Paramount+ is the fastest-growing streaming service in the US.
(Bloomberg) — When Walmart Inc. decided earlier this year to include a video streaming service as a perk for customers of Walmart+, its membership program, the retailing giant met with a handful of major media companies including Walt Disney Co. and Comcast Corp.’s NBCUniversal.
In the end, Walmart announced it was going with Paramount+, a major coup for the two-year-old streamer. Paramount Global, the owner of Nickelodeon, has spent years building a relationship with Walmart and even has an office in the company’s home city, Bentonville, Arkansas. But its streaming service is smaller and less well known than Netflix, Disney+ and HBO Max.
“Everybody wanted that deal, and we won,” Paramount Chief Executive Officer Bob Bakish, 58, said last month over coffee at the Four Seasons Hotel in Beverly Hills.
The partnership is a testament to the progress the company has made in the last couple of years under Bakish’s leadership. When controlling shareholder Shari Redstone merged Viacom and CBS in 2019, many analysts and competitors wrote off the new company as too small to compete. The debut of Paramount+ in early 2021 struck many observers as late and, worse yet, second class.
But so far this year, Paramount+ has been the fastest-growing streaming service in the US. It had 43 million subscribers as of the end of June and is expanding overseas. All told, Paramount has more than 60 million customers across all of its paid services, which include Showtime, BET+ and Noggin. The company’s free streaming service, Pluto, is more popular in the US than Apple TV+ or Peacock, according to Nielsen.
Such successes in streaming have done little to win over investors. Shares of the company have declined almost 39% this year and are down 51% since the start of 2021. Paramount faces the same challenge as many of its peers. Cable networks such as MTV and BET continue to contribute the majority of the company’s profit but are hemorrhaging viewers. Media companies have shifted most of their best shows to streaming, driving viewers away from cable. National TV advertising sales are in decline.
Moving forward, Bakish will need to milk the legacy TV networks for cash long enough to turn streaming into a profitable business. Yet it’s not clear how long that will take, and some analysts believe streaming may never be as lucrative as the bundled-TV ecosystem that it is replacing. The company’s streaming services lost $901 million in the first half of the year, and Netflix Inc. is the only major streaming service that reports a profit. Investors and analysts believe that Paramount will need to combine with another company, such as Warner Bros. Discovery or Comcast’s NBCUniversal, to successfully compete with Netflix and Disney.
“They are stuck right now between challenging businesses on both sides,” said Robert Fishman, an analyst with MoffettNathanson.
Redstone is unlikely to sell the company or buy another one until she can lift the share price. Bakish acknowledges that the company could be in play at any moment. But with no immediate deal in the offing, he’s focused on bolstering Paramount+. The company just locked up the rights to college football from the Big Ten as well as the UEFA Champions League, a soccer tournament featuring Europe’s best clubs.
He is also working to consolidate the company’s streaming services. Customers of Showtime, the streaming companion to the premium cable network, can now watch its shows within the Paramount+ app. Bakish is planning a similar move with BET+, a streaming offshoot of the eponymous cable network, according to people familiar with the company’s plans.
“The strategy we have is indisputably working,” Bakish said just hours before HBO swept most of the major Emmys. “We’re a hell of a lot bigger than people thought we’d be a year ago.”
A former management consultant, Bakish was a relative unknown when Redstone selected him to run her family’s media empire. He’d spent most of his time at the company overseeing the small but profitable international business.
He inherited a company in distress. Redstone took control of Viacom in 2016 after winning a bruising fight with Viacom’s then-CEO Philippe Dauman, the former lawyer of her father Sumner Redstone. For years, Viacom had been at the epicenter of youth culture, delighting kids and teens with shows like The Real World, Rugrats and South Park. But Dauman had hollowed out the company by cutting costs, ignoring the internet and losing young viewers to YouTube and Netflix.
“It wasn’t going off the rails; it was off the rails,” Bakish said.
At first, Bakish didn’t enter the streaming wars. The company had a lot of debt that it needed to pay down and didn’t have the money to compete for top projects with Netflix or Amazon. He pitched the company as an “arms dealer” that would produce shows and sell them to the highest bidder. He also sold a lot of real estate, including a 55-acre lot in the Studio City neighborhood of Los Angeles.
The strategy resulted in some lamentable deals. Bakish licensed the streaming rights to Yellowstone, which would become his company’s signature show, to Peacock. He licensed the catalog of South Park, one of the longest-running shows in TV history, to HBO Max. While Bakish would later seek to claw back the rights he dealt away, the moves felt defensible at the time. The South Park arrangement alone brought in more than $500 million.
Along the way, Bakish made at least one deal that would prove prescient. In 2019, he paid $340 million for the advertising-supported streaming service Pluto TV, which offered live channels filled with reruns and old movies. “When we did Pluto, people laughed at us,” Bakish said. Pluto, which then generated about $70 million in sales, is now a $1 billion business.
“100 million of anything is a real number, and I don’t think we’re stopping there.”
Yet what Wall Street really wanted at the time was for media companies to copy Netflix, which was adding 25 million new subscribers a year. Investors rewarded companies that were willing to spend billions of dollars to create streaming services of their own.
In February 2021, Bakish hosted an investor day to unveil the company’s new streaming service Paramount+, which positioned itself as a more populist alternative to Apple or HBO. While rivals focus on awards, it offered SpongeBob SquarePants, the National Football League and Hawaii Five-O. The company also commissioned new original series, including reboots of past hits like The Real World, as well as spinoffs of existing franchises such as Yellowstone.
Senior executives weren’t sure it would work. But Bakish was confident Paramount had the resources to compete. He just needed to get his executives to shift their priorities from linear TV to the internet. He restructured the company. Instead of putting one person in charge of all the programming for its streaming service, as some rivals did, Bakish asked different executives to oversee programming categories. The head of Nickelodeon would oversee kids programming for Paramount+, while the head of CBS would handle news and sports.
Bakish won over most of the company’s executives with his self-deprecation and modest ego. He hosts regular forums known as “Bob Live” where he will answer questions from employees.
“Bob is incredibly good at listening and being able to problem solve in a non-dramatic way,” said Brian Robbins, the head of Nickelodeon and Paramount Pictures. “He’s just a very practical leader.”
By the end of 2021, the company had grown sales from streaming by 64% in just one year, driven by subscriptions to Paramount+. And yet, the stock sank 19%.
Earlier this year, the company tried again to convince Wall Street that it had a winning strategy. In February, Bakish changed the company’s name from ViacomCBS to Paramount, the same name as its famed movie studio. He also announced plans to spend even more money on programming.
“The question was: Can we get to enough scale to make us matter in streaming arms race?” Robbins said. “We feel really good about where we are and how fast we got there.” The company has said it will surpass 75 million subscribers by the end of year and it will reach 100 million by the end of 2024.
“100 million of anything is a real number, and I don’t think we’re stopping there,” Robbins said.
Its success in streaming has coincided with a hot streak from its movie studio, Paramount Pictures. Earlier this year, the studio delivered five consecutive No. 1 movies, culminating in Top Gun: Maverick, the year’s highest-grossing film. Its latest release, the horror movie Smile, is the studio’s fifth movie to top $100 million at the global box office this year.
While Paramount+ and Pluto TV continue to add customers, Wall Street is no longer focused on subscriber growth at any cost. Netflix has reported slowing growth at the same time as economists are worrying about a potential recession. The rate of cord-cutting has accelerated to record speeds with more than 10% of people canceling their TV subscriptions from Comcast in the last year. Revenue is dropping at some of the largest and most stable media firms, such as YouTube and Meta Platforms Inc.
Investors want to see media companies focus on profitability and reconsider just how much money they are spending on streaming. Paramount isn’t spending at the scale of Disney or Netflix. It is competing to be the third or fourth or fifth biggest streaming service. But it is in the midst of expanding overseas and spending billions of dollars to fuel its growth around the world.
This week, Paramount will report financial results at a time of great economic uncertainty. Even if the company reports another quarter of industry-leading growth, it will also likely post another quarter of shrinking profit.
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