Can Paramount compete with Netflix and Disney?

In January, Paramount’s board of directors, including Shari Redstone, the company’s president, met with a group of bankers to get an update on the media industry and hear about potential deals that could help the company compete. better with streaming giants like Netflix and Disney. .

The bankers, from Goldman Sachs and LionTree, came up with plenty of business ideas, according to four people with knowledge of the meeting. The most logical, the bankers said, was to combine parts of Paramount, which owns networks like Nickelodeon and MTV, and the Paramount+ streaming service, with those of Comcast, the cable giant that owns NBCUniversal and the Peacock streaming service. . The two companies already have a transmission joint venture in Europe.

But in the end, the board, Ms. Redstone, and Bob Bakish, the company’s CEO, didn’t feel compelled to pursue either combination. They would continue to zigzag as Hollywood zigzagged.

I mean, Paramount— with its collection of streaming services, including Pluto TV and Showtime, plus Paramount+, it would continue to go it alone.

The rapid rise of streaming has reshaped the media industry in just a few years, as companies have felt pressure to spend billions on new TV shows and movies to attract enough subscribers to compete with industry giants. . MGM, the famous movie studio, sold to Amazon. And Discovery has combined with WarnerMedia, the film and TV giant behind “Game of Thrones” and “Succession.”

Not primordial. Since the company was created from the merger of Viacom and CBS three years ago, it hasn’t looked for another big deal. Instead, the company has been trying to build its own profitable streaming business before the cash flow from traditional TV, which remains its big source of revenue, dries up.

In interviews, both Ms. Redstone and Mr. Bakish said that Paramount, with its global presence, streaming businesses and the movie studio behind the hit new movie “Top Gun: Maverick,” would succeed on its own terms. .

“In many ways we are still the underdogs, and that’s fine,” Bakish said. “But I think as time goes on, people will continue to see more and more that Paramount is powerful.”

Ms. Redstone and Mr. Bakish have yet to persuade much of Wall Street. In the years since Ms. Redstone championed the effort to unite the two halves of her family’s media empire, Viacom and CBS, to form Paramount, the value of the combined company has fallen significantly. On the day the merger was announced, in August 2019, Wall Street valued both companies at $29.6 billion. Today, Paramount is worth $22.1 billion, a decrease of 25 percent. Share prices of Paramount’s competitors, including Disney and Netflix, have also declined over the same period.

Rich Greenfield, co-founder and analyst at LightShed Partners, a research firm, is skeptical that Paramount can survive on its own. Paramount’s broadcast business is growing rapidly but is not yet profitable, Greenfield said. And much of the audience for Paramount’s exclusive content — think MTV and Nickelodeon — has moved to new media platforms like TikTok and Instagram.

“I don’t think there’s anyone who believes that in five years this company won’t have bought other things or become part of something bigger,” Greenfield said. “It’s time to eat or be eaten.”

In recent weeks, Wall Street has focused more on the profitability of streaming businesses. Netflix said in April that it lost streaming subscribers in the first quarter of the year, reversing a decade of growth and sending its shares tumbling. Bakish said that competitors like Netflix, which he cheekily calls “legacy broadcasters,” are only now realizing the importance of the revenue strategies Paramount has adopted for years, including advertising.

The box office, another traditional business that Netflix largely avoids, is another example, Bakish said. “Top Gun: Maverick” is on track to generate $150 million in ticket sales during its opening weekend, but, except for most studio-produced movies, it won’t appear on Paramount+ within the typical 45-week window. days.

Still, some experts believe Paramount’s strategy is sound. Brett Feldman, an analyst at Goldman Sachs, said the global streaming subscriber market is much larger than the pay-TV subscriber audience. Paramount+ added 6.8 million subscribers in the first quarter of 2022. Mr. Feldman is in the minority of analysts who have a “buy” on Paramount.

“Not everyone pays for cable, especially outside of the US,” Feldman said. “Most people have an Internet connection or a cell phone to stream videos.”

Paramount won a recent vote of confidence this month from Berkshire Hathaway, the holding company run by billionaire Warren Buffett. Berkshire Hathaway said in a statement that it had amassed a $2.6 billion stake in Paramount. Berkshire Hathaway did not explain its reasons for investing in Paramount, and the company declined to give an interview to The Times. But the news sent Paramount shares up 15 percent.

Ms Redstone said Berkshire Hathaway’s investment in Paramount caught her by surprise. She received the news hours after it was made public.

“I went out to dinner and the person said, ‘What do you think of Buffet’s investment?'” Redstone said. “And I was like, ‘What?'”

Paramount’s ultimate fate will most likely be determined by Ms. Redstone, who emerged victorious in 2018 from a bitter legal fight with Les Moonves, then CEO of CBS, to retain control of the entertainment assets her family had owned. owned for decades. Like her father, the wily and bellicose lawyer-turned-tycoon Sumner Redstone, Redstone controls Paramount through National Amusements, a holding company she runs that owns voting shares in the company.

While Redstone was known for his cantankerous and impulsive decisions (he once threatened to cut Paramount’s ties with Tom Cruise after his couch-hopping episode on “The Oprah Winfrey Show”), Redstone is a more low-key leader. She underlined the contrast with a joke.

“Like I told my dad once, I told him, ‘Everything I am is because of you, except the nice parts, which came from my mom,’” she laughed.

Ms. Redstone said she weighs in on Paramount’s direction in one-on-one conversations with Mr. Bakish and spends time cultivating business relationships inside and outside the company. She introduced Mr. Bakish to Brian Robbins, who eventually became president of Paramount with her support, and helped broker a deal with South Korean entertainment company CJ ENM connecting Mr. Bakish with Miky Lee, the vice president of the company’s parent company.

Ms. Redstone was among the first to support Paramount’s decision to compete directly with major players like Disney and Netflix in direct-to-consumer streaming, a strategy that was still up in the air when Viacom and CBS merged in 2019.

After the merger, company leaders debated whether to invest in its existing subscription streaming service, then known as CBS All Access, or give up streaming for an “arms dealer” strategy: selling movies and TV shows to other transmission companies. , according to three people with knowledge of the discussions.

So in early 2020, just weeks after the deal closed, Paramount decided to make an initial foray into streaming: The company would put Viacom content on CBS All Access, ramping up the service quickly without spending to produce original content.

A few months later, with the encouragement of Ms. Redstone and Marc Debevoise, then the digital head of the company that had co-founded CBS All Access, Paramount decided it would spend money on original movies and TV shows for the service, effectively entering transmission competition. people said.

That spring, Mr. Bakish called a series of meetings and asked the heads of each of the company’s networking groups to come up with plans for inclusion in a company-wide subscription streaming service.

By July of that year, the company was finalizing its current course. At a board meeting, company executives outlined the strategy, along with several possible names for the as-yet-unnamed streaming service: Paramount+, Honeycomb, The Eye and Pluto+. (The latter option was inspired by the company’s popular ad-supported streaming service.) Over the summer, they settled on Paramount+, according to two people familiar with the matter.

Under the revamped streaming strategy, Paramount’s major movies, with the exception of a few hits such as “Top Gun: Maverick,” premiere on Paramount+ within 45 days of their theatrical release. The idea behind that approach is that it gives Paramount one foot in the emerging era of broadcasting and one planted firmly in the traditional ways of making money from old Hollywood.

At the premiere of “Top Gun: Maverick” last month, shortly after a flashy promo on a chartered aircraft carrier in San Diego, Cruise paid tribute to Sumner Redstone. As Mrs. Redstone watched, Mr. Cruise noted that the film would be released widely on May 27, which would have been Sumner Redstone’s 99th birthday. (He died in 2020.)

Ms. Redstone said that she believed her father would generally agree with her approach to Paramount. And she said she believes Wall Street will eventually recover, provided the company keeps its promises to her.

“I think the market keeps saying, ‘Show me, show me,’” said Ms Redstone. “And I really think we keep showing them.”

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