Paramount Global (NASDAQ:PARA) UBS 50th Annual Global TMT Conference December 6, 2022 10:50 AM ET
Company Participants
Bob Bakish – Chief Executive Officer
Conference Call Participants
John Hodulik – UBS
John Hodulik
Take your seats. We’ll get started. So, I’m John Hodulik, I’m the Media and Telecom analyst here at UBS, and very pleased to have with me today Bob Bakish, the CEO of Paramount.
Bob, thanks for being here.
Bob Bakish
Great to be here, John.
Question-and-Answer Session
Q – John Hodulik
So, we’ve got about 40 minutes. I’ve got a bunch of questions. If anybody has any questions, they can log into the app, and I’ll work them into the conversation that I’ve got here.
So, Bob, we always started this late in the year. Can you just give us a sense for what the priorities are for the company as we look out into ’23?
Bob Bakish
Yes, sure. So, look, we’re really excited about the company overall, and what we have going on. If we think about 2023, and you look at what we do, it really all starts, and I could argue, ends with content. So, we obviously have continuing to make broadly popular content as a significant priority. The good news is ’22, as we — [throughout] [Ph] the year, where we demonstrated the power of our content engine in film, in television, and streaming. And we look to very much continue that in ’23. If there’s any difference, it’s probably that you’ll see us lean even more into franchises, so that’s priority one.
Priority two, obviously streaming, we’re building a [scaled] [Ph] asset in the most important, really the network of the 21st Century. We look to continue to build on our momentum. Paramount+ had an extraordinary year in ’22, and we look to continue that in ’23. And first, it’s not only about the top line and subscribers; we’ve always built this with an eye of building a real business and profitability in mind. And we look to continue to make headway on that in ’23.
Third objective really is our earnings and cash flow. We obviously have — continue to have a significant position in the traditional ecosystem. And we look to continue to take share, which we’ve been doing in ’22, look at optimizing our investment levels, both through organic [visions] [Ph] and some transformation work we’re doing, which I’m sure we’ll touch on. And really extract significant earnings and cash flow from that. So, those are our three objectives broadly speaking. We’re obviously doing it in, not a perfect environment, but we’re also really going to use that as a catalyst to go further faster, which you’ll also see in ’23.
John Hodulik
Great. Maybe starting off with the ad market, we started off the conference with the ad panel, where they lowered some numbers a little bit and followed that up with [indiscernible] you talked about some incremental weakness as we look in from the fourth quarter to the third quarter. Just, can you give us a sense in terms of what you’re seeing in the ad market, the overall health of it? And maybe what are some of the sort of macro drivers that you’re seeing affect your business and from an advertising —
Bob Bakish
Yes, sure. So, look let met start with, we love the ad business, and it’s an extraordinary business. It’s a way to obviously create significant incremental monetization around your investments. But that said, the current market is challenging. And we’re in it every day, and we see it. And that challenge is both on the linear side and on the digital side. Again, no surprise, it’s probably when you heard, yesterday; I didn’t actually look at Jeff’s remarks, but given that in our third quarter call, we talked about our fourth quarter performance being in line with the third quarter. And again, as we’ve transacted in the market, as we’ve seen the state of the scatter market, as we look the our international networks, which are impacted by the economy but also by what’s going on in the FX, on the exchange rate side, we do now see the fourth quarter coming in a bit below the third quarter.
And as we had navigated leading into this point, we had looked for some improvement in certain sectors. We haven’t seen that. But nonetheless, again, I go back to the main point, we love the ad business; point one. Point two is, while challenging, advertising is cyclical. I’ve managed through a number of these cycles, as recently as through the beginning of the decade. This too is a cycle. This too will turn. The only question is when. And not being an economist, I can’t tell you exactly when, but I know for sure it will turn. And when it does, you really see the power of the portfolio of assets that we have, with the number one broadcast network in the United States, which is gaining share, the number one fast service in the United States, Pluto TV, which continues to do extremely well on the MAU and engagement side.
We’ve got a cable network portfolio at scale which leads serving many specialized audiences. And of course, Paramount+, which, from day one, had an ad-supported tier, which is a material part of this service and provides access to very high-quality reach for advertisers. So, that set of platforms, all wrapped around popular content that advertises, and our agencies want to be associated with, combined with the fact that we have team that executes very well. In fact, and we’ll talk about, some of the org changes. One change we are in the process of making is actually making us even easier to do business, particularly for the holding companies where we’re going to have single points of contact versus multiple people they’re dealing with. And a track record of delivering for folks. So, you have seen the value of that in spades as we come out of this cycle. And again, we continue to be very excited about the ad business.
John Hodulik
So, yes, let’s talk about the cost savings that you referenced. And there’s been a fair amount of press around some of the changes you guys have made. I mean, could you just walk us through what you’re doing in terms of these changes, and how much cost savings are — you don’t have the give us exact numbers, but maybe in terms of orders of magnitude, how much cost saving — because this has been a multiyear process for you guys, but just how much cost saving is sort of left in the business to respond to the weakness you guys are seeing?
Bob Bakish
Yes, sure. So, we both focus on the top line and also on the expense lines. And when we brought the companies together, Viacom and CBS, we very quickly got to work at creating one company, and unlocking certain economic benefits; single ad sales teams, single affiliate team, and then put in place single streaming team, et cetera, and that all yielded both strategic benefits and economic benefits. As we sit here today, we are embarking on a set of initiative which we were planning on doing anyway because they’re strategic, but we are definitely accelerating and using, really, the current market as a catalyst. That includes, and I’m sure read some about this, we’re doing a set a work around Showtime, both on the network side and the streaming side, which is really about consolidation economics, if you will, and unlocking cost synergies with the broader portfolio.
We’re doing a bunch of work on the studio side, which isn’t about changing the creative-facing capabilities of the studio, but it’s very much about creating support scale and associated economics. We’re doing work around the marketing side. The fact of the matter is, and I’m just talking about ad sales, we have an incredible portfolio of owned and operated assets that people pay very good money to leverage to reach audiences. We’re going to lean into that even more. We think there are some efficiencies there. And in general, we’re just going to look at marketing expense and unlock some opportunity.
International; we run a truly, well I’ll say, globe-spanning company. We have operations on the ground in 30-plus markets. We’re taking the next step in really globalizing certain aspects of that. We got a portfolio of free-to-air networks, we got a portfolio of cable network, got — we’re obviously going to market in streaming. We’re going to unlock some global benefit while continuing to, of course, have the benefit of on-the-ground execution, so we think there’s some economies there. And lastly, ad sales, I referenced it, but we are, when we created one ad sales organization representing the company, it still had, I don’t want to call it silos, but we’ll leverage a line of business representation. We’re now taking the next step and streamlining it to single point of contact and leadership by a holding company. And that’s something that’s been embraced by the agencies, they’re very happy about it, and so again, both economic and strategic benefit. So, you’ll see us executing. We’re in the middle of executing on all of that. And in — it creates both economic, i.e., expense benefit, but also continues to strengthen our positioning for the future really as one Paramount transacting with important counterparties all around the world.
John Hodulik
Great. So, I think we can dive in some of the segment. We’ll start with D2C. And Paramount has definitely seen some strong subscriber growth. Of the companies we cover, I think it’s the best. I think if we look at fourth quarter, I think our numbers have you as with the most growth. I guess the question is sort of what’s driving the growth in the D2C segment? And how has that trend continued into the fourth quarter?
Bob Bakish
Yes, sure. We are happy to talk about the momentum we are seeing in the streaming business. We obviously set out to build a scaling asset, I don’t know, 18 months ago in this sector. And I think at the time people questioned our relative allover success. If you look at ’22, Paramount+ has had an incredible run. In fact, if you look at just November for the most recent data, for November we set our records on net subscriber additions on active users and on total hours of content consumed globally.
And we didn’t just set the record; we beat the prior record by double digits on all those metrics. And strong double digits on one of that. So, really happy with the momentum we are seeing. We look under covers what’s driving that momentum starts with content, whether it’s the CBS fall slate whether it’s the NFL, Paramount Movies, most recently Smile, Signatures Originals, currently we were talking about Tulsa King, New Criminal Minds is also performing very well. And we are seeing a very strong content slate which has resonating with consumers. But it’s not just the content, it’s also how we are connecting it including through marketing and distribution. We are seeing the impact, for example, of our new deal with Walmart, Walmart Plus that started in Q3, but continues to ramp.
We are very happy with what we are seeing there. It’s performing materially above the initial business plan which I thought was a low call. But, it’s definitely working for us and stuff we are doing around the world. We launched Paramount+ in December in France. I guess it was last week, I got a note from the CEO over the weekend. They were very happy to see how that’s performing. And we are going to launch in Germany on Thursday, Austria and Switzerland. So, all this is driving really strong Paramount+ performance. I said we set a record in November by a material amount, and we now look at the fourth quarter as the biggest quarter in Paramount+ history. We feel very good about it. And we are really proving that this is a cornerstone service for the world consumers, and we are going to continue to keep driving it forward.
John Hodulik
So, when does Top Gun drop? I mean you had a record quarter in November. Isn’t that in the next couple of weeks?
Bob Bakish
So, the next two things to drop in addition to the more episode of what we got going on is connecting is 1923 with Harrison Ford and Helen Mirren. And if you haven’t seen the trailer, I would encourage you to. I think that’s December 18, trailer is up now. And the big upside surprise for me was Helen Mirren. I mean I thought the Harrison Ford thing would work, but Helen Mirren is badass like she is great. And that one is really going to work. And then there is Top Gun: Maverick which anywhere it shows up, it crushes. And it’s going to show up on the platform on December 22 as a gift kind of for the holidays and families et cetera. So, we feel very good about how we are going to finish off this quarter. And by the way, ’23 looks great too.
John Hodulik
All right. You just keep going, okay. And little bit around the profitability of the business. First, churn, that’s something that I think investors worry about when they look at the sort of long-term — the value the customers and overall — how has that been trending?
Bob Bakish
So, happy to say that we continue to see a great churn trajectory. We are seeing improved churn both quarter-on-quarter and year-on-year, really a couple of things driving that; one being the content slate. We have compelling content. And importantly, when we first launched it was very lumpy. Not surprisingly. You are getting a service up of the ground. And now, we are getting a much better year around approach to content and that clearly helps too is you have the benefit of a growing sub base.
And importantly, larger part of the sub base has been around for awhile. And if you look at cohorts of subscribers by age or tenure, you will find that if they stick around for a couple of months, then they really don’t churn. And so, we are seeing that kind of flow-through benefit. And then there is way we going to business with partners. And again, whether it’s the Walmart Plus thing or what we are doing internationally with Sky and CANAL+ on the hard bundle side, they also as those sub bases feather in, they have very compelling churn characteristics, i.e., very low churn because they are really part of a tier. So, we likely see on churn, we are not all the way there yet. We see a lot opportunity ahead, but it’s tracking great.
John Hodulik
How do you balance streaming profitability with subscriber growth? You are doing very well in the subscriber growth. Are you still sort of set up to have peak losses next year? And then, how do you see that evolving beyond that?
Bob Bakish
So, in reverse order, yes, we had for long time — not long time for a while said ’23 will be peak streaming investment. Therefore, loses. And we continue to feel that’s the case. At the same time, we will build a streaming business plan for only the top line and subscribers. We knew from day one that we need to turn this into a business. And we have focused on creating a business with TV media like margins. We believe that our multi-platform asset portfolio is a real advantage here.
You think about using content across linear platforms and streaming that create cost advantages. You think about marketing and leveraging platforms that creates cost advantage. If you think about films releasing them theatrically and then falling like fast follow 45 data streaming that really optimizes our ally in the film business. So, we are building model, which is designed with profitability in mind and is moving in that direction. We are building it out over couple of years. We have Paramount+ running for 18 months unlike some people who have run it for over a decade. So, it takes little while. But we are very focused on streaming profitability and building a financially compelling business here and we are very much tracking in that direction.
John Hodulik
What do you see is the sort of main drivers for getting the profitability in line with TV margins you guys have seen in the past? I mean I think that was the longer term focus. I mean are there specific drivers like — how do you — pricing [technical difficulty] role in this?
Bob Bakish
Oh, sure. The good news is there really are multiple levers on the past profitability. And again, they are built partially off on a multi-platform model. But they are also built on how we are going to market. If you think about it, we are building a scale asset. So, obviously subscribers matter to building profitability. Things like global amortization of your content are tied to having a broad footprint.
So, subscribers, one, ARPU and subscriber price increases as the second one. There is no question that streaming continues to present an enormous and extraordinary value for consumers and is also no question that we are nowhere near the top of the pricing that. We’re very much value priced; Paramount+ at $9.99 for premium, and $4.99 Essentials, which is the ad-supported tier; really great value to consumer. We will move the price up, no question about it, and you got to build that into your models.
Point three is ad market. Okay, the ad market is little challenged at the moment, but certainly on multi-year basis, it is a very powerful financial driver. We included advertising in Paramount+ for two reasons initially. One being we wanted to get the widest possible TAM. So, we wanted to provide that lower cost option. And two is it is significant incremental money. And so as this cycle plays out, you will see that kick in once again. Last one which is on the revenue side which is tangentially related to it is licensing. We haven’t ping-ponged on this. We certainly are pointing our major franchises including new, original versions of it as exemplified by, say, Criminal Minds this month at our streaming owned [technical difficulty] assets. But at the same time, if you think about library product and kind of like see it — I don’t know, N minus 3, [technical difficulty] that’s our incremental revenue [technical difficulty] model. Then go to the cost side of the equation. We learn more about content performance on our streaming assets everyday and the content portfolio is growing in size. That’s provides inherent opportunity to continue to optimize that expense. In close link to that is marking, as I said, again we were learning about what works there. As the service gets bigger, marketing inherently gets more efficient. And again, we’re continuing to create new ways to lean into our owned and operated portfolio to market Paramount+, if you watch CBS as an example, you will see in the end cards, everything says on CBS on Paramount+, that is something that we are advantaged and doing. Also related to that is the churn benefit, we call that expense or revenue, but clear that coming down is additive to the path for profitability.
And finally, distribution and expansion working with partners, you look at the financial expression of the deal we’re doing with Sky, it has ARPU benefits, it has churn benefits, and it has marketing benefits, because they’re marketing it. And so that model of hard bundles, which I would argue we pioneered, and we continue to lean into also has benefits and more broadly. And as recently we had some conversation about this, we never went out there saying we got to be owned and operated 100% all around the world, we believe in the power partnership, including the potential for JV partnership, look at Sky Showtime. That was an opportunity that we are now operating, where we could plug our entire content amortization into it, but do it in partnership with someone. So, effectively, we split the cost of entering the markets and operating in the market. So, that too creates a superior inflow for path to profitability. And some people have recently pulled back on some of their markets. We look at and say there’s extraordinary expansion opportunity. But again, we don’t have to do it alone. And then that’s, that can be more capital friendly. So, as we look to ’23 and beyond, don’t be surprised if you see us doing that more, and it’s all accretive to the financial model.
John Hodulik
Quick follow-up, what are the triggers for a price increase? It would seem now you’ve got so much subscriber momentum, so much demand, tons of content hitting including TOP GUN, one of the biggest movies we’ve seen in a decade. What’s stopping you guys from raising prices now or in the first quarter? I mean, is it more focused on churn? Or is it just the health of the consumer, that’s holding you back?
Bob Bakish
Yes, so I think two things on that. One is, under the umbrella, we’re going to be intelligent about it, which you would of course expect. One is definitely time to content and looking at when you’re, you feel best about the stickiness of your content, maybe you’re in the middle of maybe something’s just came out, maybe you’re in the middle of a season, maybe it’s in-demand Sportsnet, whatever it is. So, yes, we’ll think about that. And the second thing is we’ve actually, we’ve done a bunch of work on this. And it turns out that the impact of price increases, you don’t really see massive impacts when you raise price, because what you can do, you can manage through that with promotional pricing. And it’s really the initial entry point pricing that dictates your net subscriber additions. So, you can raise price, maybe simultaneously absolutely prior to through that, and again, you look at where we are on a price relative to other folks, we feel very comfortable with our ability to unlock.
That last thing I’d say is, there is benefit in the fact that we run a premium tier and an ad supported tier, and you will probably see us raise price at different points in time, so that we can catch any churn down et cetera should that to be the case raise price on premium first, and then follow-up on the ad supported side.
John Hodulik
Makes sense, let’s talk about content spend, obviously for the last decade, we’ve seen content spend up into the right, it looks like a number of companies are sort of starting to reevaluate if not, if not the actual level, certainly the growth. I mean, maybe sort of, more generally, just what do you think of, are we — is the industry spending too much on content versus what people are willing to pay for? And then it boils down to Paramount. How do you see your level of spend relative to your growth aspirations?
Bob Bakish
Well, we’re very much — I’ll do it in reverse order, we’re very much executing on our plan. We spent about $2 billion on streaming content in 2021. We’ve got it to $6 billion in 2024. And we continue to be on that trajectory, that’s part of a broader content investment, if you will, across our company, which is around $16 billion, $17 billion range today, and again goes to the value of I’m doing this on a multiplatform basis and being able to window and share some of it or dual illuminate some of that depends on what product you’re looking at. And that funds frankly tremendously popular content, whether it’s the NFL, whether it’s Top Gun: Maverick, whether it’s Tulsa King, whether it’s FBI on CBS, really an extraordinary portfolio of content that not only the U.S. consumer, but the world’s consumer likes to see.
So, we love the performance of our content engine. And we’re very comfortable with our investment plan, and we see it paying dividends and the performance of our platforms again, you don’t get the number one CBS Broadcast Network for 40 years running by accident, you don’t have the fastest growing fast platform by accident. You don’t have what is certainly one of, if not the fastest growing sponsor by accident, comes to the content. That’s point one. Yes, there’s been some content, people call it cost inflation over the bunch of years. And we’ve certainly seen that, there is talk of, and in fact, evidence of moderation in that regard.
Now, it’s hard to really call the industry if you will, because we only run our company, but there’s no question that, a very large competitor of ours has cut someone there. They’re cutting a bunch of projects, and other both, and that’s for my global basis, and another guy that’s doing it both in the U.S. and internationally. And there’s people talking about doing more. So, may be, again early evidence, it’s the case and certainly if it happens, we will benefit from it. But we’ll have to see what actually happens over the next say 12 months.
John Hodulik
Yes, you talked about the consolidation, economics of Showtime earlier in your remarks. Can you first of all, anything if you could tell us about that process, maybe a reference to the timing, or is there a lot of savings that you could create, or maybe just the justification of combining those plans, Showtime and Paramount+ together, if it makes sense?
Bob Bakish
Yes, sure. So, I mean, on some levels, it’s pretty simple. If you look at the journey of cable networks over the last six years, on since I run, what was Viacom and is now Paramount Global post-merger, we have progressively consolidated cable network operations. When I started as CEO at the end of 16, everyone had their own built out organizations. By that I mean Nickelodeon and Comedy Central and BT et cetera.
Today, the story is very different on the basic cable side, we basically have, with the exception of BT all the basic cable networks aligned under one group, and we’ve done material called expense synergies as part of that. So, the Showtime piece is really the next leg in it, it doesn’t make sense to run Showtime as 100% standalone organization, certainly the brand is valuable, certainly it stands for a certain type of program with consumers. And it’s going to continue to and we’ll lean into that, but we don’t have to do it as a standalone, we’re doing as part of an integrated strategy. And that’s both true on the call traditional television side and on the streaming. And by the way, I would point out an early win here from the new team, which is George & Tammy, which is a show that we launched, I think was over the weekend on Showtime. And lo and behold is the highest rated premiere in Showtime history. And that’s an example of Paramount coming together as one company and supporting a brand.
We didn’t develop that show for Showtime. We developed it for something else. But when you look at the actors in it, and you looked at sort of the storyline, et cetera, we said this totally works for Showtime and gave it an audience boost at launch by dual illuminate also on CMP first episode and Paramount Network. So, early days, but we’re happy with what we’re seeing there likewise, doesn’t make sense to have a fully built out streaming infrastructure separate for Showtime and Paramount+. So, we’re going to bring that together. And there are economic benefits associated with it. But I want to be clear, the brand still matters. And if anything, I can promise you the slates can matter even more. In fact, another thing we’re going to do there is lean more into franchises. And you’ll see, we haven’t announced anything on that, but you will see that as we move into ’23. So, it’s hard, it’s transformation, it does affect people, but it unquestionably will produce a superior financial result and strategic results. And we’re really excited about what’s going on.
John Hodulik
There are high overlaps between Paramount+ subs and Showtime subs number one, number two is that so does all this coming together in ’23, that sort of plan but for combining all this?
Bob Bakish
Certainly, there’s more to come in ’23 and you’ll be hearing about that on your question of sub-base overlap, it’s actually relatively minor, Showtime tends to be, I’m going to be very generalized but more coastal, more upscale. And Paramount+ tends to be more popular, more kind of the whole country, et cetera. So, we think that is accretive from an overall consumer proposition standpoint. And in fact, if you use Paramount+ today in the version with Showtime inside because, remember, Showtime was totally separate, then we introduced a price bundle. Now, there’s an option where you can have Showtime inside the Paramount+ app, that’s the version I use, that’s the version I encourage all of you to use.
And you really see the value of broadening that experience further. And Showtime being right product, being right there in the carousels, whether it’s George & Tammy this weekend, or it’s some films, or it’s Billions, or what have you, it really works very well in the advert experience and we’ll continue to look for ways to create value therein.
John Hodulik
So, the D2C industry is increasingly shifting from a dual revenue stream approach as from, originally, subscribe — just subscription revenues now to add-supported. And actually, we have Netflix speaking a little bit later today. And then something you guys have been doing for a long time. Can you talk about the ad ARPU at Paramount+ today, and the underlying trends, and just how big could those numbers get?
Bob Bakish
Yes, we’ll start with, we believe in the ad business from day one. When we acquired Pluto, people were like, “What’s this? Free streaming, ad-supported; that doesn’t make any sense, it’s all premium?” And the answer that I give is very simple, like, well, free television always existed. What makes you think it’s not going to exist in streaming and not be a material segment? You’re wrong. This is what we should do. And we did it. And lo and behold now, others are following us. We got the best asset, $1 billion-plus ad sales business in three years. But that was because believe in advertising.
Then fast-forward to Paramount+, at launch, ad-supported tier; Why? Because we said, well, we want to maximize the TAM, we want to give consumers choice. There are, inevitably, some people who will be interested in paying less and watching ads, and there’s inevitably some people who don’t want to watch ads and will pay more. Why wouldn’t we craft the product that way? Again, people were like, “Hey, that’s not SVOD, what are you doing,” et cetera. Fast-forward to today, everyone is in it; validating our proposition. So, again, we like the ad business. We think there is — put aside the current market which has its challenges, but in general there’s a great ARPU opportunity. There’s a great growth opportunity as you add subscribers, potentially ad fill rate, and work on pricing.
And what I’d point out in the streaming ad sector, we transact as [EyeQ] [Ph], not as Paramount+. And EyeQ is the combination, principally, of Paramount+ and Pluto. The “so what” of all that is, on a CPM basis, it is value proposition in the market. It’s probably mid high-teen versus — so, mom and dads are going out $50-$60, and that is very intentional on our part. We want to build a big business; we don’t want to just clean the top. And it also gives us plenty of room to raise price over time, particularly as the market strengthens again. So, we really like advertising, we totally — we believe, from day one, it applied to streaming. And I think we’re seeing that play out.
John Hodulik
All right. You guys saw a pretty rapid slow-down in revenues at Pluto. And then, obviously, the — it seems like that ad market has deteriorated 4Q for 3Q. I mean, how are trends in that business [thus far] [Ph]?
Bob Bakish
So, Pluto, it’s an extraordinary asset, leads the space, continues to have real momentum on the monthly active user side, growing those. And importantly — maybe more importantly at this point, really growing engagement time spent is becoming part of — or at least the Pluto viewers’ part of their habitual consumption. So, we love what we’re seeing there. Yes, we saw a significant deceleration in ad revenue, not surprising in the current market given the size of Pluto; it’s the biggest of them. And given the fact that the digital and the programmatic market in particular was negatively impacted as people were looking to manage margins in the short-term, and we’re looking at places they could do that.
And on a short-term basis, the common wisdom is you can always do that in marketing. In the long-term basis, you can’t, but for a couple months, couple of quarters you probably can. So, is Pluto impacted by that? Yes, for sure. I would point out that we, again, transact in multiple places in digital and we have a single point of sale particularly on the direct side. And — but also on the programmatic side. We don’t sell Pluto, we sell EyeQ. And that combination, if you look at that growth rate, that’s improved 4% in the third quarter, our total DVC advertising. So, it’s still growing, although clearly a deceleration from where it was, but that will — that ship will right itself.
John Hodulik
Right. Is competition having any impact, whether it’s on the [indiscernible] on the engagement side or the monetization side because you’ve seen a big investment from Tubi, Warner Bros. is talking about launching their own fast services. Do you — as we look out in ’23, that the — that competitive aspects of the fast market changes?
Bob Bakish
Well, look, competition has been a reality in the media business for a long time, it’s a reality in the advertising market, it’s a reality in the fast market; that’s true. There also has always been benefits to having a scale first mover position. Not so easy to replicate what we do in the ad sales side, both the combination of platforms and the way we execute and the related capabilities we beat — we’ve built. So, we feel good about that. And also, you got to look at pricing again, in particular in the fast segment, we like where we’re priced, and we think that has some advantages. So, we — we fully expected other people will enter, and they are entering, but — so, look, we’ve competed for a long time, well, we believe in the superiority of our proposition, and we’ll continue to demonstrate that.
John Hodulik
Okay. So, in the remaining time, I got some questions on the TV Media segment and then some more of consolidated questions. First, we already talked about the ad market. Could you give us your view of what you’re seeing in terms of cord-cutting? Maybe now and if you can, with your crystal ball, sort of look out to ’23?
Bob Bakish
Look, the TV ecosystem is under pressure, had been — plenty has been spoken about that; that’s the bad news. The good news is very are very much a cornerstone supplier. I’d hate to be in this ecosystem without a broadcast network and carrying NFL, as an example. And we are no longer in just the business of licensing linear feeds to video bundle operators. We are now in the multifaceted product business with distributors, including for broadband-only. So, we license [technical difficulty] we provide on-demand product share, we’re in the advanced ad business [technical difficulty] data effectively to our ad [technical difficulty] with our distributors. And we’re in the streaming [technical difficulty]. So, the free streaming business, Pluto, and the paid streaming business, Paramount+.
And we provide an opportunity for distributors to create value therein, including through if they’re going to do it in the vMVPD space, like Charter is doing today, that’s fine. If they want to do it in the broadband-only space, which most of our — you could think of them as MVPDs, but they all operate broadband business, so we’re transacting with them in there, and — the mix of Pluto and Paramount+, and typically both. So, and then as we do that, we have deal structures in place which help mitigate some of the decline aspects. And by that I mean built-in price escalators, actually our broadcast deals with stations are all fixed fee so they’re not per sub-deal, so you have some isolation there.
And again, you have this broader business. And if you look at the value of that, sure, you could look at TV Media in an isolation, but I’d also encourage you to look at our affiliate and subscription business overall. And you’ll see that grew something like — it grew 80% in the third quarter. So, this multifaceted product line is in demand and is growing even given the current state of the TV ecosystem.
John Hodulik
Let’s pivot to the film business; can you just give us a sense for the momentum you’re seeing in the film business, and what the upcoming slate looks like? And then a little bit on the profitability of the business, one of the things that sort of surprised me yesterday was Jeff’s show was talking about Universal and the profitability — he said the film business has gotten more attractive because of COVID and the new windowing that we’re seeing, and then in the different outlets of which show the content. I mean, do you agree with that, and talk about your — just what you guys have on deck for us?
Bob Bakish
Yes, I’d say a couple of things. I’d say, first, we’re thrilled with the performance of Paramount Pictures. Again, you look at ’22, the six number one films at the box office. And importantly, those number ones were all different kinds of films; you had everything from two horror films with — that we low-budget, relatively speaking, with Scream as one fencepost, and Smile as the other. By the way, Smile, $17 million movie that grossed over $200 million by two-and-a-quarter at the box office, and is now on Paramount+ 45-day fast-follow. So, Paramount Pictures is crushing it. And we just — as you look at the slate for ’23, it looks very good. You got everything from Mission Impossible 7, which is like a complete thrill ride, I mean it is — the movie is insane. And I think we’ll clearly benefit from Top Gun and Tom’s popularity, et cetera, but it’s a really good movie. We just, over the weekend, dropped the trailer, on the internet, for the next Transformers movie, and it set the record by a reasonable amount for a Paramount Pictures trailer drop in history; and in case you’re wondering, the one that was now number two was Top Gun: Maverick.
So, just as an illustrator of what’s coming, that one’s exciting, and then we got another PAW Patrol movie, another Turtles movie for the younger for family set, we got a Dungeons & Dragons picture, which is not our franchise, we’ve doing in collaboration with Hasbro that we’re excited about, and we’ve obviously seen a bunch of it; it looks good. So, the Paramount slate and its run is going to continue into ’23; very excited by that. So, that’s sort of point one.
Point two is, and again partially related to Jeff Shell’s comment; it is unquestionably a strategic asset. I mean — and again, take a title like Smile, the ROI on that project is off the charts, because we believe in theatrical, we want to be there. We said that in the depth of COVID, we held titles; all that. And we’ve proven — I mean, is the theatrical market below 2019? Yes, it is, but it’s still a very big market. And we found that we — that our titles are performing strongly. And we can get — we can sort of cream the economics there, and then bring the title to streaming 45-day fast-follow. And that’s where this asset is incredibly strategic, because if you don’t own a studio you’re not going to be able to do that.
And certainly the product has ongoing value on a licensing basis, things like PayTo and library, et cetera, which we continue to participate on a co-exclusive non-exclusive basis; it’s a good business. So, we very much like what’s going at Paramount, we very much believe in the business, particularly the theatrical streaming hybrid, not the day-and-date thing, it never made sense to me. And we’re really excited about what we’re going to do in ’23. And I’m sure you guys are all going to enjoy it.
John Hodulik
Great. And my last question just on M&A, I guess first part is what’s the path forward for Simon & Schuster at this point? And then talk about just consolidation in the sort of traditional media space, do you think that takes a step forward as we look out into ’23 or do you think further consolidation is going to going to be — take longer?
Bob Bakish
So, a couple things, so, consolidation has been the rule in business for a long time, certainly been in the rule in media. In fact, our company is a byproduct of consolidation, most recently ViacomCBS. So, it’s hard for me to bet on anything other than consolidation will happen in the future. When it’ll happen, what the combination is, who is in the top, who is getting acquired; who the hell knows? But consolidation will happen, and streaming will be part of that. On Simon & Schuster — and, by the way, that’s not a new view, that’s what we’ve believed for a long time.
On Simon & Schuster, look we are obviously disappointed in the court’s decision. That said, we’ve collected our breakup fee, which we’ve disclosed of $200 million. And we haven’t changed our point of view that it’s not a core asset, because it’s not a video asset. Our company is a video company. And when you get into books and video, there are not synergies. So, it continues to be non-core asset. We’re going to do something in the marketplace with it as we move forward. To be discussed when and what that is exactly. But again, we were disappointed. And the only good news is the company’s financial performance is materially higher than when we auctioned it because, obviously, the capital markets have gotten tougher, interest rates have gotten tougher, and you think, “Okay, the asset value gone down.” But we’ve had such a material increase in financial performance, we feel pretty good about it. And again, layer on the fact that we collected a breakup fee, it’ll all be fine eventually, but the suboptimal journey.
John Hodulik
Great. That’s all we have time for. Bob, thanks for being here.
Bob Bakish
Thanks. Appreciate it, John.
John Hodulik
Appreciate it.
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