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We’re Cutting $500 Million In Costs After Profit Drop

We’re Cutting $500 Million In Costs After Profit Drop

The M&A “noise” surrounding Paramount Global following the end to sales talks with David Ellison’s Skydance Media won’t dissipate any time soon, but the company must address profit declines and focus on a plan that can set up the entertainment giant for success. Also: Bankers have been hired to sell off unspecified assets in order to help pay down debt.

That was management’s message in a company town hall meeting in Los Angeles on Tuesday. The three co-CEOs, Brian Robbins, president and CEO of Paramount Studios, Chris McCarthy, president and CEO of Showtime/MTV Entertainment Pictures, and George Cheeks, president and CEO of CBS, all spoke to around 500 employees at the Paramount Theatre on the company’s studio lot, with more understood to have been put onto a waiting list.

“Before we begin today’s presentation, we’d like to take a moment to acknowledge the challenges of all the M&A speculation surrounding our company,” Robbins told the audience. “We know what a difficult and disruptive period it has been. And while we cannot say that the noise will disappear, we are here today to lay out a go-forward plan that can set us up for success no matter what path the company chooses to go down.”

Meanwhile, McCarthy called out that Paramount’s revenue has grown by 13 percent between 2018 and 2023, while its operating income before depreciation and amortization (OIBDA) has declined 61 percent over the same period. “Let me be clear: a 61 percent decline in profits is simply unacceptable,” he emphasized. “We need to act now to reverse this trend.”

The triumvirate’s plan to do so consists of three strategic pillars, the co-CEOs reiterated. First, is transforming Paramount’s streaming strategy to accelerate profits, so they can begin to make up for linear declines. McCarthy argued that there has been progress since the company’s annual shareholder meeting on June 4. In its latest quarter, the company reached 71 million Paramount+ subscribers, up from 67.5 million in the prior quarter, with streaming losses totaling $286 million.

In international markets, “we are advancing talks with potential partners that will significantly transform the scale and economics of the service making it profitable and driving long-term value,” McCarthy said. “This approach could also serve as a model for the U.S.” The executive didn’t share more details of what kind of partnerships or other deals this could involve, but Paramount and Comcast/NBCUniversal have the SkyShowtime streaming joint venture in Europe.

The second strategy is optimizing the company’s asset mix. Progress on that front was described by Cheeks this way: “We’re looking at selling certain Paramount-owned assets – in fact we’ve already hired bankers to assist us in this process – and we’ll use the proceeds to help pay down debt and strengthen our balance sheet.”

That could include negotiations to sell BET Networks or other linear TV assets (the company owns brands like MTV, Nickelodeon and Comedy Central). Paramount has been executing a plan to “slim down to scale up” in streaming for several years now. The company sold publisher Simon & Schuster to private equity firm KKR for $1.62 billion last year, and previously sold CBS’ New York BlackRock headquarters building for $760 million and CBS’ Studio City lot for $1.85 billion in 2021.

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Third is modernizing the organization “so we can move faster — and be more nimble” via $500 million in annualized cost savings by eliminating duplicative functions and being more efficient with resources.
Management said it has already begun to transform the cost base of the company with work “well underway across corporate functions” like legal and corporate marketing.

In preparation for a potential deal, Paramount parted ways on April 29 with CEO Bob Bakish, who had run the company since it recombined Viacom and CBS in December 2019. Shari Redstone, the controlling stakeholder of Paramount and ultimate decider of its future, was not a speaker on the Tuesday town hall with staff.

Year to date, Paramount Global stock is trading down 29 percent.

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