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Paramount’s Streaming Surge Drives Profitability Gains Amid Industry Challenges

Theodore QuinnThursday, May 8, 2025 7:09 pm ET

37min read

Paramount Global (PARA) delivered a strong Q1 2025 earnings report, showcasing its transition to a streaming-first entertainment company. The firm’s streaming division, led by Paramount+ and Pluto TV, drove subscriber growth, revenue expansion, and narrowed losses, even as legacy TV networks faced headwinds. Here’s why investors should take note—and what risks still linger.

Streaming Dominates the Growth Narrative

Paramount+ now boasts 79 million global subscribers, a 11% year-over-year increase, fueled by hit shows like Landman, 1923, and MobLand (the latter marking its largest global launch ever). While quarterly net adds of 1.5 million fell slightly short of estimates, the platform’s subscription revenue surged 16% to $1.57 billion, reflecting higher pricing and licensing deals. This momentum pushed Direct-to-Consumer (DTC) revenue up 9% to $2.04 billion, outpacing broader revenue declines.

The DTC segment’s adjusted operating income before depreciation and amortization (OIBDA) improved by $177 million year-over-year, with its operating loss narrowing to $109 million from $286 million in Q4 2024. Paramount reaffirmed its 2025 goal of achieving domestic profitability for DTC services, a milestone that could unlock significant shareholder value.

The Pluto TV Advantage

Pluto TV, Paramount’s free ad-supported streaming service (FAST), reported its highest-ever quarterly consumption in both domestic and global markets. This aligns with a broader industry shift toward cost-effective AVOD (ad-supported video on demand) platforms. With subscription fatigue rising—52% of U.S. viewers now cite costs as a barrier—Pluto TV’s 92% surge in U.S. usage since 2022 positions it as a critical growth lever.

Headwinds in Legacy Media

The good news in streaming contrasts with struggles in traditional TV. Paramount’s TV Media division saw 13% revenue decline to $4.53 billion, driven by a 21% drop in ad sales (excluding the Super Bowl LVIII one-time impact). Linear networks like MTV and Nickelodeon face declining affiliate fees and viewership, prompting a $6 billion write-down on cable channels in 2024.

The Skydance Merger: A Gamble or a Game-Changer?

Paramount’s planned $8 billion merger with Skydance Media—pending FCC approval—aims to address content production gaps. Skydance’s technical expertise, including AI-driven recommendation algorithms, could reduce subscriber churn and boost engagement on Paramount+. However, regulatory hurdles and the $554 million net loss in Q1 2024 (now reversed to a $152 million profit) highlight execution risks.

Industry Context: Streaming’s Tug-of-War

Paramount’s results contrast with peers like Netflix (NFLX), which commands 282.7 million global subscribers, and Warner Bros. Discovery (WBD), whose Max service has added millions. Yet Paramount’s focus on localized content (e.g., dubbed programming in Germany, subtitles in Malaysia) and cost discipline—non-content expenses reduced by 12%—give it a competitive edge in a saturated market.

Investment Considerations

Upside: DTC profitability, Pluto TV’s FAST growth, and the Skydance merger’s content synergies could propel PARA’s stock.
Downside: Advertising revenue volatility, legacy network declines, and subscription fatigue (39% of users cite cost as a cancellation reason) pose risks.

Conclusion: A Streaming Turnaround Worth Watching

Paramount’s Q1 results signal a strategic inflection point. With DTC revenue up 9% and streaming losses halved year-over-year, the company is on track to meet its profitability targets. Pluto TV’s FAST growth and Paramount+’s hit-driven content strategy position it to capitalize on industry trends like ad-supported streaming and regional localization.

However, investors must weigh these positives against lingering risks: a 6% drop in total revenue due to legacy network declines and the uncertainty of the Skydance merger’s regulatory path. For now, Paramount’s streaming momentum justifies cautious optimism—but the path to sustained growth remains fraught with macroeconomic and competitive challenges.

Final Take: Buy the dip, but keep an eye on ad sales and DTC margins. Target: $22/share (20% upside from current price).

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