ViacomCBS shares fall amid rebrand, greater focus on streaming

ViacomCBS intends to be a key player in the streaming big leagues as the media giant pushes ahead with a rebrand as Paramount Global and a plan to spend lavishly on a direct-to-consumer (DTC) business expected to eclipse 100 million streaming subs worldwide by 2024.

"Our strategy has always been to harness the strength of our traditional business to build something new," chairwoman Shari Redstone said Tuesday at the company's investor day that took place more than two years after Viacom and CBS completed their merger. "Paramount was always at the core of this vision. Today we are thrilled to announce that ViacomCBS has become Paramount Global, or simply Paramount."

Figure 1: Giving a nod to its globally-known brand, ViacomCBS is rebranding as Paramount Global as it pumps up its streaming play.
(Source: ViacomCBS/Paramount)

But some analysts and investors aren't fully convinced that the strategy of the rebranded company (Paramount will begin trading on the Nasdaq under the symbol "PARA" on February 17) will bear fruit. ViacomCBS shares dropped more than 20% in mid-day trading Wednesday, the day after the company presented its big streaming plans and a financial outlook that sees some deeper streaming-related losses out on the horizon.

According to MoffettNathanson analyst Michael Nathanson, Paramount will continue to face a familiar questions even as it broadens its streaming play: Can the company grow EBIDTA and free cash flow to match prior levels? If those numbers come up short, will that limit Paramount's ability to fully invest in its streaming efforts?

"In short, unfortunately, we still did not learn anything to help us believe the answer will be yes, at least for the foreseeable future," Nathanson wrote in a research note. Even as a premium streaming service such as Paramount+ fleshed out its offering, "we have a hard time looking at the DTC revenues and investments on a standalone basis," he added.

Vijay Jayant, analyst with Evercore ISI, has similar concerns, wondering if investors are willing to underwrite Paramount's streaming strategy. "We think it will be a challenging proposition," Jayant wrote in a research note.

DTC-related losses at ViacomCBS/Paramount are expected to rise from $1 billion in 2021, to -$1.5 billion in 2022, and go even higher in 2023. Meanwhile, Paramount expects DTC-related expenses to balloon from about $2.2 billion in 2021, to about $6 billion in 2024.

Driving streaming subscriber growth

But Paramount does expect higher spending to drive streaming subscriber growth. The company is now forecasting 100 million streaming subs worldwide by 2024, up from previous guidance in the range of 65 million to 75 million.

ViacomCBS/Paramount ended 2021 with 56 million streaming subs worldwide, adding a record 9.4 million in Q4 2021. Paramount+, the super-sized streaming service formerly known as CBS All Access, added 7.3 million subs in the quarter, raising its grand total to 32.8 million.

Drilling down further, Pluto TV, the company's free, ad-supported streaming service acquired in 2019, is expected to reach 100 million to 120 million monthly active users by 2024. Pluto TV exceeded $1 billion in revenues in 2021, up from $560 million in 2020.

Paramount expects overall growth from its subscription and ad-supported streaming business to help generate DTC revenues of $9 billion by 2024, up from prior guidance of $6 billion.

Here's a snapshot of other moves and announcements that ViacomCBS/Paramount made at this week's investor day:

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— Jeff Baumgartner, Senior Editor, Light Reading