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Mark Avallone, president of Potomac Wealth Advisors, and Jeff Kilburg, CEO of KKM Financial, join ‘The Exchange’ to discuss stocks falling after the Moody’s downgrade, the case for buying regional banks, consolidation in the VIX and owning tech in an equal weighted manner.
06:56
Tue, Aug 8 20231:49 PM EDT
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The publishing offices of Simon and Schuster in New York.
Amy T. Zielinski | Newscast | Universal Images Group | Getty Images
Paramount Global agreed to sell book publisher Simon & Schuster to private equity giant KKR for $1.62 billion, the media company said Monday as it reported earnings that topped Wall Street estimates.
KKR’s entry into the book publishing space comes months after Paramount scrapped its initial agreement to sell Simon & Schuster to rival Penguin Random House — which was valued at $2.2 billion — after a federal judge rejected the merger and it raised red flags with the government.
Paramount’s stock was up nearly 4% in after-hours trading.
Paramount executives said during Monday’s earnings call that the proceeds of the Simon & Schuster sale would be used in the company’s ongoing effort to pay down debt.
The $200 million termination fee Paramount received from Penguin when that deal was scrapped, along with the money saved when the company cut its dividend, will also go toward lowering leverage, CFO Naveen Chopra said Monday.
Paramount has also been considering offloading a majority stake in BET Media Group, the owner of the BET cable network and studio, VH1 and the streaming service BET+, CNBC previously reported. Paramount CEO Bob Bakish said on Monday’s call that he wouldn’t comment on any specific moves, but said the company was open to divesting, acquiring and partnering to drive shareholder value.
Here’s what the company reported for the quarter ended June 30, versus analysts’ estimates, according to Refinitiv:
Paramount reported revenue of $7.62 billion for the quarter, down about 2% year-over-year, as the company’s TV segment was once again dragged down by lower advertising revenue.
For the quarter ended June 30, Paramount reported a net loss of $299 million, or 48 cents a share, compared with earnings of $419 million, or 62 cents per share, in the same period last year. Excluding certain items, such as programming and other costs related to the integration of Paramount+ and Showtime, the company reported adjusted earnings of 10 cents per share.
Media companies have been grappling with a soft advertising market, particularly affecting the traditional TV business.
Advertising revenue in the TV segment fell 10%. Revenue in the TV business revenue overall dropped 2% to $5.16 billion.
Executives said Monday that the advertising revenue on traditional TV during the third quarter would be similar to the first half of the year, but they expect it to improve during the fourth quarter. Advertising has been weak as businesses worry about the prospect of a recession.
In this photo illustration, Paramount+ (Paramount Plus) logo is seen on a smartphone against its website in the background.
Pavlo Gonchar | SOPA Images | LightRocket | Getty Images
Advertising revenue on digital platforms like Paramount+ and the free, ad-supported Pluto, is expected to grow, however. Media companies have been leaning on advertising to reach profitability for their streaming businesses as subscriber growth has stagnated.
Advertising revenue for the streaming business rose 21%.
Paramount said its streaming segment continued to grow. Paramount+ had about 61 million subscribers by the end of the quarter, and subscription revenue grew more than 47% to $1.22 billion.
Paramount+ recently combined with Showtime’s streaming app, and increased its prices.
The price increase is driving average revenue per user and overall streaming revenue, and the company will fully see the benefits of the change next year, Chopra said Monday.
Raising prices, in addition to adding ad-supported tiers, has allowed media companies to push streaming businesses toward profitability. Chopra noted pricing and tier changes will also roll out internationally, and the company believes that it has room to raise prices over time due to its strong portfolio of content.
Meanwhile, revenue for Paramount’s film business fell 39% to $831 million, since last year the period included the release of “Top Gun: Maverick,” the highest grossing domestic release in 2022.
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LeBron James of the Los Angeles Lakers at a game against the LA Clippers at ESPN Wide World Of Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.
Mike Ehrmann | Getty Images
As Disney considers a strategic partner for ESPN, Chief Executive Officer Bob Iger and ESPN head Jimmy Pitaro have held early talks about bringing professional sports leagues on as minority investors, including the National Football League, National Basketball Association and Major League Baseball, according to people familiar with the matter.
ESPN has held preliminary discussions with the NFL, NBA and MLB about a variety of new partnerships and investment structures, the people said. In a statement, an NBA spokesperson said, “We have a longstanding relationship with Disney and look forward to continuing the discussions around the future of our partnership.”
Spokespeople for ESPN, the NFL and MLB declined to comment.
Talks with the NFL have occurred in conjunction with the league’s own desire for a company to take a stake in its media assets, including the NFL Network, NFL.com and RedZone, said the people, who asked not to be named because the talks have been private.
The NBA and Disney have broached many potential structures around a renewal of media rights, the people said. Disney and Warner Bros. Discovery have exclusive negotiating rights with the NBA until next year.
Iger said last week in an interview with CNBC’s David Faber that Disney is looking for a strategic partner for ESPN as it prepares to transition the sports network to streaming. He didn’t elaborate on what exactly that meant beyond saying a partner could bring additional value with distribution or content. He acknowledged selling a stake in the business was possible.
Disney owns 80% of ESPN. Hearst owns the other 20%.
“Our position in sports is very unique and we want to stay in that business,” Iger said to Faber. “We’re going to be open minded about looking for strategic partners that could either help us with distribution or content. I’m not going to get too detailed about it, but we’re bullish about sports as a media property.”
Theoretically, a jointly owned subscription streaming service among multiple leagues could eventually give consumers new packages of games and other innovative ways to take in content.
The move would be a logical one for Disney as it tries to move past the traditional cable subscriber model and underscores how badly the company wants to find a solution for the sports network as its linear subscribers decline. Still, ESPN ratings have climbed in recent years on major sporting events. There’s no better partner for sports content than the leagues, themselves.
Superficially, it may make less sense for the NBA, NFL and MLB which sign lucrative media rights deals with many media partners that fuel team revenue and player salaries with a range of media companies.
Professional sports leagues could face conflicts of interest if they take a minority stake in ESPN. Owning a stake in ESPN may irritate Disney’s competitors, such as Comcast‘s NBCUniversal, Fox, Amazon, Paramount Global and Apple, who help make the leagues billions of dollars by participating in bidding wars for sports rights. Taking an ownership stake in ESPN could give leagues the incentive to boost the value of that entity rather than striking deals with competitors.
There would also be hurdles for Disney. ESPN also employs hundreds of journalists that cover the major sports leagues. Selling an ownership stake to the leagues could cloud the perception of objectivity for ESPN’s reporting apparatus.
Still, the leagues are already business partners with ESPN. It’s possible ESPN could put measures in place to ensure reporters can continue to cover the leagues while minimizing conflicts, but it adds another layer of complexity to any deal.
ESPN is trying to forge a new path as a digital-first, streaming entity. Disney realizes ESPN won’t be able to make money like it previously has in a traditional TV model.
Selling a minority stake in ESPN to the leagues could mitigate future rights payments, allowing Disney to better compete with the big balance sheets of Apple, Google and Amazon. It would also guarantee ESPN a steady flow of premium content from the leagues.
Until last quarter, Disney’s bundle of linear TV networks still had revenue growth because affiliate fee increases to pay-TV providers — largely driven by ESPN — made up for the millions of Americans who cancel cable each year. That trend finally ended last quarter, according to people familiar with the matter. Accelerating cancellations have now overwhelmed fee increases, and linear TV revenue outside of advertising has begun to decline.
“A lot has been said about renting [sports right] versus owning,” Iger said last week in his CNBC interview. “If you can rent it and continue to be profitable from renting, which we have been and we believe we will continue to be, then there’s value in staying in it. We have great relationships with Major League Baseball, and the National Hockey League, and various college conferences, and of course the NFL and the NBA. It’s not just about the live sports coverage of those leagues, those teams, it’s also about all of the shoulder programming it throws off on ESPN and what you can do with it in a streaming world.”
ESPN would like to morph itself into a streaming hub for all live sports. Management would like to launch a feature allowing ESPN.com or the ESPN app to funnel users to games no matter where they stream, CNBC reported earlier this year.
While striking a deal with professional sports leagues wouldn’t be easy, Disney appears to be pushing the envelope on its thinking to prepare for a streaming-dominated world that includes its full portfolio of sports rights.
“If [a partner] comes to the table with value, whether it’s content value, distribution value, whether it’s capital, whether it just helps derisk the business — that wouldn’t be the primary driver — but if they come to the table with value that enables ESPN to make a transition to a direct-to-consumer offering, we’re going to be very open minded about that,” Iger said.
WATCH: Disney CEO Bob Iger talks to CNBC’s David Faber about ESPN and its future
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Bob Iger, CEO of The Walt Disney Company, left; David Zaslav, CEO and president of Warner Bros. Discovery, center; and Bob Bakish, president and CEO of Paramount Global.
Getty Images
Companies and industries have ups and downs. The legacy media industry is in a valley.
The first half of 2023 has been a colossal disappointment for media executives who wanted this year to be a rebound from a terrible 2022, when a slowdown in streaming subscribers cut valuations for Netflix, Disney, Warner Bros. Discovery and Paramount Global roughly in half.
Instead, investors have once again become excited by Netflix’s future prospects as it’s cracked down on password sharing, potentially leading to tens of millions of new signups. Netflix shares have surged the past five months, outpacing the S&P 500.
Meanwhile, the legacy players can’t get out of their own way.
Netflix vs the S&P 500 over the past five months.
“When it rains it pours,” said LightShed media analyst Rich Greenfield. “It just keeps getting worse.”
It’s been a bumpy ride for Disney Chief Executive Officer Bob Iger since he returned to lead the company late last year. Disney recently finished laying off 7,000 employees. Chief Financial Officer Christine McCarthy stepped down last week. The company is pulling programming from its streaming services to save money. Its animation business is in a major rut, with its latest Pixar movie, “Elemental,” recording the lowest opening weekend gross for the studio since the original “Toy Story” premiered in 1995. Shares have struggled in the past five months.
Disney vs. the S&P 500 over the past five months.
Warner Bros. Discovery vs. the S&P 500 over the past five months.
Paramount Global cut its dividend last quarter as streaming losses peak this year and a weak advertising market exacerbates a terminally ill cable network business. Wells Fargo released an analyst note Friday saying the bull case and the bear case for the company were the same: selling for parts. Warren Buffett, perhaps the most acclaimed investor in history, told CNBC that Paramount’s streaming offering “fundamentally is not that good of a business.”
Paramount Global vs the S&P 500 over the past five months.
Fox Corp. vs the S&P 500 over the past five months.
NBCUniversal has weathered the storm the best, shielded by its parent company, Comcast, which gets its revenue from cable and wireless assets. It’s also taken advantage of missteps from the aforementioned. MSNBC became the No. 1 cable news network this month for the first time in 120 weeks, dethroning Fox News for a week amid coverage of former President Donald Trump’s federal indictment. Universal’s “The Super Mario Bros. Movie” is by far the biggest box office hit of the year, yet shares haven’t moved much.
Comcast vs the S&P 500 over the past five months.
All of this is happening with an extended Hollywood writers’ strike going on in the background with no end in sight. The writers know the longer the strike lasts, the more pain will be inflicted on media companies, who will eventually run out of already-made scripted content. Zaslav recently gave a commencement address to Boston University and was drowned out by boos and chants of “pay your writers.”
This week may bring even more bad news. Film and TV actors are set to join writers on strike unless they reach a deal with Hollywood studios by Friday.
The beneficiary of Hollywood work shutdowns will likely be YouTube, TikTok, and Netflix, which continues to churn out international content that is unaffected by the strike, said Greenfield.
Legacy media may get a small reprieve if advertising jumps back as the 2024 U.S. presidential campaign heats up. But there’s still scant evidence investors will reward media companies for simply cutting costs. There’s currently no strong growth narrative for legacy media, and consolidation prospects are murky as regulators block media-adjacent deals such as Microsoft’s acquisition of Activision and Penguin Random House’s proposed purchase of Simon & Schuster.
The industry just wrapped up its annual advertising gala in Cannes, France. Legacy media executives still spent company dollars to make the trip to hang out on yachts and drink rosé. The backdrop was as beautiful as ever.
But the landscape is bleak.
Disclosure: Comcast owns NBCUniversal, which is the parent company of CNBC.
WATCH: WPP CEO Mark Read on the state of the advertising market, from Cannes Lions 2023
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Ezra Miller stars as Barry Allen in Warner Bros.’ “The Flash.”
Warner Bros. Discovery
Moviegoers spread the wealth over Father’s Day weekend across a diverse slate of new releases and lingering favorites.
The mixed results saw disappointing debuts from “The Flash” and “Elemental,” while “Spider-Man: Across the Spider-Verse” continued to attract ticket buyers.
Warner Bros.’ latest superhero film hauled in just $55 million during its first three-day weekend, a far cry from the $75 million to $85 million industry experts had expected. It also fell short of the $67 million debut of fellow DC film “Black Adam” last October.
“‘The Flash’ is a victim of numerous factors that stalled buzz for the once highly anticipated film,” said Shawn Robbins, chief analyst at BoxOffice.com.
Robbins pointed to the ongoing controversy surrounding star Ezra Miller, a lack of consistency in the DC film franchise and a too-narrowly focused marketing campaign that only targeted die-hard fans for the lower-than-expected box office opening.
“Audiences have shown in recent months and post-‘Endgame’ years that they are being more selective about which comic book films are going to earn their box office dollars,” he said.
It wasn’t the only film to see a poor audience response over the weekend. Disney’s animation rut continued with the release of “Elemental,” which is expected to have the second-lowest opening of any wide-released Pixar film in the studio’s history. Estimates peg the film’s debut at $29.5 million, just higher than the $29.1 million “Toy Story,” Pixar’s first-ever theatrical release, which opened in 1995.
“[‘Elemental’s’] middling debut is less surprising,” Robbins said, noting that Pixar is in the middle of rebranding itself following a slew of pandemic-era streaming releases.
Pixar is also facing steep competition from rival animation studios. Universal’s Illumination and DreamWorks animation arms have dominated the box office with hits like “The Super Mario Bros. Movie,” “Puss in Boots: The Last Wish” and “Minions: The Rise of Gru.”
And then there is Sony’s “Spider-Man: Across the Spider-Verse,” which has continued to attract audiences since its June 2 debut. The film generated an estimated $27.8 million over the three-day spread and has tallied $489.3 million globally since its June 2 release.
“Though there were no massive overperformances by the wide-release newcomers, this weekend was distinguished by the sheer number of movies and the wide variety of audience demographics drawn to the multiplex,” said Paul Dergarabedian, senior media analyst at Comscore.
Paramount’s “Transformers: Rise of the Beasts” added another $20 million domestically, Disney’s “The Little Mermaid” secured another $11.6 million in ticket sales and Marvel’s “Guardians of the Galaxy: Vol. 3” took in another $5 million.
Across Friday, Saturday and Sunday of the Father’s Day weekend, the domestic box office is expected to tally just under $175 million in receipts. That’s 5% higher than the haul over the same period in 2022 and 28% higher than 2019, according to data from Comscore.
“Father’s Day weekend, while not boasting a record-smashing breakout hit, was a great one for movie theaters that saw their fortunes rise by virtue of an appealing assortment of films that powered a fantastic overall weekend,” said Dergarabedian.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
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Tom Ryan, CEO and President of Paramount Streaming, speaks during the LG press conference ahead of the Consumer Electronics Show (CES) in Las Vegas, Nevada, on January 4, 2023.
Patrick T. Fallon | AFP | Getty Images
Paramount Global‘s flagship streaming service Paramount+ will combine with its Showtime app in the U.S. on June 27, the company said Monday.
With the newly merged streamer will come an increase in pricing, as Paramount had announced earlier this year. The Paramount+ with Showtime premium tier will increase to $11.99 from $9.99, while the Paramount+ option without Showtime content will increase by $1 to $5.99.
The integration goes beyond Paramount’s streaming options. The premium cable-TV network, known for series like “Yellowjackets” and “Billions,” will also be rebranded as Paramount+ with Showtime, and the company will also sunset the standalone Showtime app by the end of the year.
Once integrated, the Showtime TV network will also feature content from Paramount+, which has produced original series that spun off from popular franchises like “Yellowstone” and “Criminal Minds.” Showtime is an extra subscription fee on the pay-TV bundle.
Paramount has said it expects peak losses for its fledgling streaming service Paramount+ this year.
The combined platforms will also help cut down on content spending, which has been a recent focus for media companies as they look to make streaming profitable.
Warner Bros. Discovery has been cutting costs since completing its merger. The company is also launching Max on Tuesday, the combination of HBO Max and Discovery+. However, Discovery+ will also remain as a standalone service.
Disney announced this year it would cut $5.5 billion in costs, including $3 billion on the content said. Last week, CEO Bob Iger said Disney would add Hulu content to its Disney+ platform, a move toward a one-app experience for consumers and to streamline business for advertisers. The company will also focus on adding more ad-supported customers, and plans to increase its ad-free streaming prices later this year.
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Robyn Beck | Afp | Getty Images
I’m calling it. The Streaming Wars are over. 2019-2023. RIP.
The race between the biggest media and entertainment companies to add streaming subscribers, knowing consumers will only pay for a limited number of them, is finished. Sure, the participants are still running. They’re just not trying to win anymore.
Disney announced its flagship streaming service, Disney+, lost 4 million subscribers during the first three months of the year, dropping the company’s total streaming subscribers to 157.8 million from 161.8 million. Disney lost 4.6 million customers for its streaming service in India, Disney+ Hotstar. In the U.S. and Canada, Disney+ lost 600,000 subscribers.
It’s become clear the biggest media and entertainment companies are operating in a world where significant streaming subscriber growth simply isn’t there anymore – and they’re content not to chase it hard. Netflix added 1.75 million subscribers in its first quarter, pushing its global total to 232.5 million. Warner Bros. Discovery added 1.6 million to land at 97.6 million.
The current big media narrative is all about getting streaming to profitability. Warner Bros. Discovery announced last week its U.S. direct-to-consumer business turned a profit of $50 million in the quarter and will remain profitable this year. Netflix’s streaming business turned profitable during the pandemic. Disney on Wednesday announced streaming losses narrowed to $659 million from $887 million.
Read more: Iger praises rival Universal’s ‘Super Mario Bros. Movie’
Netflix has curbed its content spending growth, and Warner Bros. Discovery and Disney have both announced thousands of job eliminations and billions of dollars in content spending cuts in recent months. Disney will “produce lower volumes of content” moving forward, Chief Financial Officer Christine McCarthy said during Wednesday’s earnings conference call, though Chief Executive Bob Iger noted he didn’t think it would have an impact on global subscriber growth.
There’s still some growth among the smaller players. NBCUniversal’s Peacock gained 2 million subscribers last quarter, giving it 22 million subscribers. Paramount Global added 4.1 million subscribers in the quarter, putting it at 60 million subscribers.
But the key question isn’t looking at the growth numbers as much as it’s about the investor reaction to the growth numbers. Paramount Global fell 28% in a day last week after the company announced it was cutting its dividend from 25 cents a share to 5 cents a share to save cash.
Disney+ Hotstar subscribers brought in a paltry 59 cents per month of revenue last quarter, down from 74 cents last quarter. It appears Disney is OK with losing these low-paying customers. Disney gave up its Indian Premier League cricket streaming rights last year. Those rights were acquired for $2.6 billion by Paramount Global.
Disney also announced it’s raising the price of its ad-free Disney+ service later this year. Disney’s average revenue per user for U.S. and Canadian subscribers rose 20% in the most recent quarter after yet another price increase was announced last year. Big price hikes typically aren’t the strategy executives use if the priority is adding subscribers.
Raising prices and cutting costs isn’t a great growth strategy. Streaming was a growth strategy. Maybe it will come back a bit with cheaper advertising tiers and Netflix’s impending password sharing crackdown.
But it’s highly unlikely growth will ever return to the levels seen during the pandemic and the early years of mass streaming.
That probably means the media and entertainment indudstry will need a new growth story soon.
The most obvious candidate is gaming. Netflix has started a fledgling video game service. Comcast considered buying EA last year, as first reported by Puck. Microsoft’s deal for Activision is now in jeopardy after UK regulators blocked the transaction. If that acquisition fails, Activision could immediately be a target for legacy media companies as they look for a more exciting story to tell investors.
While Disney shut down its metaverse division as part of its recent cost cuts, marrying its intellectual property with gaming seems like an obvious match. One can easily envision the growth potential of Disney buying something like Epic Games, which owns Fortnite, and building its version of an interactive universe through gaming.
More consolidation will happen – eventually – among legacy media companies. But one major gaming acquisition could start a run in the industry.
Perhaps The Gaming Wars is the next chapter.
Disclosure: NBCUniversal is the parent company of Peacock and CNBC.
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Micron Technology headquarters in Boise, Idaho, March 28, 2021.
Jeremy Erickson | Bloomberg | Getty Images
Check out the companies making headlines in midday trading Tuesday.
PagSeguro — Shares popped 5.3% after Citi upgraded the Brazilian payment stock to buy from neutral. The firm called the company’s fourth-quarter earnings unsurprising and said it is still in rough waters, but shares were more attractive following recent underperformance. Stone, which was also upgraded by Citi to buy from neutral, edged higher as well on Tuesday.
Affirm — The pay-later service dropped 6.9% after Apple announced a competing service. Apple shares were down about 0.9%.
Occidental Petroleum — The energy stock jumped nearly 4% after a regulatory filing showed Warren Buffett’s Berkshire Hathaway purchased an additional 3.7 million shares for $216 million on Monday and last Thursday. TD Cowen upgraded Occidental to outperform from market perform following the news.
Micron Technology — The semiconductor stock was down 2.8% ahead of its scheduled second-quarter earnings report after the bell on Tuesday. Analysts expect revenue of $3.71 billion and a loss per share of 67 cents, according to FactSet. Micron’s shares have gained more than 14% in the last six months.
PVH — Shares soared 18.9% after the apparel company’s fourth-quarter adjusted earnings per share came in at $2.38, beating estimates of $1.67, per Refinitiv. Its revenue of $2.49 billion beat expectations of $2.37 billion. PVH’s guidance for the first quarter and full year also surpassed estimates.
Paramount — Shares of the media giant gained 3.6% during midday trading on a rating upgrade from Bank of America from neutral to buy. The bank highlighted Paramount’s strong lineup of assets that could help the business in the event it puts itself up for sale.
McCormick & Company — The spice maker’s stock price jumped about 10% during midday trading after reporting better-than-expected earnings for the first quarter. McCormick reported quarterly earnings of 59 cents per share, while analysts surveyed by FactSet expected 50 cents per share.
Alibaba — Shares soared by 12% after the e-commerce giant said it would split its company into six separate business groups, with each group having the potential to raise outside funding and go public.
Ciena — The technology company advanced 4.9% after Raymond James upgraded the stock to strong buy from outperform.
Walgreens Boots Alliance – Shares of the pharmacy giant rose more than 3% midday after the company reported an increase in its quarterly revenue despite seeing a sharp decline in demand for Covid tests and vaccines. Walgreens posted revenue of $34.86 billion for the most recent quarter, compared to analysts’ estimates of $33.53 billion, according to Refinitiv.
Carnival Corp — The cruise operator’s stock price rose 5.9% on Tuesday after Wells Fargo upgraded Carnival to equal weight from underweight. The firm said it sees a more balanced risk/reward for the company
— CNBC’s Alex Harring, Yun Li, Jesse Pound and Michelle Fox Theobald contributed reporting.
Correction: According to FactSet, Micron is expected to post a loss of 67 cents per share. A previous version misstated the estimate.
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Stan Marsh, Kyle Broflovski, Eric Cartman and Kenny McCormick attend The Paley Center for Media presents special retrospective event honoring 20 seasons of ‘South Park’ at The Paley Center for Media on September 1, 2016 in Beverly Hills, California.
Tibrina Hobson | Getty Images
Warner Bros. Discovery sued Paramount Global looking to enforce the streaming rights of “South Park,” setting the stage for a legal battle between two media behemoths as the streaming wars intensify.
On Friday Warner Bros. Discovery filed a lawsuit against Paramount, South Park Digital Studios and MTV Entertainment seeking hundreds of millions of dollars for what it believes was a breach of contract.
Warner said it agreed in 2019 to pay more than $500 million, or approximately $1.69 million per episode, to license “South Park,” the longstanding cartoon featuring bad-mouthed elementary school children that has been airing on Paramount’s cable-TV network Comedy Central for decades, for its own streaming platform HBO Max.
During the bidding process for the “South Park” rights, the filing said, Paramount allegedly asked whether Warner Bros. Discovery would consider sharing the rights to the show for Paramount’s own streaming service.
“Warner/HBO rejected the proposition as a ‘non-starter,’” according to the lawsuit.
However, Warner alleged in its lawsuit that Paramount went back on its contract and withheld “South Park” specials and other related content. The suit points to Paramount’s own fledgling streaming service, Paramount+, as the reason.
A Paramount spokesperson denied the claims made by Warner in Friday’s lawsuit, adding that Warner has stopped paying licensing fees.
“We believe these claims are without merit and look forward to demonstrating so through the legal process,” a Paramount spokesperson said in a statement. “We also note that Paramount continues to adhere to the parties’ contract by delivering new South Park episodes to HBO Max, despite the fact that Warner Bros. Discovery has failed and refused to pay license fees that it owes to Paramount for episodes that have already been delivered, and which HBO Max continues to stream.”
Although the agreement called for HBO Max to receive the first episodes of the latest season of “South Park” in 2020, Paramount said it notified Warner in March that it would halt production of the season as a result of the pandemic
Warner then claims that “South Park” and its creators moved forward with the production of other types of content, such as two pandemic-themed specials that aired between September 2020 and March 2021.
Warner further alleges the scheme was in the works when Paramount’s subsidiary MTV signed a deal with the “South Park” creators in 2021, which called for exclusive content for Paramount+, reportedly worth $900 million.
“We believe that Paramount and South Park Digital Studios embarked on a multi-year scheme of unfair trade practices and deception, flagrantly and repeatedly breaching our contract, which clearly gave HBO Max exclusive streaming rights to the existing library and new content from the popular animated comedy South Park,” a Warner Bros. Discovery spokesperson said in a statement Friday.
The showdown comes as streaming services have been vying for subscribers and looking to reach profitability in the near future. Media companies have been spending billions of dollars on content to attract customers, and have recently begun cutting costs as increased competition has led to slowing subscriber growth.
This week Warner Bros. Discovery reported a big loss in its quarterly earnings as the company faces a softening advertising market, which has weighed on its revenue. The company said, however, that it added 1.1 million global streaming subscribers, bringing its total to 96.1 million for services including HBO Max and Discovery+. Losses for the streaming business also narrowed to $217 million for the period, “a $511 million year-over-year improvement.”
Warner Bros. Discovery plans to launch a combined HBO Max and Discovery+ streaming service this spring.
Meanwhile, Paramount said last week Paramount+ hit 56 million subscribers in its most recent quarter. The company plans to increase the price of its streaming service when it combines Paramount+ and Showtime later this year. Paramount also said it was affected by the tough ad market.
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Los Angeles Chargers running back Austin Ekeler, center, runs for extra yardage while Tennessee Titans linebacker Monty Rice, left, and safety Andrew Adams (47) attempt a tackle during the second half at SoFi Stadium on Sunday, Dec. 18, 2022 in Los Angeles, CA.
Allen J. Schaben | Los Angeles Times | Getty Images
The National Football League had a streaming service in mind when it was looking for a new home for the rights to its “Sunday Ticket” subscription game package.
The league got its desired outcome in a deal with Google‘s YouTube. Traditional TV networks got what they wanted out of it, too.
Beginning next season, “Sunday Ticket” will be offered in two ways through YouTube: either as an add-on to its YouTube TV service, a digital TV bundle that mirrors the traditional pay-TV package, or a la carte through YouTube’s Primetime Channels.
YouTube is paying about $2 billion annually for residential rights over the next seven years, CNBC reported. The process concluded this week after months of negotiations with potential winners like Apple, Amazon and Disney, which operates ESPN streaming service ESPN+.
While pricing hasn’t been determined, consumers will likely get more bang for their buck by subscribing to YouTubeTV and adding on “Sunday Ticket,” which shows out-of-market NFL games on Sunday afternoons. It’ll also give them access to nearly all NFL games in one place. Google’s YouTube TV bundle includes broadcast stations like CBS, Fox and NBC. Fellow tech giants Apple and Amazon don’t provide a similar bundle offering with broadcast or pay-TV networks, such as ESPN and NFL Network.
Sports, and particularly the NFL, have long been considered the glue holding the traditional TV bundle together. Sports networks, and those that offer live games, attract some of the highest fees from pay-TV operators, and they score some of the highest ratings. The NFL makes large sums for the airing of live games.
For this reason, executives at longstanding broadcast and pay-TV networks, who declined to to be named because they weren’t permitted to talk publicly, found the deal with YouTube a favorable outcome over Apple or Amazon getting the package.
YouTube and the NFL didn’t immediately comment.
Paramount‘s CBS and Fox broadcast weekly Sunday afternoon games. Comcast‘s NBC is the home of “Sunday Night Football,” and Disney, which owns ESPN and ABC, holds the rights to “Monday Night Football.”
Each has paid hefty sums for those rights. Last year, collectively, the four agreed to pay more than $100 billion over the course of 11-year-long packages to air NFL games.
For networks like NBC, CBS and ESPN, they are simultaneously airing NFL games on their fledgling streaming platforms for the audience that has turned away from the pay-TV bundle.
All of those games are available through Google’s YouTube TV package, with the exception of “Thursday Night Football,” which now streams exclusively on Amazon Prime.
“YouTube in many ways is a very unique and interesting platform,” Dhruv Prasad, the NFL’s senior vice president of media strategy and strategic investments, said on a call with media this week, “because we have chosen a partner that actually supports, in many ways, our existing distribution with Sunday afternoon and night, and Monday night. We actually think this is a model where this will result in a real benefit with existing partners.”
While deals with traditional operators are wildly lucrative for the NFL, the league has been open about wanting more streaming partners. NFL Commissioner Roger Goodell said long before the outcome of the negotiations the league saw a streaming partner as the future of “Sunday Ticket,” which has only been offered through satellite-TV operator DirecTV since 1994.
Although YouTube is streaming only, it offers a package that keeps the TV bundle alive – by paying similar rates as typical distributors, which has in turn caused a spike in the price of subscriptions. YouTube TV had more than 5.3 million subscribers as of the third quarter, putting it above its competitors like Disney’s Hulu Live TV+, Fubo TV and Dish’s Sling, according to data from MoffettNathanson.
“This is a win for YouTube TV as it serves a larger goal for them getting more subscribers. And in the end, it helps a package of linear channels,” said sports media consultant Pat Crakes, noting YouTube also secured the rights “at a good price,” to help them bolster their streaming service.
Adding another NFL property to the equation to make a TV bundle stickier with customers is a positive for networks, executives told CNBC.
The streaming business, particularly for legacy media companies, has most recently been under pressure. While companies raced to form and bulk up their own services, trailing Netflix, rabid competition is now weighing on subscriber counts, and content costs are soaring. Although streaming remains a priority, some media CEOs are rethinking how much content to take away from the traditional bundle and put on streaming.
For some in traditional media, however, YouTube becoming the home of “Sunday Ticket” wasn’t welcome news.
For pay-TV operators, this could lead to more customers cutting their traditional bundles and replacing them with YouTube TV, said people close to the distributors.
In the third quarter, cord-cutting hit all-time worst levels, according to research firm MoffettNathanson.
“The linear model won’t die of old age, it will instead die of neglect,” analyst Craig Moffett said in a recent note. “If lynchpin content – read: marquee sports programming – is exclusively available on linear platforms, then the linear model will be preserved, at least for a time, and at least for a segment.”
Driving customers toward YouTube TV subscriptions, or simply a la carte options, only amplifies the bleeding of pay-TV customers from traditional cable and telecommunications operators, like Charter Communications, Comcast and Dish. Executives on that side of the industry had hoped for Apple to win “Sunday Ticket” rights, people close to some distributors said, as it wouldn’t provide another linear bundle option.
One positive for distributors is that while YouTube TV has broadcast and pay-TV networks that offer sports and NFL games, the streamer still doesn’t offer regional sports networks as part of its package. For an all-around sports fan, this still makes the traditional bundle a better bet.
Still, that could change. This week, Sinclair’s regional sports networks signed a deal with Fubo TV, putting its portfolio of networks on a digital pay-TV bundle. Such a deal with YouTube TV may not be far behind given the recent “Sunday Ticket” package.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
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Evercore ISI analyst Mark Mahaney sat down with CNBC Pro to share the tech names he is looking at going into 2022. He also breaks down what stocks he views in the travel space that could do well, even in a possible recession.
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Mario Tama | Getty Images News | Getty Images
Netflix has a message for investors: start focusing on revenue and profit, and stop obsessing about subscriber growth.
Netflix made its argument with several pointed comments in its quarterly shareholder letter. The world’s largest streamer said it will stop forecasting paid subscriber adds. The company’s rationale behind the change is to get investors focused on revenue instead of customer growth.
“We are increasingly focused on revenue as our primary top line metric,” Netflix wrote as it reported third quarter earnings Tuesday. “This will become particularly important heading into 2023 as we develop new revenue streams like advertising and paid sharing, where membership is just one component of our revenue growth.”
Netflix will continue to provide guidance for revenue, operating income, operating margin and net income — traditional metrics of profitability — and it will still report subscriber adds each quarter. It just won’t forecast what’s to come.
Part of the change is motivated by the increasingly wide array of revenue per user. A given subscriber could be paying $6.99 per month for Netflix’s new advertising tier, which debuts in the U.S. on November 3, or $19.99 per month for Netflix’s premium, no-ad service.
“Focusing on subscribers in our early days was helpful, but now that we have such a wide range of price points and different partnerships all over the world, the economic impact of any given subscriber can be quite different,” Spencer Wang, Netflix’s vice president of finance, said during the company’s earnings call Tuesday. “That’s particularly true if you’re trying to compare our business with our streaming services.”
Theoretically, Netflix’s advertising tier and coming crackdown on password sharing should reinvigorate subscriber growth. But Netflix, which gained 2.4 million subscribers in the third quarter on an “especially strong” content slate, led by “Stranger Things 4,” may see quarters with 10 million or more subscriber adds as a relic of the past.
Instead of operating in a world filled with comparisons to a pandemic era fueled by surging growth, Netflix is attempting to steer investor focus to the fact that its streaming service actually makes money. Netflix directly addressed this point in the “Competition” section of its shareholder letter.
“It’s hard to build a large and profitable streaming business – our best estimate is that all of these competitors are losing money on streaming, with aggregate annual direct operating losses this year alone that could be well in excess of $10 billion, compared with our +$5-$6 billion of annual operating profit,” Netflix wrote.
In other words: Netflix is saying it has built a great streaming business, while Disney, Warner Bros. Discovery, Comcast‘s NBCUniversal, Paramount Global, and others want to build a great streaming business. Netflix acknowledged some of their competitors may get there, through consolidation and price hikes.
This is a clear competitive advantage for Netflix, unlike subscriber adds, where Disney — earlier in its growth cycle, having launched Disney+ in 2019 — has the upper hand. Disney added 14.4 million Disney+ customers last quarter while Netflix lost 970,000.
Netflix shares surged after hours, rising 14%. The company is once again adding subscribers after losing customers in the first and second quarters. Next quarter, Netflix said it will add 4.5 million more customers.
But Netflix says we’re not supposed to be focused on that anymore. The question is whether investors will listen.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
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