Paramount Global unveiled a series of significant cost-cutting measures on Thursday as it grapples with substantial financial losses and prepares for a major merger with Skydance Media. The media giant reported billions in operating losses for the second quarter, revealing a pressing need to streamline operations and reassess the value of its traditional TV business amid shifting consumer habits.
Cost-Cutting and Workforce Reductions
As part of its efforts to address financial challenges, Paramount disclosed plans to reduce its U.S. workforce by approximately 15%. This reduction, expected to be completed by the end of the year, aims to achieve cost savings of around $500 million. This $500 million figure is part of a broader $2 billion in “cost efficiencies” identified through the merger with Skydance.
Chris McCarthy, one of Paramount’s co-CEOs, explained that the layoffs would focus on “redundant functions” primarily in marketing and communications, as well as in finance, legal, technology, and other support functions. These cuts reflect the company’s ongoing efforts to optimize its operations and align its cost structure with its strategic goals.
Financial Performance and Impairment Charges
In addition to the workforce reductions, Paramount reported an operating loss of approximately $5.32 billion for the second quarter. The company also took a substantial $5.98 billion goodwill impairment charge related to its cable networks business. This impairment charge reflects a reassessment of the value of Paramount’s cable assets in light of declining traditional TV viewership and shifting market dynamics.
This news follows a similar announcement from Warner Bros. Discovery, which recorded a $9.1 billion noncash goodwill impairment charge due to challenges in the U.S. linear advertising market and uncertainties surrounding sports-rights renewals. Warner Bros. Discovery’s difficulties were compounded by a legal dispute with the NBA over broadcasting rights.
Stock Market Reaction and Industry Context
Despite the grim financial figures, Paramount’s stock saw a 5.4% increase in after-hours trading on Thursday. However, the stock remains down 30.1% year-to-date as investors await more robust profitability from the company’s streaming ventures. Paramount’s overall revenue for the quarter fell about 11% year-over-year to $6.81 billion, and the company reported a loss of $8.12 per share compared to a loss of 48 cents per share in the same quarter last year.
Factoring out impairment charges and restructuring-related expenses, Paramount’s adjusted earnings were 54 cents per share, surpassing FactSet estimates of 12 cents per share. This performance was driven by improved results in the company’s streaming segment, which reported a $26 million profit compared to a $424 million loss in the previous year. Revenue in this segment, which includes Paramount+, Pluto TV, and BET+, rose 13% year-over-year.
Challenges and Strategic Moves
The entertainment industry, including Paramount, has faced significant challenges in recent years, including cost-cutting measures and cautious development strategies following last year’s writers and actors strikes. Some analysts suggest that Netflix has emerged as a dominant player in the streaming wars, while other platforms, including Disney, have increased subscription prices to offset rising costs.
Paramount’s recent merger agreement with Skydance Media represents a strategic move to consolidate resources and better position the company for future growth. Despite the financial hurdles, Paramount remains focused on achieving domestic profitability for Paramount+ by 2025, even as it contends with a loss of 2.8 million subscribers due to the termination of a bundle agreement in South Korea.
Overall, Paramount’s aggressive restructuring efforts and strategic mergers highlight its commitment to navigating the evolving media landscape and addressing the financial pressures faced by many in the industry.