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Parsing Paramount Plus

Sonequa Martin-Green as First Officer Michael Burnham in ‘Star Trek: Discovery,’ a show to be featured on Paramount Plus.
Sonequa Martin-Green as First Officer Michael Burnham in ‘Star Trek: Discovery,’ a show to be featured on Paramount Plus. (Image credit: CBS Broadcasting)

There are a mountain of questions of about ViacomCBS’s plans to launch Paramount Plus, which might be the last big direct-to-consumer video service to enter the streaming wars.

Many of those questions will be answered soon. First, ViacomCBS will hold a streaming event for Wall Street analysts on Wednesday (Feb. 24). The service itself goes live in the U.S. on March 4. If you watched the Super Bowl, where Paramount Plus had four minutes worth of promo time, you might have heard about it.

Paramount Plus is a rebranded, super-charged version of CBS All Access. Dating back to 2014, CBS All Access was one of the first DTC products introduced by a company engaged in the pay TV universe. It found some success, exceeding expectations by growing to nearly 10 million subscribers, while offering its customers a combination of new and old CBS shows, original programming led by the Star Trek franchise
and sports, including CBS’s National Football League games.

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As the rest of the TV industry pivoted to streaming, following Netflix’s lead, CBS and Viacom, both controlled by the family of aging media mogul Sumner Redstone (he died in 2020), were enmeshed in corporate intrigue that resulted in the two companies eventually being recombined at the end of 2019.

One of the rationales for the merger of CBS and Viacom was to build the firepower to compete in the streaming world where, as Redstone famously said, content is king. Having a lot of iconic TV shows and movies is important for keeping subscribers, but spending billions to create original content is what attracts new customers.

Young Sheldon on CBS

Paramount Plus offerings will include first-run CBS series like Young Sheldon(Image credit: CBS Broadcasting)

While The Walt Disney Co. went all in on streaming with Disney Plus in 2019, it’s still not clear that ViacomCBS is pushing all of its chips into the pot. It still might want to support the CBS Television Network, the Viacom cable channels and Showtime (which has its own streaming service). It also bought Pluto TV, an ad-supported free streaming service that is now an integral part of ViacomCBS’s streaming strategy.

“What we’re doing is progressively building a linked ecosystem of differentiated offerings across free and pay streaming,” ViacomCBS CEO Bob Bakish said in December at the UBS Global TMT conference. “And that ecosystem is centered on Pluto TV in free VOD and Paramount Plus and Showtime OTT on the pay side.” 

In the third quarter, ViacomCBS reported 17.9 million streaming subscribers, up from 16.2 million in the second quarter and 10.4 million a year ago. Combined with PlutoTV and other assets, domestic streaming and digital video revenue hit $636 million, up 56% from a year ago.

“Our domestic streaming and digital-video revenue is growing north of 50% and will generate $3 billion of domestic annual run rate revenue in Q4,” Bakish said. “Again, those are metrics you would invest in, and we’re going to invest in them.”

ViacomCBS's Bob Bakish

ViacomCBS CEO Bob Bakish (Image credit: ViacomCBS)

Netflix has 203.4 million global subscribers, while Disney’s streaming services combine for 146 million subscribers, including 94.9 million for Disney Plus, so Paramount Plus also has a mountain to climb.

Wells Fargo Securities media analyst Steven Cahall said his model forecasts ViacomCBS having 31 million subscribers in 2025. But he noted that the 57% increase in Viacom’s stock this year as of April 12, to $58.31 a share, implies that the market has a target of 56 million subscribers. Is that doable?

“It’s definitely a growing category,” Bakish told the UBS forum. “We see it continuing to grow. We do not believe it is a winner-takes-all market. We believe there’s a place for a number of streaming services to be successful. And in that kind of setup, this is why we believe in a differentiated approach, complementary approach. And in fact, we do have differentiated and valuable assets.”

In a survey conducted by Hub Entertainment Research this month, 42% of US TV consumers age 16-74 said they’d be very or somewhat interested in Paramount Plus after hearing a description of the service. Among 18-to-34-year-olds, interest was higher, at 51%. When asked what they considered to be the main strengths of the service they said they expected it to have high quality content, a wide variety of shows and movies, and a strong selection of their favorite shows.

Wall Street analysts and other industry observers will be listening as Bakish and his team provide more details to the strategy for building Paramount Plus. Here are some of the questions they want to have answered.

What will be the key franchises that Paramount Plus will use to lure new subscribers?

“Clearly they are pushing a lot of what is already on TV and in their catalog, including a live feed of CBS,” LightShed Partners partner and media & technology analyst Rich Greenfield said. “But the key question is, what are the must-have new franchises? When you look at Disney Plus, think Mandalorian or WandaVision. It’s not clear yet what the big franchise content will be to drive subscriptions.”

Leading up to the launch, Bakish has touted some new original programming including The Offer, about the making of The Godfather movie franchise; Lioness, a spy drama; Kamp Koral: SpongeBob’s Under Years, a new SpongeBob SquarePants series, and a Yellowstone prequel. Also coming are new versions of BET dramedy The Game, MTV reality staple The Real World, VH1 music docuseries Behind the Music and The Real Criminal Minds, a true-crime docuseries based on CBS’s scripted procedural.

How will ViacomCBS prioritize Paramount Plus versus its broadcast, cable and other streaming assets?

ViacomCBS licensed shows, including Showtime’s Ray Donovan, and films such as The Godfather to help launch NBCUniversal’s Peacock last July and sold the exclusive streaming rights to South Park in 2019 to HBO Max, which added other Comedy Central shows in October. 

Bakish told the UBS conference that “licensing is an important business.” He said the company doesn’t believe it “makes sense to keep all that content for only an owned-and-operated streaming service,” but added “our strategy is clearly evolving in a more O&O-based direction. In fact, the decisions we made at Paramount Plus, even though we don’t have it in the market, have already impacted our content licensing decisions.”

Will ViacomCBS put its movies on Paramount Plus?

AT&T’s HBO Max gained traction when the telco decided that its Warner Bros. studio would open all of its 2021 films simultaneously in theaters and on HBO Max, starting on Christmas Day 2020 with Wonder Woman 1984. Disney has put some theatricals, such as Mulan and Soul, on Disney Plus, but is also putting some on premium video-on-demand on a case by case basis. 

Paramount Pictures has 12 films for 2021, including A Quiet Place Part II, Top Gun: Maverick, Mission: Impossible 7 and Snake Eyes: G.I. Joe Origins. Paramount has already delayed the premiere of some films because of COVID, but others have been streamed.

Tom Cruise in Top Gun: Maverick

Top Gun: Maverick is one of the Paramount films set for release in 2021 that could find its way to the OTT service.  (Image credit: Paramount Pictures)

SpongeBob: Sponge on the Run, originally slated for theaters, will be on Paramount Plus, and the Paramount Players label is going to be producing made-for-streaming content.

“I think the film category will continue to be strategic and valuable, but certainly is evolving,” Bakish told the UBS conference. “And again, that's giving us more flexibility, more optionality as we go unlock value for Paramount and for ViacomCBS writ large.” 

Can ViacomCBS make deals with distributors?

It turns out that after making plans to launch a streaming service, getting carriage on some of the key platforms can be a cliffhanger. HBO Max, launched last May, last didn’t make a deal with Amazon until November, slowing the new service’s growth.

The same goes for cable operators, who are slowly but surely making it easier for their subscribers to access streaming services without disconnecting from their set-top boxes.

It also helps when launching a streaming service, to make a deal to offer it free or at a discount on a mobile phone platform. Disney Plus got a boost from its deal with Verizon and Discovery Plus was counting on similar results from its Verizon deal. In a display of synergy, HBO Max is free to AT&T subscribers. 

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Bakish said ViacomCBS believes being distributed everywhere is important. “Our streaming strategy has also been based on ubiquitous distribution,” he said. “We have distribution through traditional operators. We have distribution through mobile operators. We have distribution through over-the-top players, whether that's channel stores or platforms.”

CBS All Access is now available via Roku, but a new agreement will be needed for Paramount Plus, said Tedd Cittadine, VP of content distribution at Roku.

“The successful streaming services we’ve seen take off over the last year have embraced an abundance mentality that recognizes the incredible growth-curve potential for their businesses through strong collaboration with their platform partners in all areas of the business such as user acquisition, customer retention, brand marketing, advertising and ad tech,” Cittadine said.

Exactly how that carries over to Paramount Plus will be a key to how fast it grows.

Will ViacomCBS’s technology support a bigger service and more advertising?

CBS All Access has been around for a while, so it has established that its technology is basically sound. “These days, the quality of the tech is not the first driver for subscribers,” Innovid chief technology officer and co-founder Tal Chalozin said. “It’s hard to say this platform is significantly better in terms of caching, or streaming technology or buffering, at least in the first 10, 20 million subscribers.”

Innovid has done a number of integrations with CBS All Access’s ad tech and Chalozin said the already hot connected-TV ad market will benefit from having more high-quality inventory. 

“With lower ratings in linear and cord-cutting, a lot more advertisers are jumping into the marketplace for CTV,” Chalozin said. “There is more demand than supply, so when a service launches like Paramount Plus that has a hybrid of ad and subscription, that’s good for the marketplace.”

Chalozin predicted that as the streaming market gets more crowded, there will be consolidation. It’s already happened with ad-supported streamers like Pluto TV and Tubi getting acquired. On the subscription side, he expects bundlers to step in to sell packages of streaming services. “CBS All Access was one of the first to team up with Amazon Channels,” he notes.

The SpongeBob Movie: Sponge on the Run

The SpongeBob Movie: Sponge on the Run will make its debut on Paramount Plus. (Image credit: Paramount Pictures)

How much financial information will ViacomCBS disclose about how many subscribers it expects to attract, how much the service will cost and when it will break even?

When Disney decided to pivot to streaming in 2019, it called a special meeting for analysts and investors held at its Burbank studios. At the meeting, Disney unveiled what Disney Plus would look like, showed clips of the programming that would be on the service and introduced many of the people responsible for creating that content.

Disney also shared fairly detailed financial information with the analysts. It provided projections about how many subscribers it expected to attract, how much it would spend on programming, how much revenue would be lost because it wasn’t licensing content to others and when Disney Plus, Hulu and ESPN Plus would break even and start to generate profits.

The presentation helped make Disney stock a winner and shares have risen to record levels and Disney Plus has exceeded those initial forecasts.

“Disney has done a fantastic job on disclosure and sticking to it quarter in and quarter out,” MoffettNathanson analyst Michael Nathanson said.

Since the Disney Plus launch, NBCU has held a similar meeting for Peacock; AT&T did one for HBO Max; and Discovery Inc. held one for the launch of Discovery Plus earlier this year. The amount of detail varied and it remains to be seen how transparent ViacomCBS will be about Paramount Plus’s financial performance.

“I have suggested [a Disney-like] approach to Viacom and all my other companies,”
Nathanson said. “We should have a breakout of subscribers, RPU and revenues at the least. A P&L [profit and loss statement] is hard because of the way content is valued and sold intra-company … so at least we would love more revenue transparency.”  

ViacomCBS has $3 billion in cash on its balance before the sale of non-core assets, chief financial officer Naveen Chopra noted on its third-quarter earnings call in November. He said the company plans to use free cash flow to fund its streaming investments. 

Can Paramount Plus catch Netflix or Disney Plus?

Brian Wieser, the former analyst and now global president for business intelligence at GroupM,  thinks the streaming business is built on a fairly simple formula. 

“The thing that drives the business is your share of investment. Your share of spending on programming will generally drive your share of viewing,” Wieser said. “In an industry in which there's $100 billion of spending on programming, if you’re spending $5 billion on programming and all else is equal, you should expect about 5% of the viewership.”

Netflix spent about $17 billion on content in 2020 and is expected to spend even more this year. 

“If someone wanted to replicate Netflix’s success in terms of their audience share, it’s really quite simple,” Wieser said. “They just need to commit to spending as much as Netflix does on content.”

Wall Street has stopped worrying about signals that Netflix and Disney will continue to spend more money on programming to boost the numbers that seem to be driving stock prices. We’ll see how aggressively ViacomCBS wants to play the streaming game.