Netflix-Peak Fears Cast Shade on Paramount

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Strong growth in subscribers comes as market has grown skeptical of the streaming industry

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But the comparison that still haunts the crowd is Netflix,

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which surprised investors last month by reporting a decline of 200,000 paid subscribers in the quarter—its first such loss in more than a decade. It also projected an even bigger drop of 2 million subscribers during the current quarter.
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The prospect that the streaming pioneer has now hit a ceiling didn’t sit well with investors who had been valueing media companies purely on the basis of subscriber growth. Netflix has shed more than 40% of its market value since, while Walt Disney,

Paramount and Warner Bros. Discovery,

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the new owner of HBO Max, have seen their shares fall by an average of 17% over the same period. Paramount shares slipped an additional 1% by Tuesday afternoon following its announcement.
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Paramount’s strong subscriber growth was a good sign of demand for a streaming service that was a relative latecomer to the market with its rebranding and launch last year. But the report also highlighted the challenging economics of streaming—especially for media companies in the early phase of investing in original content for their services.

Paramount’s direct-to-consumer segment that contains the streaming business showed an operating loss of $456 million for the quarter despite revenue surging 82% year over year to nearly $1.1 billion. Free cash flow for the company overall was $243 million during the quarter, compared with nearly $1.6 billion in the same period last year. The company is sticking to its previously stated goal of reaching 100 million streaming subscribers by 2024 with losses for that business peaking the year before.

The company’s willingness to stick to those goals might ultimately depend on whether investors’ newfound skepticism about the streaming market lasts. Paramount does have the benefit of having included advertising into its streaming offerings from the beginning—ahead of larger peers Netflix and Disney. Advertising made up about 37% of Paramount’s direct-to-consumer revenue over the last four quarters. And the company’s theatrical business has had a good run of late, with titles like “Sonic the Hedgehog 2” and “The Lost City” giving Paramount a 21% share of this year’s domestic box-office, compared with the 6% share it averaged in the five years before the pandemic, according to the box-office tracking site The Numbers.

That business will get a strong boost this quarter with the release of “Top Gun: Maverick” later this month. Analysts expect the likely blockbuster to drive Paramount’s theatrical revenue to $225 million in the second quarter—almost equal to what that segment generated all of last year. Paramount Chief Financial Officer Naveen Chopra said Tuesday that the company will be giving Top Gun a longer theatrical run than the 45-day window it is now using for most theatrical films before adding them to its streaming platform. With media investors now more focused on the bottom line, they had better hope Tom Cruise hasn’t lost his touch.

Write to Dan Gallagher at [email protected]


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