Paramount Needs a Partner: New Name Shouldn’t Change Its M&A Game

Paramount Needs Partner: New Name Shouldn't Change Its M& Game
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Driving the iconic Bumblebee Camaro from her film studio’s “Transformers” franchise, ViacomCBS chair Shari Redstone opened the ViacomCBS investor presentation Tuesday appearing in a comedic sketch intended to project a company in cruise control — even “Mission: Impossible” franchise star Tom Cruise made a cameo later at the event.  

But while Redstone is clearly in the driver’s seat, a question still hangs over the newly rebranded Paramount Global: What is the road ahead for its M&A plans?  

A corporate name change, brand-new stock ticker symbols and unprecedented transparency for the subscriber performance of flagship streaming service Paramount+ were obvious attempts to reassure investors Paramount is in a position of strength in the streaming wars.  

But judging by the way the stock slumped more than 6% in the after-hours session, it was apparent investors still lacked confidence that Paramount will be able to survive on its own in this cutthroat streaming environment.  

That’s not to say Paramount+ hasn’t been doing well. Paramount broke out subscriber figures for Paramount+ for the first time Tuesday, and the service added about 7 million subscribers in the fourth quarter. The company is well ahead of its long-term streaming subscriber target and now expects 100 million subs by 2024, up from between 65 million and 75 million estimate from a year ago.  

For some context, 7 million Paramount+ subscriber additions may have been fewer than what Disney+ and Netflix reported, but it was higher than rival HBO Max last quarter.  

On the surface, that number may seem impressive, but it’s very important to remember that T-Mobile began giving eligible customers 12 months of Paramount+ Essential for free beginning Nov. 9. That promotion was in effect for basically two out of the three months of Q4 and likely provided a sizable boost to Paramount+ subscriber numbers during the quarter. 

Then there’s the issue of cash. Strong cash positions are crucial in order to invest in content and stay competitive. Paramount boasted a “strengthened financial position,” with $6.3 billion as of the end of Q4. However, about a third of that was from the sale of assets such as the CBS Studio Center in Los Angeles and Manhattan's Black Rock office building.  

Paramount has been aggressively selling off noncore assets in recent years to free up some cash it could then use to invest in its streaming business. However, the company is eventually going to run out of things to sell off; regulatory approval for unloading publishing biz Simon & Schuster may never come. And linear channels may still provide some cash support, but that’s a shrinking business.  

Streaming is a risky venture that takes a very long time to reach profitability. The issue for Paramount is it may have the juice in the near term, but it may just be a matter of time before the company is forced to enter some sort of strategic partnership to beef up its chances of survival in the streaming space. 

Even though Redstone has previously been firm on her stance of not merging and focusing on organic growth, media M&A has been on fire lately as the battle for top-quality content is at all-time highs — and Paramount’s name is often mentioned as a sensible target. Among those that could be possible suitors is NBCUniversal parent company Comcast.  

Paramount and Comcast are already partnered in a distribution agreement in which Paramount’s full content portfolio is available to Xfinity customers. In addition, Paramount and Comcast partnered in Europe to launch Paramount+ in that market. NBCUniversal’s Peacock and Paramount+ both had a later start and are relatively small potatoes in the streaming wars. A combination of powers could be necessary to create a bigger threat against Netflix and Disney+.  

Paramount’s event Tuesday was likely meant to showcase the company’s determination and ability to remain a standalone streaming player, but in an ironic way, it almost did more to highlight the traits that make it a desirable M&A candidate.  

As Redstone said in her opening remarks, Paramount will give investors the “return on investment you deserve.” Well, investors have spoken, and it looks like they still think Paramount needs to partner up.