Paramount Global is facing speculation that it could be a target for an activist investor as it weathers intensified investor scrutiny on the back of its Q1 earnings.
The company’s Q1 earnings on May 4 surprised investors by slashing 80% of its dividend — from $0.24 to $0.05 — and reporting $511 million in losses to its direct-to-consumer streaming unit. The stock tumbled over 28% in response and has since dragged further, hitting its 52-week low on May 17. The past year has seen the stock fall by more than 50%.
Dropping the dividend is perhaps the most worrying signal to the market, indicating the company doesn’t anticipate a sudden meaningful rebound to past states of profitability such that it would be flush with enough cash to pay out to investors before meeting its own cost and debt obligations.
Indeed, earlier this month, major Paramount shareholder and billionaire stock magi Warren Buffett — whose Berkshire Hathaway owns a 15.3% stake in Paramount Global after acquiring almost 69 million shares in the first quarter — commented at its annual meeting in Omaha on May 6, “It’s not good news when any company cuts its dividend dramatically.”
After hours last Wednesday, Paramount chairwoman Shari Redstone fired her own signal to undergird market confidence, buying $2.5 million in company stock then trading at a 52-week low. If an activist investor does emerge against Paramount, it wouldn’t be the first of the year against a media company.
In the past 12 months, Disney has faced off with two activist investors, including Dan Loeb in September 2022 and Nelson Peltz in January. Among Peltz’s demands, in particular, were several that read like what could easily be mounted against Paramount: revamp the streaming business, refocus on profits and reinstate the dividend.
The danger for Paramount comes amid clearer recognition on Wall Street that streaming is just not that great a business to be in. At least it’s not when compared with the predictable cash cow of cable’s subscription and affiliate revenues, themselves in secular ebb due to cord-cutting.
Even as Paramount+ has continued to grow subscribers — adding 4.1 million subs in the quarter to a total 60 million — Paramount’s DTC streaming unit has seen losses every quarter as expenses seriously outweigh revenues.
In fairness to Paramount, streaming efforts from all the major U.S. media conglomerates remain money losers as they’re pressured to spend on content and keep prices competitive to grow and retain subscribers. But Paramount has also reportedly faced internal scrutiny for its ballooning content expenditures. Even executives are reported to privately question the exorbitant sums — over $500 million a year — that Paramount has floated to hitmaker showrunner Taylor Sheridan, the man at the top of the company’s biggest shows, such as “Yellowstone.”
Simultaneously, companies are watching streaming subs varyingly come and go amid broader economic inflation that’s squeezing consumer spending. Churn is now likely an unavoidable constant in operating a streaming business. But that makes it no less challenging as an unpredictable factor media companies need to continuously mitigate by maintaining a steady supply of hits — or at least access to content subscribers are consistently willing to pay for month after month — at a price consumers are willing to pay.
While all services have some churn, churn rates at Paramount+ and Showtime have consistently ranked among the highest among rival streaming services over the last year, particularly against low-churn Netflix, Disney+ and Hulu.
Buffett years ago indicated he wasn’t interested in activist investing, which he viewed as pressure just to make the stock jump in the short term. While times change, and so can minds, if or when an activist investor emerges against Paramount, it would mount additional challenges on an already challenged company.