Paramount Global (PARA.O) wrote down the value of its cable networks by nearly $6 billion and announced Thursday (August 8) it would cut 15% of its workforce, as the media conglomerate navigates the decline of the cable television business.
The reductions are part of Paramount's efforts to cut $500 million in costs ahead of its
merger with Skydance Media and will affect roughly 3,200 people, based on the number of workers at the end of last year.
Paramount's shares rose 5% after hours, however, as the company handsomely beat Wall Street's profit expectations and its streaming business reported its first quarterly profit in three years. The stock has lost almost a third of its value so far this year.
The company's Paramount+ and PlutoTV services reported an operating income of $26 million in the second quarter, compared with a loss of $424 million a year earlier.
"It's crunch time for streaming businesses and Paramount delivered some promising numbers," Third Bridge analyst Jamie Lumley told
Reuters.
Paramount is the second media conglomerate in as many days to adjust the value of its cable TV assets to reflect the impact of declining ratings, which translates to lower advertising revenue. Warner Bros Discovery (WBD.O) announced a $9 billion charge on Wednesday, citing the uncertainty of fees from cable and satellite distributors and sports rights deals.
The pending Skydance merger forced Paramount to reassess the value of each of its units, based on deal's implied enterprise value of the company. This impairment dragged the company into an operating loss of $5.3 billion for the second quarter.
"Paramount's and Warner Bros Discovery's writedowns this week add nails to linear TV's coffin," said Emarketer television and streaming analyst Ross Benes. "Paramount’s best chance for an exit is through Skydance. The longer they wait, the less the company will be worth."
Paramount's adjusted operating profit, which excludes the impairment, exceeded Wall Street targets, with income of $867 million, or 54 cents a share. That topped the consensus estimate of 12 cents a share, according to LSEG.
The job cuts are expected to lead to charges of $300 million to $400 million in the third quarter, Paramount executives said on the investor call. The company is looking at a variety of additional cost-reduction plans, Chief Financial Officer (CFO) Naveen Chopra said.
Second-quarter revenue fell 11% to $6.8 billion. That missed analyst forecasts of $7.2 billion for the quarter ended June 30.
The television unit, which includes prime time's top-rated network, CBS, as well as the company's cable networks, such as Nickelodeon, MTV, Comedy Central and BET, reported quarterly revenue of nearly $4.3 billion. The 17% decline in revenue from a year ago reflects lower ad revenue and fees paid to license its shows. Operating income for the group fell 15% to $1 billion.
Paramount's film business reported a loss of $54 million, despite releases like IF topping the box office in its domestic debut, and A Quiet Place: Day One recording the best financial performance for the horror franchise.
Paramount Global Steels Itself For New Round Of Layoffs As Q2 Earnings Hit, End Of Skydance “Go-Shop” Period Nears
UPDATED with executive remarks: A momentous couple of weeks for Paramount Global are underway. Its second-quarter earnings are due out today, the “go-shop” period in the $8 billion Skydance deal closes August 21, and a new round of layoffs is expected next week.
Paramount will release its earnings after the market closes, with Wall Street analysts forecasting a 5% year-to-year revenue dip due to challenges in linear TV and at the film studio.
In addition to the Skydance deal, the eyes of the financial community will be focused on Paramount’s cost-cutting plans. The company’s co-CEOs, who have promised to deliver $500 million in annual cost savings, said in June that more details about the streamlining would be revealed on the Q2 earnings call. UPDATE: Co-CEO Chris McCarthy confirmed on the call that the media company plans to cut its U.S.-based workforce by about 15%.
Chatter has been intensifying over the last few days that the next round of layoffs is coming next week, with hundreds of jobs expected to be eliminated. According to multiple sources, Tuesday, August 13 is the target date. It fits into the pattern of previous mass layoffs at the company, most recently on February 13, which also was a Tuesday, with the impacted employees asked to leave by that Friday.
Marketing and Paramount+ are two areas that are expected be hit hard, we hear. In a precursor to a major marketing consolidation, Michael Engleman, Chief Marketing Officer for Paramount+ Domestic and Paramount+ with Showtime, announced Tuesday that he will be stepping down.
According to sources, tens of marketing positions could be gone, with as much as half of Paramount Global’s overall marketing team in danger of losing their jobs.
Paramount+ also is likely to take some of the brunt of the latest staff reductions as media companies, including Paramount, are trying to cut streaming losses by reducing spending and original output in the push to make their platforms profitable. On Disney’s quarterly earnings call Wednesday, CFO Hugh Johnston hinted that new cost cuts may be in the offing, assuring Wall Street analysts that there would be more ways to do “more with less” in the near future.
While marketing and Paramount+ may be disproportionately affected, no one would be spared as every division across the company is expected to be part of the cutbacks, including frequent layoff targets such as corporate and shared services, including legal and BA.
UPDATE: On the Q2 call, McCarthy revealed that marketing and communications would be one of two areas to be targeted in the reductions. The other will be support functions including legal, finance and other areas of the company’s administrative operations
Per standard practice, every department head had been given a number to hit in terms of eliminated positions — said to be in the double digits percent-wise — and/or overall savings.
“It’s going to be a bloodbath,” one staffer said, echoing the sentiment of thousands across the company who are bracing for the cuts. The mood at Paramount has been pretty subdued over the last couple of weeks as the layoffs are drawing near, with morale and the level of anxiety moving in opposite directions. Some speculate the staff reductions may stretch beyond next week into September and even possibly into next year.
“As you can imagine, these are difficult decisions to make,” McCarthy said on the earnings call. “We have incredibly talented people at Paramount, and these actions are not reflections of their contributions. Rather, they are necessary to transform our organization for the future.”
During the February round of layoffs, 800 jobs were eliminated, which represented about 3% of the company’s global head count, with Paramount TV Studios heavily impacted as it underwent a major consolidation.
In November 2022, Paramount TV Studios as well as CBS Studios underwent staff reductions. In February 2023, there were layoffs at Showtime. In May 2023, the company proceeded to eliminate 25% of staff in its domestic cable networks and shutter its longstanding MTV News division after 36 years on air.
The unease among employees follows months of uncertainty about the company’s future, with a drumbeat of press coverage about a range of scenarios. An M&A deal has been on the table since the end of 2023, when National Amusements chief Shari Redstone came to terms with the daunting reality of Paramount’s deteriorating cable TV business and the cash burn of streaming. As Skydance made multiple attempts to secure the company and other suitors circled, she ousted longtime CEO Bob Bakish and installed company veterans Brian Robbins, Chris McCarthy and George Cheeks in the newly christened Office of the CEO.
During a presentation to shareholders in June, Cheeks said the trio would lay out the “broad strokes” of their strategic plan for the company before “sharing greater detail on our Q2 earnings call in August.”
A few notable bidders, among them Barry Diller and Sony Pictures, have abandoned their pursuit as the the “go-shop” period is coming to a close. Even assuming Skydance and its backers — including RedBird Capital and Oracle billionaire Larry Ellison — prevail, with former NBCUniversal CEO Jeff Shell poised to become president of the newly merged entity, there will be plenty of changes in the months to come under the three co-CEOs. Cheeks in June emphasized plans for “streamlining our organization, allowing us to build a leaner, more nimble company that’s better positioned to win.” He also said $500 million in annual cost savings has already been identified, with layoffs a key aspect to achieving them.
After the trio of CEOs were thrust into a more prominent role in June after Redstone abruptly pulled out of a prior version of the Skydance pact, sources told Deadline they would be given time to settle in. That still appears to be true to an extent. The original cost-cutting plan was developed when the previous Skydance deal fell through, and when the current proposal took effect the cutbacks stayed in the forecast.
Paramount’s stock, like those of several media players, has been struggling even after news of the Skydance proposal last month. Shares closed Wednesday at $10.46, leaving them down 28% in 2024 to date. The company’s debt and exposure to linear TV declines have spooked investors, akin to the recent investor retreats from Disney, Warner Bros Discovery, AMC Networks and others.
Gerry Cardinale, founder and managing partner of RedBird, has said the Skydance team plans to give the Paramount CEOs ample latitude to make strategic decisions in the leadup to the deal’s close in mid-2025. When the merger was announced last month, he said RedBird backed it “because we believe that the pro forma company under this leadership team will be the pace car for how these incumbent legacy media businesses will need to be run in the future.”
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Paramount Takes $5.98B Write-Down At Cable Networks Ahead Of Skydance Deal In Latest Big Media Damage From Linear TV
Paramount Global has taken a massive hit to earnings, booking a nearly $6 billion write-down as part of its second-quarter earnings, a day after Warner Bros. Discovery reported an even bigger charge.
Both impairment charges to bring each to bring their carrying value for linear television assets into line with what they’re likely worth now – much less given years of declines and an uncertain future. WBD’s, of $9.12 billion, was trigged by the recent loss of NBA games.
The timing for Paramount is related to getting its book in order ahead of its acquisition by Skydance. The agreement announced last month will move forward as of 11:59 pm ET August 21 if no other better offer emerges. Paramount’s impairment charged widened its operating loss to $5.3 billion from $250 million in the 2023 second quarter. “During the second quarter of 2024, we recorded a goodwill impairment charge for our Cable Networks reporting unit of $5.98 billion,” the earnings release said in a small footnote.
Overall, the quarter was mixed with total revenue down 11% to $6.8 billion, short of Wall Street forecasts. The numbers beat on other metrics. Paramount+ subscribers decreased 2.8 million in the quarter to 68 million, with the company saying it principally reflects the planned exit from a hard bundle agreement in South Korea. Streaming revenue rose 13% year-over-year.
Subscription revenue grew 12%, advertising revenue rose 16%. Paramount+ revenue grew 46%, driven by year-over-year subscriber growth and ARPU expansion.
Paramount+ global ARPU expanded 26% year-over-year. Operating income increased $450 million from a year ago to $26 million, reflecting the revenue growth and lower costs for marketing and content. TV Media revenue decreased 17% to $4.3 billion, primarily driven by fluctuations in the timing of licensing revenues. Advertising revenue fell 11%, reflecting declines in the linear ad market.
Affiliate and subscription revenue dipped 5%, largely due to subscriber declines. Licensing and other revenue plunged 48%, reflecting tough comps from 2023, which included the final season of Jack Ryan and a lower volume of licensing in the secondary market. Operating income decreased 15% to $1 billion.Filmed entertainment fell 18% to $679 million.
Theatrical revenue was down 40% as IF couldn’t match Transformers: Rise of the Beasts the year before. A Quiet Place: Day One opened just before the quarter ended. Revenues from licensing of film library titles fell.
“Our strong performance in Q2 demonstrates that we are delivering on our strategic priorities. We are proud of our results, including significant earnings growth largely driven by our DTC segment. In fact, for the fourth year in a row, Paramount+ is leading the industry in domestic sign-ups driven by our big broad hit TV series and blockbuster films. DTC profit growth for the past four quarters has totaled nearly $900 million and we are on track to reach domestic profitability for Paramount+ in 2025,” said co-CEOs George Cheeks, Chris McCarthy and Brian Robbins. “Looking ahead, we will continue to aggressively execute on our Strategic Plan which focuses on transforming streaming to accelerate profitability, streamlining our organization — including at least $500 million in annualized cost savings — and improving the balance sheet by growing free cash flow and optimizing our asset mix. We are confident that our Plan will drive long-term value by leveraging our broad hit content as we continue to transform Paramount for the future.”
Skydance is estimating even greater cost savings when it takes the helm, in the neighborhood of $2 billion, a number insiders at Paramount do not dispute. With layoffs looming, staffers are uneasy but Wall Street is looking to hear that more efficiency is possible. Deadline reported earlier Thursday that hundreds of workers are projected to be let go starting on August 13. In a presentation to shareholders in June, Cheeks, McCarthy and Robbins promised more details about their restructuring plans during the call.
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Originally published: August 09, 2024.
Additional source: Special thanks to @916786wc.
