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Paramount says streaming losses peaked in 2022 as linear ad revenue plunges

Paramount Global (PARA) reported fourth quarter results on Wednesday that came in mixed as the company revealed full-year streaming losses peaked in 2022 while linear TV revenue continued to plummet.

Paramount, like other media companies, has struggled amid a tough ad environment. Big Tech companies have seen their businesses rebound while smaller players have not.

Linear ad revenue slumped 15% year over year in the quarter, steeper than the 12% drop expected by analysts and also worse than the 14% year-over-year slump seen in the third quarter.

The company said the drop reflects continued softness in the global advertising market and a 5-percentage-point impact from lower political advertising. Advertising revenue in the quarter was also impacted by the Hollywood strikes.

In one bright spot, Paramount reported a Q4 direct-to-consumer (DTC) loss of $490 million, narrower than analyst expectations of $534 million and the $575 million loss seen in the year-earlier period. The company reported a $238 million loss in the third quarter.

"We now expect to reach domestic Paramount+ profitability in 2025," Paramount CEO Bob Bakish said in the earnings release.

Full-year direct-to-consumer losses in 2023 came in at $1.66 billion, ahead of the $1.8 billion streaming loss the company reported for full-year 2022 — on par with company expectations.

Direct-to-consumer advertising revenue increased 14% year over year to $526 million.

"Our disciplined execution and strong content offering drove our results in 2023, as we continue to evolve our business for profitable growth in 2024 and beyond," Bakish added. "Looking ahead, we continue to be focused on maximizing the return on our content investments and scaling streaming, while transforming the cost base of our business."

Paramount shares traded mostly flat in after-hours trading following the results.

Paramount posted revenue of $7.64 billion — a 6% year-over-year decrease, and a miss compared to Bloomberg consensus estimates of $7.89 billion.

Adjusted earnings per share, however, beat expectations of $0.00 to come in at $0.04 — a 50% decrease from the year-ago period.

Paramount+ added 4.1 million subscribers in the quarter, beating expectations of a 3.8 million increase. In total, Paramount+ has reached 67.5 million subscribers.

Subscription revenue also grew 43% in the quarter to reach $1.34 billion, driven by subscriber growth and pricing increases for Paramount+. Overall direct-to-consumer revenue totaled $1.87 billion in the quarter, compared to the expected $1.84 billion.

Free cash flow once again came in strong due to low content spend amid the since-concluded actors and writers strikes.

The metric beat expectations of $419 million to hit $443 million, a significant improvement compared to a $491 million loss seen in the year-earlier period. Free cash flow turned positive for the first time since Q2 2022 in the company's third quarter results.

On the film side of the business, total revenues decreased 31% year over year, primarily due to lower licensing revenue and tough comparisons after the digital releases of films like "Top Gun: Maverick" and "Halloween Ends" in 2022.

Paramount's M&A rumor mill

Paramount Global CEO Bob M. Bakish attend the world premiere of
Paramount Global CEO Bob M. Bakish attends the world premiere of "Mean Girls" at AMC Lincoln Square on Monday, Jan. 8, 2024, in New York. (Evan Agostini/Invision/AP) (Evan Agostini/Invision/AP)

Paramount has long been viewed as a potential acquisition target as M&A rumors surround the media giant and its holding company, National Amusements.

Most recently, media mogul Byron Allen reportedly offered $14.3 billion to buy all of the company's outstanding shares.

Outside of Byron Allen, production studio Skydance Media and investment firm RedBird Capital have also expressed interest in a deal. Private equity firm Apollo Global Management and competitor Warner Bros. Discovery (WBD) have also been rumored as potential buyers. (Disclosure: Apollo Global Management is the parent company of Yahoo Finance.)

On Tuesday, CNBC reported Warner Bros. Discovery is no longer pursuing a merger with Paramount while Skydance is still in its due diligence period. Comcast (CMCSA) is not interested in purchasing Paramount assets but would consider commercial partnerships, the report added.

Bakish recently told Yahoo Finance's Brian Sozzi that the company is open to dealmaking.

"In parallel, we are always looking at alternate ways of creating shareholder value, including potentially through transactions," the executive said. "We will have to see if anything happens in that regard."

In the meantime, Paramount has committed to various cost-efficiency plans as it works to combat declining TV revenues and a lack of streaming profitability.

Earlier this month, the company laid off about 800 employees, or roughly 3% of its workforce. In an internal memo, Bakish reiterated previous rhetoric that layoffs were necessary to return the company to earnings growth this year.

In 2023, the media giant raised the prices of its streaming tiers following the Paramount+ with Showtime integration, in addition to committing to various business restructurings and a surprise dividend cut.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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