Sixty million people can be wrong. On Thursday morning, Paramount Global reported now having 60 million subscribers to its core streaming service, Paramount+. But by the end of a disastrous trading day (PARA -28 percent), one crippled by poor quarterly earnings and a major cut to shareholder dividend, equity analyst Steven Cahall of Wells Fargo suggested the company just quit streaming altogether at this point.
Paramount+, like every streaming service not named Netflix or Hulu, is not (yet) profitable. But that’s only the beginning of Cahall’s argument. Analysts and media executives have long speculated that only a handful of all the streaming options around today will survive or make money in the long run. Cahall is ready to scratch one of that list today, even if Bob Bakish and his fellow senior Paramount executives are not.
“Why is [direct-to-consumer]/streaming the wrong approach? Because it’s too crowded, meaning lack of scale. Only [Netflix] currently has healthy margins and it’s 7x Paramount+’s scale. We think [Disney] can get there too and it’s 3x [Paramount],” Cahall wrote in an investor note Thursday. “Alas, we see no willingness for these paths.”
Cahall in his analysis suggested that Bakish “change course” and consider “shutting down DTC,” specifically Paramount+. This comes in the wake of the company having already spent $1.7 billion in merging Showtime with Paramount+, based on its Q1 earnings figures.
The way Cahall sees it, Paramount+ is “fighting hard for fifth place” in the streaming wars behind Netflix, Disney+, Hulu, and HBO Max [soon just Max], and it’s competing with the likes of Peacock, Apple TV+, and Amazon Prime Video. According to Wells Fargo’s model, Cahall doesn’t see Paramount or even Comcast breaking even in streaming until 2027. Disney+ expects to be profitable by 2024, and Warner Bros. Discovery should see Max break even by next year.
“We think streaming losses could remain elevated with low clarity on break-even or long-term profitability,” Cahall continued. “In fact, we think DTC will only be meaningfully profitable for the biggest scale players. With both linear and DTC presenting challenges, [Paramount] is likely to have negative revisions and tough decisions, which could include reconsidering sports rights or shifting strategy.”
There’s another alternative for Paramount here. Be Sony.
If Wells Fargo were running Paramount, they’d turn it into an arms dealer like Sony, licensing and selling its content to others. Or they’d go another step further and break up the company’s assets. There’s gold in those mountains of entertainment: Cahall points to Amazon buying MGM for $8.5 billion and figures that Paramount’s studios are worth a combined $30 billion or more.