Paramount (PARA) hinted Thursday that brighter days are ahead for its streaming business — but it will cost consumers.
After announcing fourth quarter earnings that missed estimates on both the top and bottom lines, Paramount said price hikes will hit the streaming giant in the third quarter of 2023.
The announcement comes as the company reiterated streaming losses will peak this year, with CEO Bob Bakish telling investors on the earnings call: "We're at peak investment."
The new monthly price for the premium Paramount+ tier, which will soon include Showtime due to the recently announced merger of the two streaming entities, will jump to $11.99 — up from $9.99. The essential Paramount+ tier with ads will rise by just $1 to $5.99.
"Paramount+ is far from the industry price leader," Bakish said on the call. "We're on the value end of the pricing spectrum."
Paramount CFO Naveen Chopra added the company studied the historical price increases of competitors and has "put a lot of thought into the decision since the launch of Paramount+." Chopra doubled down on the streamer's value position relative to competitors, crediting its strong and expanded content slate.
Shares, which plunged as much as 8% immediately following the earnings release, pared losses as investors digested the results. They were down around 4.5% in afternoon trading.
Management maintained price hikes should help lift revenues and ease pressures on the bottom line, guiding a return to positive free cash flow in 2024.
The company reported a direct-to-consumer loss of roughly $1.82 billion in 2022 — slightly above previous guidance of $1.8 billion. In the release, Bakish said: "We expect to return the company to earnings growth in 2024."
Despite the streaming division's profitability struggles, subscribers continued to surge with Paramount+ adding nearly 10 million in the quarter to reach a total of almost 56 million. This was on par with consensus estimates as the company leans on franchises with spinoffs for popular series like "Yellowstone," "Dexter" and "Billions" currently in the works amid the Showtime/Paramount+ rebrand.
Paramount, which last month announced the "Paramount+ with Showtime" offering, has eyed greater integration between its cable television and streaming offerings amid escalating cord cutting trends and direct-to-consumer losses
The company said it will take a content impairment charge between $1.3 billion to $1.5 billion in the first quarter of 2023 as a result of the merger, but expects $700 million in future annual expense savings.
Earlier this week, the company unveiled a restructuring plan that combines Showtime with MTV Entertainment Studios. Four Showtime executives departed the company on the heels of that news, with an additional 120 Showtime employees laid off.
Shares of Paramount Global, although up about 40% year-to-date, are still off nearly 20% compared to this point last year — but one bullish stakeholder has doubled down on the embattled company: Warren Buffett.
According to a new regulatory filing released on Tuesday, Buffett's Berkshire Hathaway (BRK-B) boosted its stake in Paramount Global, purchasing an additional 2.4 million shares worth more than $40 million in the fourth quarter of 2022.
Buffett's firm now owns more than 93 million shares in the streaming giant.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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