At this point in the first-quarter earnings season, it’s safe to say, investors have been tougher than ever on media stocks. It was no different for Paramount Global following its earnings announcement, and shares of the media giant sank as much as 7% Tuesday morning even as the broader markets rose higher.
The first quarter marked exactly one year since the launch of the company’s streaming service Paramount+. The headline growth for the company’s streaming service wasn’t bad last quarter, and continued growth appeared to be on track.
Paramount+ added 6.8 million subscribers during Q1, which brought the service’s total global subscriber figure to 39.6 million. Paramount had 62.4 million global subscribers across all its direct-to-consumer offerings.
It’s still important to remember Paramount began a big promotion with telecom giant T-Mobile in early November, which gave T-Mobile and Sprint’s eligible customers 12 months of Paramount+ Essential for free. It is unclear how many of the 6.8 million sub additions in Q1 were from the running promo.
Bakish, much like other media CEOs this earnings season, took a small moment to throw shade at rival Netflix. He boasted that Paramount had a differentiated playbook with free ad-supported and subscription services resulting in dual revenue streams.
While that’s certainly true, unfortunately, investors seem to only care about profit.
Paramount stock’s price action following Q1 results underscores the shifting sentiment around streaming services. Subscriber growth alone does little to build trust between the streaming companies and their investors. But perhaps the more harrowing fact is that not even the real promise of future growth does either.
CEO Bob Bakish announced that Paramount+ would begin its international expansion beginning with the U.K., Ireland, and South Korea in June followed by Italy, Germany, France, Switzerland and Austria in the back half of the year. The service will launch in India in 2023. In the past, international expansion was a real reason to celebrate because it all but guaranteed steady subscriber growth.
However, international markets are typically less profitable than the U.S. With Netflix as a key example, price points are far lower in regions like India, and thus margins are tighter. This is problematic for a few reasons. The streaming business is a money-losing business that takes a lot of investment, time and patience to reach profitability.
For all the future investments in DTC growth, Paramount’s other businesses are crucial to its sustainability. The issue was that its other businesses didn’t quite anchor the quarter as much as analysts and investors expected. Though Paramount’s TV media business was facing tougher than usual comparisons, adjusted OIBDA tumbled 13% compared to the year-ago period. Adjusted OIBDA for its filmed entertainment segment also fell $216 million year-over-year.
Bakish is right about one thing: Paramount isn’t Netflix. It has sports, TV, films and advertising in addition to its growing streaming business. However, reporting wider and wider losses in the streaming business is only palatable if the company is able to balance those losses with strong profits in its other businesses. Unfortunately, it’s not something we saw play out in Paramount’s Q1.
Trust is fragile in the media industry right now. Going above and beyond expectations is the only way to gain trust from investors, and investors’ reaction to Paramount’s Q1 tells us that the company will have to do even more to gain investor confidence on its long-term investment thesis.