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 to hear about potential deals that could help the company. company to better compete with streaming giants like Netflix and Disney. .

The bankers, from Goldman Sachs and LionTree, came up with numerous deal ideas, according to four people familiar with 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 owned by Comcast, the cable giant that owns NBCUniversal and the service. streaming Peacock. The two companies already have a streaming joint venture in Europe.

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

That is, Paramount – with its collection of streaming services, including Pluto TV and Showtime in addition to Paramount+ – would continue to go it alone.

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

Not essential. Since the company was created from the merger of Viacom and CBS three years ago, it hasn’t been looking for another big deal. Instead, the company tried to create its own profitable streaming business before the cash flow from traditional television, always its big source of income, ran out.

In interviews, Ms. Redstone and Mr. Bakish said that Paramount, with its global footprint, streaming business and the film studio behind the new blockbuster film “Top Gun: Maverick”, would be successful on its own terms.

“In many ways, we continue to be the underdogs, and that’s okay,” Bakish said. “But I think over time people will continue to see more and more that Paramount is powerful.”

Ms. Redstone and Mr. Bakish have yet to convince 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 declined significantly. On the day the merger was announced in August 2019, Wall Street valued the two companies at $29.6 billion. Today, Paramount is worth $22.1 billion, down 25%. Share prices of Paramount’s competitors, including Disney and Netflix, also fell over the same period.

Rich Greenfield, co-founder and analyst at research firm LightShed Partners, is skeptical of Paramount’s ability to survive on its own. Paramount’s streaming business is growing rapidly, but it’s still not profitable, Greenfield said. And much of Paramount’s signature content audience — think MTV and Nickelodeon — has shifted to new media platforms like TikTok and Instagram.

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

In recent weeks, Wall Street has placed more emphasis on the profitability of streaming companies. Netflix said in April it lost streaming subscribers in the first quarter of the year, reversing a decade of growth and sending its stock plummeting. Mr Bakish said competitors like Netflix – which he cheekily calls “legacy streamers” – only now understand the importance of the revenue strategies Paramount has adopted for years, including advertising.

The box office, another traditional business largely avoided by Netflix, is another example, Bakish said. ‘Top Gun: Maverick’ is on track to generate $150 million in ticket sales in its opening weekend, but, with the exception of most films produced by the studio, it will not appear on Paramount+ in the typical 45-day window.

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

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

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

Ms Redstone said Berkshire Hathaway’s investment in Paramount took her by surprise. She learned the news a few hours after it became public.

“I was out for dinner and the person was like, ‘What do you think of Buffet’s investment? ‘” Ms. 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 battle with then-CBS chief executive Les Moonves to retain control of the entertainment assets her family had owned for decades. . Like her father, the shrewd and belligerent lawyer-turned-mogul Sumner Redstone, Mrs. Redstone controls Paramount through National Amusements, a holding company she heads that owns voting stock in the company.

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

“As I told my dad once, I said, ‘Everything I am is because of you, except for the beautiful parts – which come from my mother,'” she said. stated with a laugh.

Ms. Redstone said she weighed in on Paramount management in one-on-one conversations with Mr. Bakish and spent 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 by linking Mr. Bakish to Miky Lee, the vice-president. president of the company’s parent company.

Ms Redstone was an early backer of Paramount’s decision to directly compete 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.

In the aftermath of the merger, company executives debated whether to invest in its existing subscription streaming service — then known as CBS All Access — or forego streaming for a “merchant” strategy. weapons”: sell movies and TV shows to other streaming companies. , according to three people familiar with the discussions.

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

A few months later, with encouragement from Ms. Redstone and Marc Debevoise, then digital chief of the company that had co-founded CBS All Access, Paramount decided to spend money on original movies and TV shows for the service. , thus entering the streaming fray. , people said.

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

In July of that year, the company was finalizing its current course. During a board meeting, company executives summarized the strategy, along with several possible names for the 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, major Paramount movies — except for select hits, like “Top Gun: Maverick” — release on Paramount+ within 45 days of their theatrical release. The idea behind this approach is that it gives Paramount a foothold in the emerging era of streaming and one planted firmly in traditional old Hollywood money-making methods.

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

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

“I think the market keeps saying, ‘Show me, show me,'” Ms Redstone said. “And I really believe that we continue to show them.”

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