Paramount+ adds 10M subscribers but parent's market capitalization drops

Paramount Global’s Q4 results came in last Wednesday, confirming a decline in sales for the second year in a row. 2024 was marked by an existential crisis for the corporation, coming in fourth among the American studios. Its shares have been sliding continuously since the pandemic, placing the market capitalization below $8B across the last year, half its value before 2022. Despite owning the top-rated TV channel and the 2023 fastest-growing SVOD platform in the US, consensus around Paramount remains gloomy. The Skydance merger discussions, and David Elison’s pledge to “transition” the business to the digital world, did not suffice to turn that around. But what threatens specifically Paramount’s future, and are there solid reasons for such pessimism? Affiliate & Subscription: SVOD brings temporary boost Paramount has been emphasizing the growth of revenues from paid services, summing up legacy pay-TV and direct-to-consumer to hint at a successful outcome to cord-cutting. However, the company enjoyed a moderate impact from the decline in TV distributors’ affiliate fees so far. Whereas US cable TV revenues dropped by more than 15% in the last five years, on Paramount’s end, worldwide reported affiliate fees shrunk by only 3.1% (- $246M). With these partnerships still accounting for half of its paid revenues, the delayed effect could hit the corporation abruptly in the coming years. On the other hand, direct-to-consumer sales have been adding up quicker, exceeding 5.5bn$ in 2023, but seem to reach maturity just as quickly. 2024 resulted in tipping off SVOD revenue growth, in repercussion of the stagnant domestic market. International expansion has, however, been driving actual growth in subscription revenues. While affiliate fees remained short and declining overseas, OTT was already generating close to twice the value of pay-TV businesses as soon as 2023. International markets remain marginal to Paramount’s business, less than 15% of the subscription top-line, but they stand 9 points above their 2021 level. To sustain this development, the SkyShowtime joint venture will have to demonstrate its relevance in the more challenging OTT markets it was launched in, notably Central and Eastern Europe, Spain, and Portugal, as most subscribers so far were brought by the Nordics.  Advertising: leading but challenged assets Advertising accounts for a third of the company’s turnover, down from 41% five years ago, and largely provided by CBS. Paramount retains positive momentum in its domestic market, gaining the top position in 2023 before Comcast. The company also owns a slate of free-to-air channels worldwide but, as summarized above, those hold much more disputed positions. This could undermine Paramount’s ability to take advantage of a shrinking TV advertising market in the future. Content licensing: a secondary business that might get to the forefront Theatrical being highly fluctuating, content...