speaker Change: and more... Thank you for watching. I hope you enjoyed this video. If you did, please make sure to like, comment, and subscribe. I'll see you next time. Bye.
Thank you for watching!
Nadia: Good afternoon, my name is Nadia and I'll be the conference operator today. At this time I would like to welcome everyone to Paramount Global's Q3 2024 earnings conference call.
Nadia: At this time, all lines have been muted to prevent any background noise.
After the speaker's remarks, there will be a Q&A session.
Nadia: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
Nadia: If you would like to withdraw your question, please press star followed by 2.
Nadia: In order to get as many of the questions as possible, we ask that you please limit yourself to one question.
Speaker Change: At this time, I would like to turn the call over to Jaime Morris, Paramount Global's EVP, Investor Relations. You may now begin your conference call.
Jaime Morris: Good morning, everyone. Thank you for taking the time to join us for our third quarter 2024 earnings call. Joining me for today's discussion are Paramount's co-CEOs, Brian Robbins, Chris McCarthy, and George Cheeks, and our CFO, Naveen Chopra.
Jaime Morris: Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website.
Jaime Morris: 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 FCC.
Some of today's financial remarks will focus on adjusted results.
Chris Mccarthy: 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 Chris.
Chris Mccarthy: Thank you, Jaime, and good morning, everyone. I'm Chris McCarthy, and I'm joined here by my fellow co-CEOs, George Cheeks and Brian Robbins. Together, we'll share the results of another very strong quarter, demonstrating the progress we're making against our strategic plan.
Then Naveen will take us through the financials.
Okay, let's start with some headlines.
Chris Mccarthy: We are pleased with our very strong performance this quarter, fueled by our hit content and our focus on execution.
Chris Mccarthy: In D2C, we saw Pluto reach record engagement, and on Paramount+, we had 3.5 million subscribers, reinforcing our position as the number four global streaming service.
Chris Mccarthy: Paramount Plus continued its momentum with revenue growth up 25% year-over-year.
Chris Mccarthy: This quarter marks the second quarter in a row where D2C achieved profitability, with adjusted OEBDA improving more than a billion dollars over the past four quarters. And we remain on track to reach Paramount Plus domestic profitability in 2025.
Chris Mccarthy: We also made progress in streamlining our organization as we continue to successfully execute cost reductions that will result in $500 million in annual run rate savings.
Chris Mccarthy: And at the same time, we have not slowed down on doing what we do best, continue to produce some of the biggest and broadest hit films and television series.
Chris Mccarthy: In addition, the Skydance transaction achieved a few key milestones, including the conclusion of the GoShop period, the expiration of the HSR waiting period, and on November 4th, we filed our S-IV registration statement with the SEC.
Chris Mccarthy: We continue to expect the deal to close in the first half of 2025, subject to regulatory approvals and other customary conditions.
George Cheeks: And now, I'll pass it to George to update us on distribution and advertising.
Thanks Chris. I'll start with distribution.
George Cheeks: In an evolving landscape, we continue to renew long-standing agreements with key partners, including a number of distribution renewals this year.
George Cheeks: Our track record of getting deals done speaks to the power of our entertainment, news, and sports content, and we'll continue to work with our partners to innovate and deliver for audiences.
George Cheeks: As an example of that, our Paramount Plus ad-supported tier is now available to Charter customers.
enhancing the value we're delivering across linear and streaming.
George Cheeks: Now, it's early days, but we're pleased with the response so far.
Now turning to advertising.
George Cheeks: Q3 benefited from record political spend, as well as the return of NFL and college football.
George Cheeks: Digital ad growth remains strong, showing notable increase in demand year-over-year, which reflects our valued position from a price, quality, and scale standpoint, and will continue to drive growth.
George Cheeks: The scale of our digital advertising platform, spanning Paramount+, Pluto, as well as other digital properties, is one of the largest addressable footprints in the domestic marketplace.
George Cheeks: And it represents nearly half of our national domestic advertising revenue when you exclude sports.
Major brands continue to tap into the power of Paramount.
George Cheeks: Recently, we launched The Summit, a new offering that connects our key ad partners with priority Paramount launches across theatrical, linear, and streaming.
George Cheeks: For our first summit partnership, we brought Pepsi together with Gladiator 2. The campaign launched with the NFL on CBS and included a media blitz across all Paramount Global linear, digital, and social platforms.
George Cheeks: Yet another example of how we're leveraging our creative assets and capabilities to deliver unmatched impact for our biggest advertisers.
George Cheeks: I also want to touch on our ongoing dispute with Nielsen.
George Cheeks: We remain engaged with them and we're hopeful for a resolution.
George Cheeks: So far, we're encouraged by our partners' willingness to lean into innovation and adopt alternative measurement solutions.
Speaker Change: Bottom line, our brand and agency partners are the number one priority, and we're proving every day that content, scale, and value are what matters most to advertisers. And with that, over to Brian for an update on our strategic plan.
Brian Robbins: Thanks George. We are pleased with the progress we have made in advancing our business by transforming D2C and streamlining our organization to reduce costs.
Brian Robbins: Starting with D2C, the segment was profitable again in the quarter.
Brian Robbins: Sports, including the return of the NFL and UEFA, originals like Mayor of Kingstown and Tulsa King, as well as post-theatrical releases such as A Quiet Place Day One and If, all drove acquisition in the quarter. For Pluto, we're continuing to see a strong performance.
Brian Robbins: Year-to-date, Pluto delivered its highest consumption ever of 5% to 5.6 billion viewing hours.
Brian Robbins: Growth is being driven by increased use of video-on-demand with more available content, enhanced discoverability, and a better user experience.
Brian Robbins: And as we said before, we are evaluating potential partnerships in streaming through a lens of creating value for the business and our shareholders over the long term. And given the complexity, we are being deliberate and thoughtful in our approach and assessment.
moving to streamlining our organization.
Brian Robbins: We have made progress on realizing $500 million in non-content cost savings.
Brian Robbins: which will reduce our U.S.-based workforce by 15%. To date, we have executed 90% of these reductions and expect to have a remaining completed by the end of the year.
Brian Robbins: Our objective has been to unlock operational efficiencies and right-size the cost base, while continuing to invest in the growth levers that are the key to the future, including content, streaming, and advertising.
Brian Robbins: In addition, we remain diligent as we optimize our asset mix.
Brian Robbins: The sale of our equity interest in Biocom 18 is a great example, which will result in an attractive financial return on our investment. We expect the sale to close in Q4.
Brian Robbins: Now let's move to the core of what we do best.
Chris Mccarthy: making some of the biggest and broadest hit films and TV series. I will pass to Chris to kick us off.
Chris Mccarthy: Thanks, Brian. Let's start with Paramount+, where this fall we kicked off one of our most ambitious slates to date, seeing the return of our biggest hit series.
Chris Mccarthy: like Mara Kingstown and Tulsa King, which returned to great fanfare, each quickly soaring into a top 10 streaming original across all Essod services.
Chris Mccarthy: and Tulsa King also broke records as the number one global debut in Paramount Plus history.
Chris Mccarthy: Internationally, where we have South Park exclusively for SVOD, it ranks as a top five star driver and the number two engagement driver. And we're excited to have the South Park series return to Paramount Plus here in the U.S. starting in June of 2025.
Chris Mccarthy: We're confident this momentum will continue throughout the quarter, with the return of Lioness, which premiered October 27th, and is off to a great start, scoring as a top five global series premiere in Paramount Plus history.
Chris Mccarthy: followed by Landman, a new series from Taylor Sheridan which will premiere November 17th and stars Billy Bob Thornton, Demi Moore, and Jon Hamm. This series has all the makings of a great big hit and promises to do for the oil industry what Yellowstone did for ranching.
Chris Mccarthy: Now, moving over to our premium tier, this quarter marks the beginning of a new, adrenalized Showtime slate with cinematic, high-stake originals and the return of some fan favorites.
Chris Mccarthy: starting with The Agency, a new global espionage series from executive producer George Clooney starring Michael Fassbender, Richard Gere, Jeffrey Wright and Jody Turner Smith, which will premiere later this month.
Chris Mccarthy: And that's followed by the return of Showtime's most successful franchise ever, Dexter, with a new origin story titled Dexter Original Sin.
And on cable, we also saw some impressive results.
Chris Mccarthy: The Challenge, the series that created the reality competition genre, celebrated its 40th season with the highest share in franchise history, up 60% versus the previous season.
Chris Mccarthy: This was followed by the MTV Video Music Awards, which attracted its biggest audience in four years on Linear. And on social, it broke records as the number one most social entertainment telecast in television history, besting all entertainment and sports.
Chris Mccarthy: And on The Daily Show, the return of Jon Stewart continues to pay off, having won our second primetime Emmy in a row. And on Monday nights with John of the Helm, The Daily Show remains the number one late night show across linear and social. And it's working hard for us on Paramount+, with engagement up 10x.
Chris Mccarthy: And John's not going anywhere. As we just announced, he's extended a stay through 2025.
Chris Mccarthy: And to continue our momentum, this Sunday, Yellowstone, one of the most eagerly anticipated shows of the year, will return on the Paramount Network in the U.S. and internationally on Paramount+, where it's been the number one star driver and the number one engagement driver for the full year to date.
George Cheeks: And now, I'll turn it over to George to walk us through CBS Entertainment Sports & News.
George Cheeks: For CBS, fall means football and the launch of our new primetime schedule.
George Cheeks: The network's coming off a record-setting 23-24 NFL season, as well as a top-rated primetime schedule that includes the return of last year's number one show.
George Cheeks: In the first five weeks of the season, the NFL and CBS is averaging more than 20 million viewers. That's up 5% from last year. And streaming of the games on Paramount Plus is up over 50% year over year.
George Cheeks: CBS Primetime, which just launched its new season, is off to a great start.
George Cheeks: Tracker's once again the most watched series on TV, Matlock is the number one new show, and Georgie and Mandy, a spin-off of Young Sheldon, is the most watched comedy.
And our shows are winning across platforms.
George Cheeks: Matlock's first episode reached more than 22 million viewers in its first 30 days.
George Cheeks: Tracker's season 2 premiere delivered over 15 million multi-platform viewers in just its first seven days. That's up 25% from its time period premiere last year.
George Cheeks: Now, turning to news, the total minutes watched on our CBS News 24-7 streaming network continues to grow, up 56% over 2023, and up 78% versus third quarter last year.
George Cheeks: We expanded and rebranded the platform with more live programming and the increased presence of key CBS News talent.
George Cheeks: All of this speaks to the collective power of broadcast and streaming, working together to aggregate more unduplicated viewership while optimizing the value and efficiency of our content investments.
Brian Robbins: Our programming strategy remains laser-focused on entertainment, news, and sports that excel on both CBS and Paramount+. Over to you, Brian.
Brian Robbins: On the Paramount Pictures front, at the end of the second quarter, A Quiet Place Day One opened to nearly 100 million worldwide and set the franchise record for the biggest opening at the global box office.
To date, the film has grossed $261 million worldwide.
Brian Robbins: Transformers 1 also debuted as the first animated Transformers film in nearly four decades, grossing $127 million at the global box office to date.
Brian Robbins: And, most recently, the October release of Smile 2 from homegrown talent Parker Finn saw a record-breaking global premiere, out-earning its predecessor's debut weekend.
Brian Robbins: It also makes Smile 2 Paramount's fourth number one opening this year after Mean Girls, Bob Marley One Love, and If.
Brian Robbins: We're confident that the rest of Q4 will build on this momentum.
Thanks to an impressive roster of upcoming releases
including
Brian Robbins: Next up, Ridley Scott's Gladiator 2, one of the most anticipated films of the year with a phenomenal cast including Paul Muscal and Academy Award winner Denzel Washington.
Brian Robbins: Early tracking and first reactions are generating optimism and excitement for the movie's release and award season prospects.
Brian Robbins: Now, rounding out our diverse slate, we're excited to be bringing audiences the journalistic thriller, September 5, which has been on the festival circuit, generating awards buzz. Also, the third installment of fan favorite, Sonica Hedgehog, with Jim Carrey and the original cast reprising their roles.
Brian Robbins: and then Better Man from the director of The Greatest Showman, Michael Gracie and based on the life and music of Robbie Williams.
Brian Robbins: And looking ahead to 2025, we have a fantastic, robust lineup with something for everyone. That includes an 8th Mission Impossible, the reboot of the Naked Gun franchise starring Liam Neeson,
Brian Robbins: New installments of beloved animated franchises like Smurfs and Spongebob, which is celebrating its 25th anniversary And Running Man, from director Edgar Wright and starring Glenn Powell To name just a few
Brian Robbins: Taken together, all of our content reinforces that we have so much to be excited about in this period of evolution and transformation for our business and the industry.
Brian Robbins: It is what continues to create value for our partners, investors, and the broader media landscape.
Speaker Change: both now and well into the future. With that, let me turn it over to Naveen for more detail on our Q3 financials. We'll then look forward to taking your question.
Thank you, Brian. Good morning, everyone.
Naveen Chopra: Q3 demonstrated the progress we've made in transforming Paramount for the future.
Naveen Chopra: We delivered adjusted OEBDA of $858 million in the quarter, up 20% year-over-year, reflecting significant improvement in our D2C business.
Naveen Chopra: which continues to deliver healthy top-line growth and improved operating leverage.
Naveen Chopra: For today's call, I'll focus on a few areas of note.
starting with advertising.
Thank you.
Naveen Chopra: Total company advertising grew 2%, powered by direct-to-consumer, which delivered strong growth of 18%, an acceleration versus the 16% growth we saw in Q2.
Naveen Chopra: D-to-C advertising growth was driven by a double-digit increase in sold impressions and higher CPMs.
Naveen Chopra: And these trends have continued in Q4, where we expect another quarter of double-digit B2C advertising growth.
Naveen Chopra: In TV media, advertising revenue declined 2%, an improvement versus last quarter, reflecting the return of football and higher political spend.
Naveen Chopra: Similar to last quarter, international advertising benefited from the recognition of revenue that was underreported by an international sales partner in prior periods.
Naveen Chopra: Looking ahead, we expect TV media advertising growth in Q4 to be similar to the reported growth rate in Q3.
And Q4 growth will benefit from record political spend.
Naveen Chopra: But we'll also have less sports inventory compared to the prior year.
Naveen Chopra: Our forecast for Q4 does not assume any additional revenue true-ups from a third party underreporting.
Naveen Chopra: Next, let me turn to affiliate and subscription revenue, which declined 1% in Q3. Now, as a reminder, last year's third quarter included Showtime pay-per-view events that did not recur this year as we exited Showtime Sports at the end of 2023.
Naveen Chopra: This comparison reduced the Q3 growth rate by 270 basis points.
Naveen Chopra: Absent the impact of Showtime pay-per-view, affiliate and subscription revenue increased 1%, with growth in direct-to-consumer more than offsetting declines in linear.
Naveen Chopra: In the TV media segment, affiliate revenue declined 6.6% year-over-year, reflecting ecosystem trends and the Showtime pay-per-view headwind I just mentioned.
K.E.C.
Naveen Chopra: D2C subscription revenue grew 6.8% in the quarter, with Paramount Plus subscription revenue up 27% year-over-year.
Naveen Chopra: Paramount Plus added 3.5 million subscribers in the quarter, reaching 72 million subscribers overall.
Naveen Chopra: Subscriber trends benefited from the expansion of an international hard bundle deal and the return of NFL and college football, new originals, and theatrical releases.
Naveen Chopra: And in Q4, we expect continued subscriber growth at Paramount+, driven by a strong slate of originals and the CBS fall schedule.
Naveen Chopra: Unlike Q3, we do not expect to add new hard bundle partnerships in Q4.
Global ARPU for Paramount Plus grew 11% in the quarter.
Naveen Chopra: Our pre-growth was tempered by the lapping of last year's price increase and a greater than expected shift in the mix of our subscriber base toward our essential tier and hard bundle subscribers.
Naveen Chopra: Additionally, the price change we announced in August of 2024 will take some time to be reflected in ARPU due to the grandfathering of existing essential tier subscribers.
Naveen Chopra: And these dynamics will continue to influence ARPU growth in Q4.
Naveen Chopra: The combination of continued healthy revenue growth and expense discipline in Q3 helped deliver our second consecutive quarter of D-to-C profitability.
Naveen Chopra: In Q4, we expect continued top-line growth, however, the timing of content marketing spend will result in a quarterly loss for the D2C segment.
Naveen Chopra: That said, we like the trajectory of the business over the last few quarters and believe we're well positioned to reach Paramount Plus domestic profitability in 2025.
Next, I'll touch on licensing.
Naveen Chopra: Licensing and other revenue declined 9% in the quarter, primarily reflecting a lower volume of licensing in the secondary market and lower home entertainment revenues.
Naveen Chopra: Now, as I've previously noted, licensing revenue can be fairly uneven from quarter to quarter.
Naveen Chopra: And for the full year 2024, we expect licensing revenue to decline relative to 2023.
Naveen Chopra: More than half the year-over-year decline will come from made-for-third-party productions.
Naveen Chopra: And these productions are strategically valuable, but the scale of our business has been impacted by the decision to steer more content to internal platforms.
Naveen Chopra: A smaller part of the year-over-year decline in licensing is related to our second run and library licensing activity.
partially reflecting lingering strike impact on the business.
Naveen Chopra: Even though we'll benefit from the return of the CBS fall slate in Q4, it will take longer than expected to return to our pre-strike level of output.
Naveen Chopra: Turning to the balance sheet, in Q3 we delivered $214 million of free cash flow and reduced leverage to 3.8 times.
Naveen Chopra: Free cash flow in Q4 will be negative given the timing of content spend and the headwind of approximately $150 million of cash restructuring payments.
Naveen Chopra: However, this shouldn't negatively impact leverage, as we expect to receive nearly $500 million of proceeds from the Viacom 18 transaction, which is expected to close this quarter.
Naveen Chopra: Putting it all together, we remain on track to achieve our key financial goals for 2024.
Naveen Chopra: That includes significant growth in total company OEBDA enabled by the progress in D2C profitability you've seen over the last few quarters and the execution of cost savings initiatives across the company.
Naveen Chopra: Similarly, our expectations for full year free cash flow growth remain unchanged.
Naveen Chopra: Overall, I think 2024 will demonstrate meaningful progress in the ongoing transition of Paramount, encompassing streaming growth, enhanced cost efficiency, and of course, continued investment in our renowned content portfolio.
With that, Operator, please open the line for questions.
Speaker Change: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove your question, please press star followed by 2.
Speaker Change: When preparing to ask your question, please ensure your phone is unmuted locally. We ask that you please limit yourself to one question.
Speaker Change: Our first question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead.
Thank you.
Good morning.
Speaker Change: Brian, you talked about being deliberate, given the complexity around direct-to-consumer and partnerships. I'm just wondering if you could talk a little bit more, now that you guys have been working on it, as to sort of what you're solving for, what are the key variables you're looking for, what would lead the company to kind of pull the trigger on...
Speaker Change: either a partnership or a change in how you're kind of working internationally. I think that's been kind of one of your focus areas in streaming. And then, you know, Naveen, it's been, I think, almost a year since you talked about domestic streaming profitability next year.
Speaker Change: Given the progress we've seen this year and the cost action you've taken,
Speaker Change: You know, how far away are you from overall D2C profitability? Any way to kind of update us and dimensionalize sort of the international versus domestic D2C situation as we look at 25 would be helpful. Thank you guys.
Chris Mccarthy: Hey Ben, how you doing? This is Chris. I'll take your first part of your question and then I'll pass to Naveen for the second part of that.
Naveen Chopra: First, let me start by saying that we're very proud of the success that we've had with Paramount Plus. This quarter saw revenue growth up 27%. It's our second quarter of profitability. And for 2025, we're on track for full-year domestic profitability.
Naveen Chopra: So we feel good about our position and our ability to remain a stand-alone. Now, that being said, you can absolutely count on us to be opportunistic.
Naveen Chopra: We're looking at partnerships from a strategic lens to drive more value, and you can be sure that in deciding that, we'll take key factors into consideration, but the ultimate value will be, is this going to drive increased value for our business today, our consumers, and our investors?
Naveen Chopra: But as it stands today, we have our momentum driven by our strategy, our execution, and our driven by our hit content. And so we feel good about our position as a standalone, and we'll continue to look for opportunities.
Naveen? Great. Thanks, Chris. And hey, Ben.
Naveen Chopra: With regard to your question on D-to-C profitability in 2025, as you said, we've made tremendous progress this year. Chris mentioned some of the stats.
Naveen Chopra: And I think it's fair to say that progress has been really multidimensional between subscriber growth, improvements in ARPU, strong digital advertising growth, and, by the way, some real efficiency improvements on the marketing side of the equation.
Naveen Chopra: So, I think we're well set up for 2025, and as you heard us say, we do continue to expect the business to get to domestic profitability next year.
Naveen Chopra: In terms of how that translates to the segment as a whole, I'd note a few things. First, domestic, we do expect to be profitable next year.
Naveen Chopra: Pluto is already a profitable business and so the real variable is what the P&L for the Paramount Plus international business looks like.
Naveen Chopra: And I've generally described that as tracking somewhere in the sort of 12 to 18 months behind the domestic business Just given the the relative maturity and the timing of when we launched internationally versus domestic
Naveen Chopra: And I think that's still the right way to think about the business as a whole. And obviously, we'll keep you updated on progress as we continue to move down that path.
Thanks, Ben. Operator, next question.
Speaker Change: The next question goes to Brian Craft of Deutsche Bank. Brian, please go ahead.
Oh, thanks. Good morning.
Speaker Change: The last answer, Naveen, was a good segue to my question, which was, you've been making various moves in international markets, but I think you've also been reviewing the strategy on a market-by-market basis.
Speaker Change: So I wanted to ask if at this point there is a clear path forward yet for Paramount+.
Speaker Change: in international markets? And if so, if you could talk about what that looks like and how it's differed from the approach up until now. And then just a housekeeping question, Naveen, and sorry if I missed it, but would you be able to quantify for us the impact of the revenue for prior period international ad sales under that partner, under reporting? Thank you.
and many more. Thank you. Thank you.
Chris Mccarthy: Hey Brian, how are you doing? This is Chris. Listen, let me start by saying we think it is very important to globally monetize our content in the widest possible basis and our success to date really proves that out.
Chris Mccarthy: Now, we're taking a market-to-market approach when we're looking through the lens of how do we drive the most value. In some cases, that'll be an owned and operated situation where we control. In other cases, it'll be a hard bundle with a market leader. And in other cases, it may make more sense for us to really go in a licensing model.
Speaker Change: But you can rest assured our goal here is to maximize the value for our hit content and look at all opportunities very opportunistically through that lens. And now I'll pass to Naveen for the second half of that.
Yeah.
Speaker Change: Brian, would you like to do a question on the size of the underreported revenue in Q3?
Brian Robbins: year-over-year trend for international advertising similar in magnitude to Q2 actually I think a little larger magnitude in Q3 versus Q2 you know it's I'd size it in the call it plus or minus 50 million range
Brian Robbins: And importantly, as I said in our prepared remarks, our forecast for next quarter assumes that there is no further true up required due to the underreporting.
[inaudible]
Thanks, Brian. Operator, next question, please.
Speaker Change: The next question goes to Rich Greenfield of Lightshed Partners. Rich, please go ahead.
Rich Greenfield: Hi, thanks for taking the question. I've got a couple. First on Nielsen, I think you dropped, I think it's been, you know, now over a month, maybe it's been five weeks. I think the last time you had an impasse it was only like 14 or 15 days.
Rich Greenfield: I think there's been a lot of speculation in the market that the run rate savings are hundreds of millions of dollars on the cost side.
Rich Greenfield: But, on the other side, I want to understand what's happening in terms of not being able to sell advertising against Nielsen data. Have you seen any material impact in Q4 from not having Nielsen data, and I guess related to that, any top advertisers that have left?
Rich Greenfield: CBS or your cable networks because you can't sell against Nielsen, and I think you're using video amp. And then just maybe a housekeeping question for for Chris or George, I guess. On the TV media side of the equation,
Speaker Change: I think everyone's trying to understand sort of the potential of cost-cutting longer term. Could you just give us a sense in TV media today, how many employees roughly do you still have in that division after all of the cost cuts that you've done to date? Thanks.
[inaudible]
George Cheeks: Hey Rich, it's George, I'll take this. So starting with Nielsen, I want to level set, this really is not about affordability.
George Cheeks: It's about getting the value we need for what we pay. And I think it's important to consider all of this in the context of the media industry. I mean, as we all know, linear audiences, especially basic cable linear, are declining and shifting to streaming. This, of course, is going to affect how we look at the appropriate spend here. I mean, for example, we wouldn't want the Nielsen fee for certain networks to be greater than the ad revenue those networks actually generate.
George Cheeks: Now, as to your point on impact, we haven't seen any adverse impact on ad revenue to date, and we don't expect a material impact in Q4. But I do want to be clear that we do recognize that Nielsen can be a valuable resource. It's just that the economics have to make sense for the business.
Now, as to your second question, you know,
George Cheeks: studying. Right now the numbers about 6,000 plus in domestic and about 3,000 plus
Now, you have to remember that that all...
George Cheeks: production infrastructure, and our 27 local stations, which obviously requires a lot of
organization.
Is there a second question about TV media?
Operator, next question please.
Speaker Change: The next question goes to Stephen Carhall of Wells Fargo. Stephen, please go ahead.
Richard Greenfield, David Ellison, David Ellison, David Ellison, David Ellison,
Speaker Change: Thank you. So another one on streaming, the S-Core indicated that one of the parties might have been interested in a combination or even licensing Paramount Plus and, you know,
Speaker Change: You've done bundles, we've seen a lot of bundles in the industry. I don't think we've actually seen any app integration or streaming integration deals.
Speaker Change: So, I'm wondering how you think about that, you know, one of your peers also has a streaming product that has a lot of sports, has a good film library, seems like.
Speaker Change: you know, bundle deals and into something that's a little bit deeper from a consumer perspective.
Speaker Change: And then, Naveen, just an accounting question. What's the method for allocating content costs like sports and series between DTC and TV media when they air on both? You know, you're growing revenue and subscribers so strongly at Paramount+.
Speaker Change: and you've given the domestic profitability guidance. So just wondering if there's a way for us to think about how content expense grows there since it's shared between the two segments. Thank you.
Chris Mccarthy: Hey Steve, it's Chris. I'll take the first part of that question and then I'll pass to Naveen.
Speaker Change: You know, as we talked about, we are seeing real momentum at Paramount Plus and across Pluto. We've got great growth, second quarter profitability, and on track in 25, so we feel really good about the position and, frankly, our ability to remain as a standalone.
Naveen Chopra: Now, you talk about bundles, and we've got some great partnerships and some great bundles in the way of Walmart and with Delta Airlines.
Naveen Chopra: Now, these are ones that are very specific, that add incremental value to us, that bring new consumers, and really enhance the value proposition from a total business perspective for us.
Naveen Chopra: Now, that being said, you can always count on us to be strategically looking through the lens of creating value.
Naveen Chopra: And in doing that, we ask ourselves, you know, is this the right market or is there something better that we can get and something more value? And you can count on us to continue to do that. But as of today, there's no change. We feel great about where we are, and we feel really strong about the position moving forward. Naveen?
Thanks, Chris.
Speaker Change: Steve, the question regarding how we allocate the cost of content that is shared between our streaming business and our traditional linear businesses, I think there's a couple of important concepts to understand. Number one, it does differ somewhat based on the type of content.
Speaker Change: But it's all based on the principle that the allocations of that cost should reflect the relative value of the content windows that each of the platforms has rights to.
Speaker Change: So what that means is that effectively as more of the viewership moves to streaming, you will see more of the cost being allocated to streaming and moving away from linear.
Speaker Change: and that's certainly been reflected in the way that we do that allocation for sports, for movies, library and the like.
Thanks, Steve. Operator, next question.
Speaker Change: The next question goes to Michael Morris of Guggenheim. Michael, please go ahead.
Thank you. Good morning.
and thanks for all the answers.
Speaker Change: Wanted to ask first about the DTC trends and specifically you said you were pleased with the response so far from charter customers
Speaker Change: I'm hoping you can share a little bit more detail on whether the third quarter results reflected the full impact from that charter partnership at both TV and at DTC, and anything you can share about customer activation and any churn from charter subs who are already Paramount Plus subs.
Speaker Change: Those types of things, we'd love to hear any additional detail you can share.
Speaker Change: And then secondly, it was a very strong EBITDA quarter, you know, growing 20% year over year. Kind of begs the question whether we should expect any incremental cost in 4Q to maybe offset the strength that you had in the third quarter, whether this outperformance kind of flows through to the full year. Thank you guys.
Naveen Chopra: Yeah, hey Mike, it's Naveen. I'll take both of those. Starting with the question on
Naveen Chopra: three third quarter sub growth and specifically the impact of Charter so Just zooming out a little bit, you know the three and a half million subs that we added in the quarter I'd note that there's contribution from both international and domestic as I noted in prepared remarks international Did have a new hard bundle that we signed so that was an important contributor
Naveen Chopra: And on the domestic side, we did see some sub-growth coming out of the charter bundle.
Naveen Chopra: Though, I would note that it's still relatively early in terms of time since the launch of that bundle.
Naveen Chopra: and I expect the contribution will continue to grow over time.
Naveen Chopra: That being said, when we look at the first few months, if you will, we're actually quite pleased with the results, both in terms of the take-up from charter subs and the impact on direct sub acquisition. So we continue to like the trends there.
Then moving to your...
Naveen Chopra: Second question, on fourth quarter and how that is impacted by some of the overperformance in the third quarter.
Let me give you sort of a...
Naveen Chopra: A big-picture answer on that, too. If you think about the third quarter,
Naveen Chopra: The overperformance was really driven by the D-to-C segment, which came in.
Naveen Chopra: better than we expected. As I mentioned earlier, that's multidimensional. But in particular, we saw some real strength in marketing efficiency that we were able to realize in the quarter.
Naveen Chopra: I would say that the restructuring work had a relatively modest impact in Q3, just given the timing of when those actions were taken, more of that benefit is going to be realized in Q4.
Naveen Chopra: So then if you if you think about Q4 specifically, there are some moving pieces that are probably worth calling out first some of the tailwinds We will see more of that restructuring benefit that I mentioned
Naveen Chopra: There will also be, as you would anticipate, some real strength in political advertising that will benefit Q4. And Q4 tends to be, relative to the first three quarters of the year, the strongest quarter for advertising generally, and so I think that will benefit us relative to Q3.
Naveen Chopra: There are a couple of headwinds to keep in mind. We will have higher content expenses in Q4 than we did in Q3, just given the timing of sports and some of the streaming originals. And as I mentioned, we do not expect to have any incremental...
Naveen Chopra: True ups for past period under reporting on those third party advertising partnerships And then there is some shift of marketing expense from q3 into q4
Naveen Chopra: But when you put all of that together, I think the key takeaways for you should be that number one, the vast majority of the overperformance that we saw in Q3.
Naveen Chopra: I do expect to flow through to the full year, and number two, I think we're really well set up for 2025, particularly given the progress in D2C and the significant improvements that we've made in profitability for that part of the business.
Thank you. Thank you.
Thanks Mike. Operator, we'll take one last question please.
Speaker Change: Thank you. The last question goes to Michael Ng of Goldman Sachs. Michael, please go ahead.
The first time I've seen this video, I've seen it.
Hey, good morning. Thank you for squeezing me in.
Speaker Change: The last question around DTC efficiencies, you know, Naveen, you talked about the marketing efficiencies. I was wondering if you could just expand on that a little bit in DTC because obviously DTC FX was an area of positive surprise.
Speaker Change: And then relatedly, I was wondering if any of the programming charges taken earlier in the year had any potential benefit to cost amortization for DTC in the quarter as well. Thank you.
Yeah, sure. Hi, Mike. I'll take both of those.
Speaker Change: You know, the D to C improvement that we saw, as I mentioned, did benefit from marketing efficiency, but there's kind of a bigger story behind that, which relates to the composition of our subscriber base. You know, we've talked about for some time now...
the importance of having
Speaker Change: A diverse subscriber base that spans multiple channels, the direct channel, partner-based distribution on platforms like Amazon, Roku, Apple, hard bundles both domestically and internationally.
commercial bundles like what we have with with Walmart Plus.
When you have that sort of go-to-market approach
There are some real benefits.
Speaker Change: with respect to acquisition costs and churn. And I think we're starting to see those fall into the P&L of the business.
Speaker Change: which is why I called out the marketing efficiencies. That is enabled by the fact that we have these channels where we're able to acquire and keep subscribers very, very efficiently. And that's really flowing through to the bottom line.
Speaker Change: And then with respect to your second question regarding programming charges, you know, yes, that does obviously have some and more benefit in future periods.
Speaker Change: but I think we're really focused on driving the top-line growth, continued sub-growth, ARPU growth, and capturing these improvements in marketing and churn reduction as a way of continuing to drive the business toward profitability.
Brian Robbins: Thanks, Naveen. This is Brian. And on behalf of my fellow co-CEOs.
Speaker Change: We'd like to thank you all for joining the call today. We had another very strong quarter with continued strength in streaming, improving momentum in advertising, and meaningful progress in making the business more efficient, all of which sets us up well for the future.
Speaker Change: All at the same time, while we've been doing what we do best, which is making some of the biggest and broadest hit TV series and blockbuster films, thanks to our tremendously talented teams and creative partners.
Speaker Change: We look forward to updating you all on our progress again soon. Thank you and have a great day.
Thank you.