Paramount Global announced a sweeping set of measures on Thursday, including the layoff of 15% of its U.S. workforce and a $6 billion write-down of its cable television networks. The media giant, known for its iconic brands like Nickelodeon, MTV, and Comedy Central, is taking these steps as it prepares to merge with Skydance Media, a deal that could reshape the future of the company.
The layoffs, set to affect approximately 2,000 employees across the United States, are part of Paramount's broader strategy to cut $500 million in annual costs. This move comes as the company seeks to streamline operations and eliminate redundancies ahead of the merger with Skydance, which is helmed by technology entrepreneur David Ellison. Paramount's co-chief executive Chris McCarthy indicated that the cuts would largely impact departments such as marketing, communications, finance, legal, technology, and other support functions.
"The elimination of redundant functions and reduction in headcount are painful but necessary measures to ensure that Paramount remains competitive in a rapidly changing media landscape," McCarthy said during the company's earnings call on Thursday. He also noted that the merger with Skydance is expected to generate $2 billion in synergies, a key factor in the company's long-term strategic planning.
The $6 billion write-down is a stark reflection of the declining fortunes of the traditional cable television business, which has been battered by the rapid shift of consumers toward streaming services. Paramount's decision to reassess the value of its cable assets comes on the heels of a similar move by Warner Bros. Discovery, which announced a $9.1 billion write-down of its television business just a day earlier.
David Zaslav, the CEO of Warner Bros. Discovery, highlighted the changing market dynamics, stating, "It's fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today. And this impairment acknowledges this."
Paramount's announcement is the latest in a series of distress signals from the media industry, where both traditional and digital outlets are struggling to adapt to new consumer behaviors and economic pressures. For instance, the digital news outlet Axios recently laid off 10% of its staff, marking the first time in its history that the company has had to make such cuts. Similarly, the long-standing TV trade magazine Broadcasting+Cable, founded in 1931, recently announced its closure, citing the "rapid transformation" of the industry.
Despite the grim news for its cable business, Paramount did report some bright spots, particularly in its streaming division. The company's streaming service, Paramount+, posted a $26 million profit for the quarter, a significant turnaround from the $424 million loss reported during the same period last year. This marks the first time that Paramount's direct-to-consumer business has been profitable, a milestone that helped buoy the company's stock by more than 5% in after-hours trading on Thursday.
Paramount's overall earnings for the quarter also exceeded Wall Street expectations, with adjusted earnings per share coming in at 54 cents, compared to the 12 cents expected by analysts. However, revenue fell short of expectations, dropping 11% to $6.81 billion, missing the $7.21 billion that analysts had anticipated. The decline was largely attributed to weaker-than-expected TV licensing revenue, which has become increasingly difficult for analysts to model accurately due to fluctuating contract start and end dates.
One of the more significant factors affecting Paramount's financial performance was the impact of unwinding a Korean partnership deal with CJ ENM's Tving streaming platform, which resulted in a 2.8 million decrease in Paramount+ subscribers from the previous quarter. Despite this, the streaming service still saw a 46% increase in revenue year-over-year, driven by subscriber growth and higher prices.
Looking ahead, Paramount reaffirmed its commitment to achieving profitability for Paramount+ in the U.S. by 2025, a goal that it plans to reach through a combination of price increases and reduced content spending. The company's quarterly profit was also bolstered by the absence of NFL licensing charges for the period, which are expected to impact later quarters.
