Paramount Skydance Corporation Class B Common Stock Q3 FY2025 earnings call

• Launched the new Paramount 96 days ago, making significant progress in transforming the company. • Identified North Star priorities: investing in growth businesses, scaling the direct-to-consumer (DTC) business globally, and driving enterprise-wide efficiency. • Made key leadership hires, pursued high-impact partnerships, and expanded the roster of creative talent. • Plan to grow theatrical output to at least 15 movies per year starting in 2026, with incremental programming investments exceeding $1.5 billion in 2026 across theatrical and DTC platforms. • Focus on converging the company's three streaming services (Paramount+, Pluto, BET+) into one platform to enhance the user experience and ad tech capabilities. • Partnerships such as with UFC, Zuffa Boxing, and South Park to drive subscriber engagement and growth.

In Q3, Paramount's DTC segment, particularly Paramount+, showed strong performance with 79 million total subscribers. Paramount+ revenue growth was 24%, and the segment saw a 17% increase. The CBS portfolio is highly profitable, providing a solid foundation. The company's focus on content investments and platform convergence is key to driving growth in these segments.

• 2026 guidance includes total revenue of $30 billion, driven by strong D2C revenue growth and global profitability, with adjusted operating income before depreciation and amortization (OIBDA) of $3.5 billion. • Increased the run rate efficiency target from $2 billion to at least $3 billion. • Plan to grow theatrical output to at least 15 movies per year by 2026. • Incremental programming investments over $1.5 billion in 2026 across theatrical and DTC platforms to expand content pipelines for global audiences.

• Competitive media landscape poses challenges in achieving global scale. • Challenges in integrating technology across the company's three separate streaming services, which operate on different clouds and stacks. • International market dynamics, including balancing subscriber growth with investments in select markets. • Uncertainties in achieving expected returns from content investments and partnerships, such as with UFC and other properties.

Q: Can you talk more about your confidence for Paramount+ to gain global scale? And what role does growing your overall content spend play into better competing with the other large SVOD platforms in the future?

A: David Ellison discussed investing in high-quality content, improving the platform through technology, and making global content investments, including increasing theatrical output to drive platform growth internationally. Jeff Shell added on international investments in content and platform, mentioning Pluto's role in some low ARPU markets.

Q: If I have maybe an initial conclusion from the shareholder letter, it's that you want more, more originals, more licensing, more sports, news, wide releases, tech and I guess, a lot more efficiency. Is there any way you can help us think about how much investment you plan to put into Paramount Skydance over the next several years?

A: David Ellison mentioned continuing to invest in growth businesses, with plans to scale Paramount Skydance to at least 15 movies per year by 2026, leveraging creative engines and partnerships. Andrew Warren emphasized investment decisions are tied to value creation and return on investment.

Q: With the TV Media segment, just be great to get your updated view on your portfolio of networks. How are you thinking about advertising and cord cutting trends from here and within your 2026 forecast and then within that context, investing into or optimizing these brands?

A: Jeff Shell discussed trends in broadcast vs cable, with broadcast having modest declines and cable accelerating decline. Focus on investing in CBS for DTC growth and optimizing cable brands like Nickelodeon, MTV, and Comedy Central for digital transformation and integration into the streaming strategy.

Q: One of the things that differentiates your narrative from other media and entertainment companies is the focus on entertainment and tech. I'm just wondering, David, can you give us your vision of how tech and entertainment interrelate and how you drive growth? Like can you give us concrete or specific examples or color on how you think about that? And then just one thing in the release, when you talked about your partnership with IPG and Publicis for digital ad sales, what did they bring to the company? Like what tools will they bring to help drive revenue growth?

A: David Ellison discussed technology initiatives such as converging streaming platforms, Oracle Fusion integration, and AI use. Jeff Shell added on ad sales partnerships with IPG and Publicis to drive cost savings, revenue commitments, and broader digital ad sales opportunities.

Q: I guess from a really high level, David, it would be great to get your view on the UFC strategy. It was obviously by far, the biggest sort of statement you've made since acquiring Paramount. And how do you think about earning a return? You obviously put up a much bigger price than what was being paid before. And so between the subscriber base of Paramount+ getting this included, price increases, you said one is coming, but you didn't specify how much. Like how do we think about how you drive return and how you'll use the UFC assets across Paramount plus, CBS and even maybe some of your cable networks?

A: David Ellison and Jeff Shell discussed UFC as a year-round event-based sport driving subscriber growth and engagement across Paramount+, CBS, and cable networks. Andrew Warren provided context on adjusted projections due to investments in content and efficiencies, and content write-downs aligned with strategy.

Q: Two, if I could. First, David, how should we think of the long-term profitability of the D2C business? And what are the major levers to get there? It sounds like from the letter, you think ARPU is one of them where you guys could make some substantial headway in the near term. And then getting back to the comments on the investment, is this a situation where you guys are investing so heavily on the front end that, that free cash flow may turn negative in the near term before the platform scales up? Or how should we think of free cash flow trends over the next couple of years?

A: Andrew Warren discussed free cash flow expectations, noting onetime costs in 2026 but adjusted positive, and key levers like working capital and cash tax rates. David Ellison emphasized the D2C segment's profitability is expected to increase.

Q: I just had a follow-up on the content ROI discussion, maybe away from the UFC specifically and speaking more broadly in the context of the plan to make incremental programming investments in 2026 in excess of $1.5 billion. What does the $1.5 billion look like across the various categories or verticals, whether it's between sports, originals, licensing, DTC, theatrical? However way you're able to slice it would be helpful, along with what the total content spend budget looks like in 2025 versus 2026? And then how are you approaching the decision-making process and ROI analysis of these investments as we move forward and manage the balance between investing for global scale while also anchoring around profitable growth?

A: David Ellison discussed investments across growth businesses, including UFC, South Park, and Paramount Pictures. Andrew Warren added on unified review of content spending across verticals, ensuring alignment with value creation and top-line growth.