Paramount Global Q3 2024 Earnings Report

Paramount Global EPS Results

• Actual EPS: $0.49
• Consensus EPS: $0.24
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $0.30

Paramount Global Revenue Results

• Actual Revenue: $6.73 billion
• Expected Revenue: $6.94 billion
• Beat/Miss: Missed by -$213.65 million
• YoY Revenue Growth: -5.60%

Paramount Global Announcement Details

• Quarter: Q3 2024
• Date: 11/8/2024
• Time: Before Market Opens
• Conference Call Date: Friday, November 8, 2024
• Conference Call Time: 8:30AM ET

Paramount Global (NASDAQ:PARA) is a multinational company that operates in various entertainment industries, including media production, entertainment, streaming technology and content development. The company is headquartered in New York City, New York. The company has multiple classes of stock, with the major difference in its Class B stock being that it is a non-voting stock class. 

Paramount Global was founded in 2019 in a merger between Viacom and CBS Corporation. The company was initially founded under the name ViacomCBS but changed its name the day after the Q4 presentation in 2022. Key highlights of the company include its strong brand recognition, a diverse range of businesses and ability to generate significant cash flow and profits across multiple industries and countries.

Robert M. Bakish became CEO of Paramount Global immediately after the merger of the two original companies, Viacom and CBS. He joined Viacom in 1997 as the Vice President of Planning and Development. Bakish was later transferred to Viacom's subsidiary MTV Networks as the Chief Operating Officer of Advertising and Sales. 

Other notable members of the Paramount Global team include Alex Berkett, the Chief Corporate Development and Strategy Officer, who, like Robert Bakish, came from Viacom and was appointed to his position after the merger. Also notable is George Cheeks, the Chief Content Officer with a development history at over ten significant networks in the television industry.

Over the past few years, Paramount Global has delivered mixed financial performance, with consistent revenue growth, healthy profit margins and a balance sheet consistent with industry peers. The company's profit margins have remained stable over the past few years, with an average net margin of 3.66% since the merger.

Paramount Global has also maintained a strong balance sheet, with total assets adequately more than total liabilities keeping the company's debt levels manageable. Paramount Global is currently trading at a price-to-earnings ratio in line with the industry average.

The company's price-to-book ratio is slightly higher than the industry average. The company's valuation metrics suggest that it is fairly valued relative to its peers in the industry. Paramount Globals' stock performance has been mixed, which is to be expected from a company primarily focusing on the volatile streaming entertainment industry. 

Paramount Global operates in several different entertainment industry sectors, giving it a degree of diversification and resilience against industry-specific risks. However, Paramount Global's primary focus is streaming internet entertainment, an emerging and volatile industry sector.

The media and entertainment industry is one of the company's largest businesses, and it is highly competitive and constantly evolving. Paramount Global's strong brand recognition, extensive content library and deep relationships with distributors and advertisers give it a competitive advantage. In Q2 of 2022, Warren Buffet revealed a $2.6 billion investment in Paramount Global, contributing to its continued growth. 

Paramount Global has several growth opportunities in the years ahead, including new product launches, acquisitions and expansions into new markets and countries. The company is focused on expanding its content library and developing new digital platforms and distribution channels in the media and entertainment space.

The company recently launched a new streaming service called Paramount Plus, which has been well-received by consumers and has the potential to drive significant revenue growth in the years ahead. In the technology space, Paramount Global is focused on investing in emerging technologies such as artificial intelligence and cybersecurity.

While Paramount Global has significant growth opportunities, the company also faces many risks and challenges. One of the company's most significant risks is changing consumer preferences in media and entertainment. As consumers increasingly shift towards streaming services and digital content, Paramount Global must keep its finger on the pulse of consumer trends and expectations.

Paramount Global is subject to rapid technological change and intense competition in the technology space. The company will need to continue investing in research and development and stay ahead of the curve to maintain its competitive advantage.

Paramount Global Q3 2024 Earnings Call Transcript

Key Takeaways

• Streaming momentum: Paramount Plus added 3.5 million subscribers in Q3 to reach 72 million, driving 25% year-over-year revenue growth, while Pluto set a record 5.6 billion viewing hours and D2C posted profitability for the second consecutive quarter, on track for domestic profitability in 2025.
• Cost efficiency: The company is on target to realize $500 million in annual non-content cost savings by year-end, having executed 90% of planned reductions and cutting its U.S. workforce by 15% while still investing in key growth areas.
• Advertising strength: Total advertising revenue grew 2% driven by an 18% jump in D2C ad sales, record political spend, and the return of NFL and college football, with digital ads benefiting from a vast addressable footprint across Paramount Plus, Pluto, and other platforms.
• Content lineup: Hit series like “Mayor of Kingstown,” “Tulsa King,” and “South Park” drove streaming engagement, while theatrical releases such as “A Quiet Place Day 1,” “Transformers One,” and “Smile 2” bolstered box office results, and upcoming titles include “Gladiator 2” and new series from Taylor Sheridan.
• Skydance acquisition progress: Paramount reached key milestones in its $4 billion Skydance deal—concluding the go-shop period, clearing antitrust review, and filing its S-4—targeting closing in the first half of 2025, subject to approvals.

Presentation

[Operator]

Good afternoon. My name is Nadia, and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount Global's Q3 2024 Earnings Conference Call.

[Operator]

At this time, all lines have been muted to prevent any background noise. After the speakers' remarks, there will be a Q and A session. At this time, I would like to turn the call over to Jamie Morris, Paramount Global's EVP, Investor Relations. You may now begin your conference call.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Good morning, everyone. Thank you for taking the time to join us for our Q3 2024 earnings call. Joining me for today's discussion are Paramount's Co CEOs, Brian Robbins, Chris McCarthy and George Cheeks and our CFO, Navin Chopra. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. Before we start this morning, I want to remind you that certain statements made on this call are forward looking statements that involve risks and uncertainties.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

These risks and uncertainties are discussed in more detail in our filings with the SEC. Some of today's financial remarks will focus on adjusted results. Reconciliations of these non GAAP financial measures can be found in our earnings release or in our trending schedules, which contains supplemental information and in each case can be found in the Investor Relations section of our website. Now, I will turn the call over to Chris.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Thank you, Jamie, and good morning, everyone. I'm Chris McCarthy, and I'm joined here by my fellow Co CEOs, George Cheeks and Brian Robbins. Together, we'll share the results of another very strong quarter, demonstrating the progress we're making against our strategic plan. Then Navin will take us through the financials. Okay.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Let's start with some headlines. We are pleased with our very strong performance this quarter fueled by our hit content and our focus on execution. In D2C, we saw Pluto reach record engagement. And on Paramount Plus, we had a 3,500,000 subscribers reinforcing our position as the number 4 global streaming service. Paramount Plus continued its momentum with revenue growth up 25% year over year.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

This quarter marks the 2nd quarter in a row where D2C achieved profitability with adjusted OIBDA improving more than $1,000,000,000 over the past 4 quarters. And we remain on track to reach Paramount Plus domestic profitability in 2025. We also made progress in streamlining our organization as we continue to successfully execute cost reductions that will result in $500,000,000 in annual run rate savings. And at the same time, we have not slowed down on doing what we do best, continue to produce some of the biggest and broadest hit films and television series. In addition, the Skydance transaction achieved a few key milestones, including the conclusion of the go shop period, the expiration of the HSR waiting period, and on November 4, we filed our S-four registration statement with the SEC.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

We continue to expect the deal to close in the first half of twenty twenty five, subject to regulatory approvals and other customer conditions. And now I'll pass it to George to update us on distribution and advertising.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Thanks, Chris. I'll start with distribution. In an evolving landscape, we continue to renew long standing agreements with key partners, including a number of distribution renewals this year. Our track record of getting deals done speaks to the power of our entertainment news and sports content and we'll continue to work with our partners to innovate and deliver for audiences. As an example of that, our Paramount plus ad supported tier is now available to charter customers, enhancing the value we're delivering across linear and streaming.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Now it's early days, but we're pleased with the response so far. Now turning to advertising. Q3 benefited from record political spend as well as the return of NFL and college football. Digital ad growth remains strong, showing notable increase in demand year over year, which reflects our valued position from a price, quality and scale standpoint and will continue to drive growth. The scale of our digital advertising platform spanning Paramount Plus, Pluto as well as other digital properties is one of the largest addressable footprints in the domestic marketplace and it represents nearly half of our national domestic advertising revenue when you exclude sports.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Major brands continue to tap into the power of Paramount. Recently we launched the Summit, a new offering that connects our key ad partners with priority Paramount launches across theatrical, linear and streaming. For our 1st Summit partnership, we brought Pepsi together with Gladiator 2. The campaign launched with the NFL on CBS and included a media blitz across all Paramount Global linear, digital and social platforms. Yet another example of how we're leveraging our creative assets and capabilities to deliver unmatched impact for our biggest advertisers.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

I also want to touch on our ongoing dispute with Nielsen. We remain engaged with them and we're hopeful for a resolution. So far we're encouraged by our partners' willingness to lean into innovation and adopt alternative measurement solutions. Bottom line, our brand and agency partners are the number one priority and we're proving every day that content, scale and value are what matters most to advertisers. And with that, over to Brian for an update on our strategic plan.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

Thanks, George. We are pleased with the progress we have made in advancing our business by transforming D2C and streamlining our organization to reduce costs. Starting with D2C, the segment was profitable again in the quarter. Sports, including the return of the NFL and UEFA, originals like Mayor of Kingstown and Tulsa King, as well as post theatrical releases such as A Quiet Place Day 1 and If, all drove acquisition in the quarter. For Pluto, we're continuing to see a strong performance.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

Year to date, Pluto delivered its highest consumption ever, up 5% to 5,600,000,000 viewing hours. Growth is being driven by increased use of video on demand with more available content, enhanced discoverability and a better user experience. And as we said before, we are evaluating potential partnerships in streaming through a lens of creating value for the business and our shareholders over the long term. And given the complexity, we are being deliberate and thoughtful in our approach and assessment. Moving to streamlining our organization, we have made progress on realizing $500,000,000 in non content cost savings, which will reduce our U.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

S.-based workforce by 15%. To date, we have executed 90% of these reductions and expect to have remaining completed by the end of the year. Our objective has been to unlock operational efficiencies and right size the cost base, while continuing to invest in the growth levers that are the key to the future, including content, streaming and advertising. In addition, we remain diligent as we optimize our asset mix. The sale of our equity interest in Viacom 18 is a great example, which will result in an attractive financial return on our investment.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

We expect the sale to close in Q4. Now let's move to the core of what we do best, making some of the biggest and broadest hit films and TV series. I will pass to Chris to kick us off.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Thanks, Brian. Let's start with Paramount Plus, where this fall we kicked off one of our most ambitious slate to date, seeing the return of our biggest hit series like Mirror Kingstown and Tulsa King, which returned to great fanfare, each quickly soaring into a top 10 streaming original across all SVOD services. And Tulsa King also broke records as the number one global debut in Paramount plus history. Internationally, where we have South Park exclusively for SVOD, it ranks as a top 5 star driver and the number 2 engagement driver. And we're excited to have the South Park series return to Paramount Plus here in the U.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

S. Starting in June of 2025. We're confident this momentum will continue throughout the quarter with the return of Lyoness, which premiered October 27 and is off to a great start, scoring as a top 5 global series premier in Paramount Plus history. Followed by Lammin, a new series from Taylor Sheridan, which will premiere November 17th and stars Billy Bob Thornton, Demi Moore and Jon Hamm. This series has all the makings of a great big hit and promises to do for the oil industry what Yellowstone did for ranching.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Now moving over to our premium tier, this quarter marks the beginning of a new adrenalized showtime slate with cinematic high stake originals and the return of some fan favorites. Starting with the agency, a new global espionage series from executive producer George Clooney starring Michael Fassbender, Richard Gere, Jeffrey Wright and Jody Turner Smith, which will premiere later this month. And that's followed by the return of Showtime's most successful franchise ever, Dexter, with a new origin story titled Dexter Original Sin. And on cable, we also saw some impressive results. The Challenge, the series that created the reality competition genre celebrated its 40th season with the highest share in franchise history, up 60% versus the previous season.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

This was followed by the MTV Video Music Awards, which attracted its biggest audience in 4 years on linear. And on social, it broke records as the number one most social entertainment telecast in television history, besting all entertainment and sports. And on The Daily Show, the return of Jon Stewart continues to pay off, having won our 2nd Primetime Emmy in a row and on Monday nights with Jon at the helm, The Daily Show remains the number one late night show across linear and social. And it's working hard for us on Paramount Plus with engagement up 10x. And John's not going anywhere as we just announced he's extended his stay through 2025.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

And to continue our momentum, this Sunday, one of the most eagerly anticipated shows of the year will return on the Paramount Network in the U. S. And internationally on Paramount Plus where it's been the number one star driver and the number one engagement driver for the full year to date. And now I'll turn it over to George to walk us through CBS Entertainment, Sports and News.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

For CBS, fall means football and the launch of our new prime time schedule. The network is coming off a record setting 2023, 20 24 NFL season as well as the top rated prime time schedule that includes the return of last year's number one show. In the 1st 5 weeks of the season, the NFL on CBS is averaging more than 20,000,000 viewers. That's up 5% from last year. And streaming of the games on Paramount Plus is up over 50% year over year.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

CBS Primetime, which just launched its new season is off to a great start. Tracker is once again the most watched series on TV. Matlock is the number one new show and Georgie and Mandy, a spin off of Young Sheldon is the most watched comedy. And our shows are winning across platforms. Matlock's first episode reached more than 22,000,000 viewers in its 1st 30 days.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Tracker's season 2 premiere delivered over 15,000,000 multi platform viewers in just its 1st 7 days. That's up 25% from its time period premiere last year. Now turning to news, the total minutes watched on our CBS News 20 fourseven streaming network continues to grow, up 56% over 2023 and up 78% versus Q3 last year. We expanded and rebranded the platform with more live programming and the increased presence of key CBS News talent. All of this speaks to the collective power of broadcast and streaming, working together to aggregate more unduplicated viewership, while optimizing the value and efficiency of our content investments.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Our programming strategy remains laser focused on entertainment, news and sports that excel on both CBS and Paramount Plus. Over to you, Brian.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

On the Paramount Pictures front, at the end of the second quarter, A Quiet Place Day 1 opened to nearly 100,000,000 worldwide and set the franchise record for the biggest opening at the global box office. To date, the film has grossed 261,000,000 worldwide. Transformers 1 also debuted as the first animated Transformers film in nearly 4 decades, grossing 127,000,000 at the global box office to date. And most recently, the October release of Smile 2 from homegrown talent Parker Finn saw a record breaking global premier, out earning its predecessors debut weekend. It also makes Smile 2 Paramount's 4th number one opening this year after Mean Girls, Bob Marley 1 Love and If.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

We're confident that the rest of Q4 will build on this momentum, thanks to an impressive roster of upcoming releases, including next up, Ridley Scott's Gladiator 2, one of the most anticipated films of the year with a phenomenal cast, including Paul Muscout and Academy Award winner Denzel Washington. Early tracking and first reactions are generating optimism and excitement for the movie's release and award season prospects. Now rounding out our diverse slate, we're excited to be bringing audiences the journalistic thriller, September 5, which has been on the festival circuit generating awards buzz. Also the 3rd installment of fan favorite, Sonic the Hedgehog, with Jim Carrey and the original cast reprising their roles. And then Better Man, from the director of The Greatest Showman, Michael Gracey and based on the life and music of Robbie Williams.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

And looking ahead to 2025, we have a fantastic robust lineup with something for everyone. That includes an 8th Mission Impossible, the reboot of the Naked Gun franchise starring Liam Neeson, new installments of beloved animated franchises like Smurfs and SpongeBob, which is celebrating its 25th anniversary and Running Man from director Edgar Wright and starring Glenn Powell, to name just a few. Taken together, all of our content reinforces that we have so much to be excited about in this period of evolution and transformation for our business and the industry. It is what continues to create value for our partners, investors and the broader media landscape, both now and well into the future. With that, let me turn it over to Naveen for more detail on our Q3 financials.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

We'll then look forward to taking your questions.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Thank you, Brian. Good morning, everyone. Q3 demonstrated the progress we've made in transforming Paramount for the future. We delivered adjusted OIBDA of $858,000,000 in the quarter, up 20% year over year, reflecting significant improvement in our D2C business, which continues to deliver healthy top line growth and improved operating leverage. As always, you'll find a comprehensive review of financial results in our press release.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

For today's call, I'll focus on a few areas of note, starting with advertising. Total company advertising grew 2%, powered by direct to consumer, which delivered strong growth of 18%, an acceleration versus the 16% growth we saw in Q2. D2C advertising growth was driven by a double digit increase in sold impressions and higher CPMs. And these trends have continued in Q4, where we expect another quarter of double digit B2C advertising growth. In TV Media, advertising revenue declined 2%, an improvement versus last quarter, reflecting the return of football and higher political spend.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Similar to last quarter, international advertising benefited from the recognition of revenue that was underreported by an international sales partner in prior periods. Looking ahead, we expect TV media advertising growth in Q4 to be similar to the reported growth rate in Q3. In Q4 growth, we'll benefit from record political spend, but we'll also have less sports inventory compared to the prior year. Our forecast for Q4 does not assume any additional revenue true ups from 3rd party under reporting. Next, let me turn to affiliate and subscription revenue, which declined 1% in Q3.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Now as a reminder, last year's Q3 included Showtime pay per view events that did not recur this year as we exited Showtime Sports at the end of 2023. This comparison reduced the Q3 growth rate by 2 70 basis points. Absent the impact of Showtime pay per view, affiliate and subscription revenue increased 1% with growth in direct to consumer more than offsetting declines in linear. In the TV Media segment, affiliate revenue declined 6.6% year over year, reflecting ecosystem trends and the Showtime pay per view headwind I just mentioned. D2C subscription revenue grew 6.8% in the quarter, with Paramount Plus subscription revenue up 27% year over year.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Paramount Plus added 3,500,000 subscribers in the quarter, reaching 72,000,000 subscribers overall. Subscriber trends benefited from the expansion of an international hard bundle deal and the return of NFL and college football, new originals and theatrical releases. And in Q4, we expect continued subscriber growth at Paramount Plus, driven by a strong slate of originals and the CBS fall schedule. Unlike Q3, we do not expect to add new hard bundle partnerships in Q4. Global ARPU for Paramount Plus grew 11% in the quarter.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

ARPU growth was tempered by the lapping of last year's price increase and a greater than expected shift in the mix of our subscriber base toward our essential tier and hard bundle subscribers. Additionally, the price change we announced in August of 2024 will take some time to be reflected in ARPU due to the grandfathering of existing Essential Tier subscribers. And these dynamics will continue to influence ARPU growth in Q4. The combination of continued healthy revenue growth and expense discipline in Q3 helped deliver our 2nd consecutive quarter of D2C profitability. In Q4, we expect continued top line growth.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

However, the timing of content marketing spend will result in a quarterly loss for the D2C segment. That said, we like the trajectory of the business over the last few quarters and believe we're well positioned to reach Paramount Plus domestic profitability in 2025. Next, I'll touch on licensing. Licensing and other revenue declined 9% in the quarter, primarily reflecting a lower volume of licensing in the secondary market and lower home entertainment revenues. Now as I've previously noted, licensing revenue can be fairly uneven from quarter to quarter.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

And for the full year 2024, we expect licensing revenue to decline relative to 2023. More than half the year over year decline will come from made for 3rd party productions. And these productions are strategically valuable, but the scale of our business has been impacted by the decision to steer more content to internal platforms. A smaller part of the year over year decline in licensing is related to our 2nd run and library licensing activity, partially reflecting lingering strike impact on the business. Even though we'll benefit from the return of the CBS fall slate in Q4, it will take longer than expected to return to our pre strike level of output.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Turning to the balance sheet. In Q3, we delivered $214,000,000 of free cash flow and reduced leverage to 3.8x. Free cash flow in Q4 will be negative given the timing of content spend and the headwind of approximately $150,000,000 of cash restructuring payments. However, this shouldn't negatively impact leverage as we expect to receive nearly $500,000,000 of proceeds from the Viacom 18 transaction, which is expected to close this quarter. Putting it all together, we remain on track to achieve our key financial goals for 2024.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

That includes significant growth in total company OIBDA enabled by the progress in D2C profitability you've seen over the last few quarters and the execution of cost savings initiatives across the company. Similarly, our expectations for full year free cash flow growth remain unchanged. Overall, I think 2024 will demonstrate meaningful progress in the ongoing transition of Paramount, encompassing streaming growth, enhanced cost efficiency and of course, continued investment in our renowned content portfolio. With that, operator, please open the line for questions.

[Operator]

Thank Our first question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead.

[Benjamin Swinburne, Managing Director at Morgan Stanley]

Good morning.

[Benjamin Swinburne, Managing Director at Morgan Stanley]

Brian, you talked about being deliberate given the complexity around direct to consumer and partnerships. I'm just wondering if you could talk a little bit more now that you guys have been working on it as to sort of what you're solving for, what are the key variables you're looking for, what would lead the company to kind of pull the trigger on either a partnership or a change in how you're kind of working internationally? I think that's been kind of one of your focus areas in streaming. And then, Navin, it's been, I think, almost a year since you talked about domestic streaming profitability next year. Given the progress we've seen this year and the cost action you've taken, how far away are you from overall D2C profitability?

[Benjamin Swinburne, Managing Director at Morgan Stanley]

And any way to kind of update us and dimensionalize sort of the international versus domestic D2C situation as we look at 25 would be helpful? Thank you guys.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Hey Ben, how are you doing? This is Chris. I'll take your first part of your question and then I'll pass to Naveen for the second part of that. First, let me start by saying that we're very proud of the success that we've had with Paramount Plus. This quarter saw revenue growth up 27%.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

It's our 2nd quarter of profitability. And for 2025, we're on track for full year domestic profitability. So we feel good about our position and our ability to remain a standalone. Now that being said, you can absolutely count on us to be opportunistic. We're looking at partnerships from a strategic lens to drive more value And you can be sure that in deciding that, we'll take key factors into consideration, but the ultimate value will be, is this going to drive increased value for our business today, our consumers and our investors.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

But as it stands today, we have our momentum driven by our strategy, execution and are driven by our hit content. And so we feel good about our position as a standalone and we'll continue to look for opportunities. Haben?

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Great. Thanks, Chris. And hey, Ben. With regard to your question on D2C profitability in 2025, as you said, we've made tremendous progress this year. Chris mentioned some of the stats.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

I think it's fair to say that progress has been really multidimensional between subscriber growth, improvements in ARPU, strong digital advertising growth and by the way, some real efficiency improvements on the marketing side of the equation. So I think we're well set up for 2025. And as you heard us say, we do continue to expect the business to get to domestic profitability next year. In terms of how that translates to the segment as a whole, I'd note a few things. 1st, domestic, we do expect to be profitable next year.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Pluto is already a profitable business. And so the real variable is, what the P and L for the Paramount Plus International business looks like. And I've generally described that as tracking somewhere in the sort of 12 to 18 months behind the domestic business, just given the relative maturity and the timing of when we launched internationally versus domestic. And I think that's still the right way to think about the business as a whole. And obviously, we'll keep you updated on progress as we continue to move down that path.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Thanks, Ben. Operator, next question?

[Operator]

The next question goes to Brian Kraft of Deutsche Bank. Brian, please go ahead.

[Bryan Kraft, Analyst at Deutsche Bank]

Thanks. Good morning. I guess, the last answer, Navin, was a good segue to my question, which was you've been making various moves in international markets, but I think you've also been reviewing strategy on a market by market basis. So I wanted to ask if at this point there is a clear path forward yet for Paramount Plus in international markets. And if so, if you could talk about what that looks like and how it's differed from the approach up until now.

[Bryan Kraft, Analyst at Deutsche Bank]

And then, just a housekeeping question, Navin, and sorry if I missed it, but would you be able to quantify for us the impact of the revenue for prior period international ad sales under that partner under reporting? Thank you.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Hey, Brian, how are you doing? This is Chris. Listen, let me start by saying, we think it is very important to globally monetize our content in the widest possible basis and our success today really proves that out. Now we're taking a market to market approach, when we're looking through the lens of how do we drive the most value. In some cases that will be an owned and operated situation where we control.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

In other cases, it will be a hard bundle with a market leader. And in other cases, it may make more sense for us to really go in the licensing model. But you can rest assured, our goal here is to maximize the value for our hit content and look at all opportunities very opportunistically through that lens. And now I'll pass to Naveen for the second half of that.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Yes. Brian, with respect to your question on the size of the underreported revenue in Q3, It is a relatively important factor in the year over year trend for international advertising, similar in magnitude to Q2. Actually, I think a little larger in magnitude in Q3 versus Q2. It's I'd size it in the, call it, plus or minus $50,000,000 range. And importantly, as I said in our prepared remarks, our forecast for next quarter assumes that there is no further true up required due to the under reporting.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Thanks, Brian. Operator, next question please.

[Operator]

The next question goes to Rich Greenfield of LightShed Partners. Rich, please go ahead.

[Richard Greenfield, Partner & Media and Technology Analyst at LightShed Partners]

Hi, thanks for taking the question. I've got a couple. First on Nielsen, I think you've dropped I think it's been now over a month, maybe it's been 5 weeks. I think the last time you had an impasse, it was only like 14 or 15 days. I think there's been a lot of speculation in the market that you've saved or that you're in the run rate savings are 100 of 1,000,000 of dollars on the cost side.

[Richard Greenfield, Partner & Media and Technology Analyst at LightShed Partners]

But on the other side, I want to understand what's happening in terms of not being able to sell advertising against Nielsen data. Have you seen any material impact in Q4 from not having Nielsen data? And I guess related to that, any top advertisers that have left CBS or your cable networks because you can't sell against Nielsen and I think you're using video amp. And then just maybe a housekeeping question for Chris or George, I guess. On the TV media side of the equation, I think everyone's trying to understand sort of the potential of cost cutting longer term.

[Richard Greenfield, Partner & Media and Technology Analyst at LightShed Partners]

Could you just give us a sense in TV Media today, how many employees roughly do you still have in that division after all of the cost cuts that you've done to date? Thanks.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

Hey, Rich, it's George. I'll take this. So starting with Nielsen, I want to level set this really is not about affordability. It's about getting the value we need for what we pay. And I think think it's important to consider all of this in the context of the media industry.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

I mean, as we all know, linear audiences, especially basic cable linear are declining and shifting to streaming. This of course is going to affect how we look at the appropriate spend here. I mean, for example, we wouldn't want the Nielsen fee for certain networks to be greater than the ad revenue those networks actually generate. Now as to your point on impact, we haven't seen any adverse impact on ad revenue to date and we don't expect a material impact in Q4. But I do want to be clear Rich that we do recognize that Nielsen can be a valuable resource.

[George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+ at Paramount Global]

It's just that the economics have to make sense for the business. Now as to your second question, right now the number is about 6,000 plus in domestic and about 3,000 plus in domestic. Now you have to remember that that also makes sports production infrastructure and our 27 local stations, which obviously requires a lot of employees as well. But as Chris mentioned before, we're very focused on the organization.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Is there a second question about TV Media?

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Just answered it.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Oh, I'm sorry. Operator, next question please.

[Operator]

The next question goes to Steven Cahall of Wells Fargo. Steven, please go ahead.

[Steven Cahall, Analyst at Wells Fargo]

Thank you. So another one on streaming, the S corp indicated that one of the parties might have been interested in a combination or even licensing Paramount Plus. And you've done bundles, we've seen a lot of bundles in the industry. I don't think we've actually seen any app integration or streaming integration deals. So I'm wondering how you think about that.

[Steven Cahall, Analyst at Wells Fargo]

One of your peers also has a streaming product that has a lot of sports, has a good film library, seems like very strong customer overlap. So how do you think about the opportunities in streaming to go beyond just bundle deals and into something that's a little bit deeper from a consumer perspective? And then, Navin, just an accounting question. What's the method for allocating content costs like sports and series between DTC and TV media when they air on air on both? You're growing revenue and subscribers so strongly at Paramount Plus and you've given the domestic profitability guidance.

[Steven Cahall, Analyst at Wells Fargo]

So just wondering, if there's a way for us to think about how content expense grows there, since it's shared between the two segments? Thank you.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Hey, Steve, it's Chris. I'll take the first part of that question and then I'll pass to Naveen. As we talked about, we are seeing real momentum at Paramount Plus and across Pluto. We've got great growth, second quarter profitability and on track in 2025. So we feel really good about the position and frankly our ability to remain as a standalone.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

Now you talked about bundles and we've got some great partnerships and great bundles in the way of Walmart and with Delta Airlines. Now these are ones that are very specific that add incremental value to us. They bring new consumers and really enhance the value proposition from a total business perspective for us. Now that being said, you can always count on us to be strategically looking through the lens of creating value. Now part of that exercise is really to be opportunistic about both looking at things from a market to market perspective and from a broader partnership perspective.

[Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks at Paramount Global]

And in doing that, we ask ourselves, is this the right market or is there something better that we can get and something more value? And you can count on us to continue to do that. But as of today, there's no change. We feel great about where we are and we feel really strong about the position moving forward. Naveen?

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Thanks, Chris. Steve, the question regarding how we allocate the cost of content that is shared between our streaming business and our traditional linear businesses, I think there's a couple of important concepts to understand. Number 1, it does differ somewhat based on the type of content, but it's all based on the principle that the allocations of that cost should reflect the relative value of the content windows that each of the platforms has rights to. So what that means is that effectively as more of the viewership moves to streaming, you will see more of the cost being allocated to streaming and moving away from linear. And that's certainly been reflected in the way that we do that allocation for sports, for movies, library and the like.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Thanks, Steve. Operator, next question?

[Operator]

The next question goes to Michael Morris of Guggenheim. Michael, please go ahead.

[Michael Morris, Senior Managing Director at Guggenheim Partners]

Thank you. Good morning and thanks for all the answers. Wanted to ask first about the DTC trends and specifically you said you were pleased with the response so far from charter customers. I'm hoping you can share a little bit more detail on whether the Q3 results reflected the full impact from that charter partnership at both TV and at DTC. And anything you can share about customer activation and any churn from charter subs who are already Paramount plus subs?

[Michael Morris, Senior Managing Director at Guggenheim Partners]

Those types of things, I'd love to hear any additional detail you can share. And then secondly, it was a very strong EBITDA quarter, growing 20% year over year. Kind of begs the question whether we should expect any incremental cost in 4Q to maybe offset the strength that you had in the Q3, whether this outperformance kind of flows through to the full year? Thank you, guys.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Yes. Hey, Mike, it's Navin. I'll take both of those. Starting with the question on 3 third quarter sub growth and specifically the impact of Charter. So just zooming out a little bit, the 3,500,000 subs that we added in the quarter, I'd note that there's contribution from both international and domestic.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

As I noted in prepared remarks, international did have a new hard bundle that we signed. So that was an important contributor. And on the domestic side, we did see some sub growth coming out of the Charter bundle. So I would note that it's still relatively early in terms of time since the launch of that bundle. And I expect the contribution will continue to grow over time.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

That being said, when we look at the 1st few months, if you will, we're actually quite pleased with the results both in terms of the take up from charter subs and the impact on direct sub acquisition. So we continue to like the trends there. Then moving to your second question on 4th quarter and how that is impacted by some of the over performance in the 3rd quarter. Let me give you sort of a big picture answer on that too. If you think about the Q3, the over performance was really driven by the D2C segment, which came in better than we expected.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

As I mentioned earlier, that's multidimensional. But in particular, we saw some real strength in marketing efficiency that we were able to realize in the quarter. I would say that the restructuring work had a relatively modest impact in Q3, just given the timing of when those actions were taken, more of that benefit is going to be realized in Q4. So then if you think about Q4 specifically, there are some moving pieces that are probably worth calling out. First, some of the tailwinds.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

We will see more of that restructuring benefit that I mentioned. There will also be, as you would anticipate, some real strength in political advertising that will benefit Q4. And Q4 tends to be, relative to the 1st 3 quarters of the year, the strongest quarter for advertising generally. And so I think that will benefit us relative to Q3. There

[Naveen Chopra, Executive VP & CFO at Paramount Global]

are a

[Naveen Chopra, Executive VP & CFO at Paramount Global]

couple of headwinds to keep in mind. We will have higher content expenses in Q4 than we did in Q3, just given the timing of sports and some of the streaming originals. And as I mentioned, we do not expect to have any incremental true ups for past period under reporting on those 3rd party advertising partnerships. And then there is some shift of marketing expense from Q3 into Q4. But when you put all of that together, I think the key takeaways for you should be that number 1, the vast majority of the over performance that we saw in Q3, I do expect to flow through to the full year.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

And number 2, I think we're really well set up for 2025, particularly given the progress in B2C, and the significant improvements that we've made in profitability for that part of the business.

[Jaime Morris, Executive Vice President of Investor Relations at Paramount Global]

Thanks, Mike. Operator, we'll take one last question, please.

[Operator]

Thank you. The last question goes to Michael Ng of Goldman Sachs. Michael, please go ahead.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

Hey, good morning. Thank you for squeezing me in. I wanted to just follow-up on the last question around DTC efficiencies. Navin, you talked about the marketing efficiencies. I was wondering if you could just expand on that a little bit in DTC because obviously DTC OpEx was an area of positive surprise.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

And then relatedly, was wondering if any of the programming charges taken earlier in the year had any potential benefit to cost amortization for DTC in the quarter as well? Thank you.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

Yes, sure. Hi, Mike. I'll take both of those. The DTC improvement that we saw, as I mentioned, did benefit from marketing efficiency, but there's kind of a bigger story behind that, which relates to the composition of our subscriber base. We've talked about for some time now the importance of having a diverse subscriber base that spans multiple channels, the direct channel, partner based distribution on platforms like Amazon, Roku, Apple, hard bundles both domestically and internationally, commercial bundles like what we have with Walmart Plus.

[Naveen Chopra, Executive VP & CFO at Paramount Global]

And when you have that sort of go to market approach, there are some real benefits with respect to acquisition costs and churn. And I think we're starting to see those fall into the P and L of the business, which is why I called out the marketing efficiencies that is enabled by the fact that we have these channels where we're able to acquire and keep subscribers very, very efficiently. And that's really flowing through to the bottom line. And then with respect to your second question regarding programming charges, yes, that does obviously have some Amor benefit in future periods. But I think we're really focused on driving the top line growth, continued sub growth, ARPU growth and capturing these improvements in marketing and churn reduction as a way of continuing to drive the business toward profitability.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

Thanks, Navin. This is Brian. And on behalf of my fellow co CEOs, we'd like to thank you all for joining the call today. We had another very strong quarter with continued strength in streaming, improving momentum in advertising and meaningful progress in making the business more efficient, all of which sets us up well for the future. All at the same time, while we've been doing what we do best, which is making some of the biggest and broadest hit TV series and blockbuster films.

[Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family at Paramount Global]

Thanks to our tremendously talented teams and creative partners. We look forward to updating you all on our progress again soon. Thank you and have a great day.

[Operator]

Thank you. This now concludes today's call. Thank you for joining. You may now disconnect your lines.

Participants

Executives

• Jaime Morris, Executive Vice President of Investor Relations
• Chris McCarthy, President and CEO of Showtime/MTV Entertainment Studios & Paramount Media Networks
• George Cheeks, President, CEO of CBS Entertainment Group & Chief Content Officer of News & Sports, Paramount+
• Brian Robbins, President and CEO of Paramount Pict. & Nickelodeon and Chief Content Off. of Movies, Kids & Family
• Naveen Chopra, Executive VP & CFO

Analysts

• Benjamin Swinburne, Managing Director at Morgan Stanley
• Bryan Kraft, Analyst at Deutsche Bank
• Richard Greenfield, Partner & Media and Technology Analyst at LightShed Partners
• Steven Cahall, Analyst at Wells Fargo
• Michael Morris, Senior Managing Director at Guggenheim Partners
• Michael Ng, Managing Director - Global Investment Research at Goldman Sachs