Paramount Skydance Corp Q4 FY2025 Earnings Call

Good afternoon. My name is Nadia, and I'll be the conference operator today. I would like to welcome everyone to Paramount's Q4 2025 Earnings Conference Call. I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Investor Relations. You may now begin your conference call.

Good afternoon, and thank you for taking the time to join us for the Paramount Fourth Quarter 2025 Earnings Call. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer, David Ellison; our President, Jeff Shell; our Chief Financial Officer, Dennis Cinelli; and our Chief Strategy and Operating Officer, Andy Gordon. As a reminder, we will be making forward-looking statements today that involve risks and uncertainties. Our remarks will also include non-GAAP financial measures, and reconciliations of these measures can be found in our earnings letter or in our trending schedules, which contain supplemental information. These can be found on our Investor Relations website. I'll now turn it over to David for a few brief remarks before we take analyst questions.

Thanks, Kevin, and good afternoon, everyone. As you saw in our Q4 results and in the most recent shareholder letter, we ended the fiscal year with a strong first full quarter under our leadership team and positive momentum heading into 2026, meeting or exceeding guidance for the quarter that we laid out in our Q3 letter. It's been a productive six-plus months since the launch of the new Paramount, and we are pleased with the progress made in a relatively short time. Our North Star priorities continue to guide everything we do, and we're confident we are on the right trajectory and are excited about the opportunities ahead. Before we get to your questions, I did want to take a moment to acknowledge Andy Warren's tenure as our Interim CFO. Andy is widely respected across our organization and the industry, and we are truly fortunate to have had his leadership during this important period. We're incredibly grateful for everything he's done to help position the company for success and appreciate his continued partnership as a strategic adviser. I also want to officially welcome Dennis Cinelli. He brings significant financial and operational experience, having held senior roles at GE, Uber, and Scale AI, where he served most recently as CFO. He was also briefly a member of our Board of Directors before assuming his current role. We're thrilled that he's joined our leadership team and look forward to you getting to know him better going forward. Finally, I'll briefly address our proposal to acquire Warner Bros. Discovery. On Monday, we submitted a revised bid of $31 per share, all cash, and we look forward to continuing to engage with their leadership team and Board. While we appreciate that this is obviously something you all have questions about, we won't be commenting further during today's call. With that, I'll turn it back over to Kevin for your questions.

All right. Thank you, David. And Nadia, we'll go ahead and open it up for questions. Thank you.

The first question goes to Peter Supino of Wolfe Research.

I wondered if you could comment on your initial experience as the home of UFC on your streaming service. And maybe tie those comments more broadly to your latest thinking on the viability of being something for everyone every day. I think that's your stated strategy in streaming. And obviously, it's an extremely tall competitive order. And I just wondered kind of what you've learned in the last six months of owning the asset that makes you more or less confident in that objective.

No, absolutely. And I really appreciate the question. First, we couldn't be more thrilled about the way the UFC partnership has started. UFC 324 was really a phenomenal start for us. We reached approximately 7 million households across the U.S. and Latin America and was also the platform's largest exclusive live event to date. We've also seen the advertising demand for UFC be strong. Overall, the partnership has really started ahead of expectations. In addition to that, we've really seen UFC fans engage with the vast others of our content offering. They're watching Landman. They're watching other series. So we're really seeing that flywheel work for us. We're also really seeing it work well with Zuffa Boxing. We believe in the theory of actually owning combat sports, having that entire category as a home on Paramount+ is something that's been working really well for us to date. More broadly, we greenlit our 11 original series since we took over six months ago and are really seeing strong growth in our streaming service, up over 17% year-to-date on Paramount+. From that standpoint, we're really seeing that momentum continue and feel really good about the start of the partnership with UFC and Dana White.

Is there anything we want to add on sort of the last six months in streaming?

Yes. So first of all, I would just add to the UFC comments that David just made that we're really at the very beginning of this partnership, and we're going to experiment a lot. The beauty of having this sport exclusively and being the exclusive partners of the UFC is we can try lots of stuff. Our upcoming fight on March 7 is going to be partially on CBS, and we look forward to lots of experimentation as we grow the brand. I think the first six months on streaming have gone really well. We've seen accelerating growth in Paramount+, doing better and better every quarter. The key now is to get ongoing engagement, and the content that I'm sure we're going to talk about later that we have coming is pretty exciting for doing that. From a financial perspective, the ad revenue has been much more promising than we expected. The key now is driving that engagement and that usage because we can monetize it at Paramount+. We're feeling pretty good about the momentum we have in streaming so far.

The next question goes to John Hodulik of UBS.

Jeff, maybe for you, a follow-up on the comments on D2C. You guys guided to better profitability next year against some slightly higher subs. What are you seeing in terms of ARPU? There seem to be some moving parts with exiting the hard bundles, but some price increases that translate to better revenue growth. And then on the cost side, just aggregate sort of that commentary on leading to better D2C results.

Yes. Thanks, John. I'm going to actually pass it over to Dennis for this one.

Yes. John, good to meet you, and I'm excited to be here. So thanks, everybody. I think it's helpful for us to just frame our guidance overall, which is a big part of that is DTC. As we've put out, overall, we expect revenue this year of $30 billion, up 4% year-on-year. DTC is going to be the driver of that. We expect DTC to continue to accelerate growth year-on-year. The driver of that is a couple of things. We continue to see subscriber growth, what we're calling underlying healthy subscriber growth accelerate in '26. This will result in better ARPU from a mix shift as well as we realize the price increases in Q1. As we mentioned, we are making a deliberate decision to exit from uneconomic hard bundles. You'll see that in our subscriber growth this year. But if you take those underlying exits out, we will continue to see net adds grow year-on-year. To give you a call out, those uneconomic hard bundles represented less than 2% of Paramount+ revenue in 2025. Coupled with the subscriber growth, we also expect DTC ad revenue to grow this year. We've been talking a lot about how we're investing in programming to drive better engagement, better ad tech as well as the team there that Jeff alluded to. We expect to meaningfully recover DTC ad growth in the year. At the same time, back to your question, how that comes together, we are investing in the business, but we expect DTC profitability to improve year-on-year as we both grow revenue and manage our investments. It's worth just taking a step back and talking about the rest of the business. DTC will be the growth driver. But as we think about the rest of the portfolio we have, right, so TV Media, we expect to see some declines in revenue, mostly in line with the industry headwinds around pay TV, though we expect our advertising revenue decline to be more moderate as we execute overall and better ad sales; we feel really good about the upfronts coming up this year. We also have tailwinds from political spending in 2026. One thing to call out, we do offset some of the impact from our sale of Telefe in Chilevisión. In TV Media overall, we feel really good about the team managing that business. While revenues will decline, we expect overall profitability in that business to be stable on both a profit dollars and a margin basis. Then the other thing is the studios, right? So studios, we do expect theatrical revenue to decline. We've been very clear that we're in a rebuild phase of that business. As we execute that rebuild, we'll see some of that come through in the '26 slate, but most of that will come through in future years. Even with theatrical revenue dropping down, we expect better cost management as well as benefits from our licensing deals to drive studio profitability up. If you put this together, overall, we're reaffirming guidance for the year on both revenue as well as profit, adjusted EBIT outlook of $3.8 billion. That excludes our $300 million of stock-based compensation but is improving year-on-year driven by both the top line and as we realize our synergies. We expect to realize $3 billion plus of our synergies across our entire business. We expect profitability to improve in DTC and our new studio segment, still margins in TV Media. Without giving specific guidance, we just want to make sure we're here talking about how our team around the table, from David on down, we're owner operators. We're investing for long-term value creation, and we expect that to show through over the next many years.

The next question goes to Steven Cahall of Wells Fargo.

First, just wanted to ask if you've had any conversations yet with the NFL. It's a big topic for investors, especially with you and Fox having so many games on Sunday. As you're thinking about where that could go in the future, I was wondering if there's any potential for the games on Paramount+, which I think are currently geo-fenced to be available nationwide rather than only being on Sunday ticket. So it seems like you've got some opportunities maybe as well as some risks with the NFL renewal. I would love to know how you're thinking about that. Then just on the outlook for '26 and maybe '27, if we think about free cash flow, I think you've said before that you're committed to investment grade with all three rating agencies. I think that implies that on a total basis, including restructuring, you'd be free cash flow positive by next year. So just wondering if I'm thinking about that one correctly.

Thanks, Steve. This is Jeff. I'll take the first and then pass it over to Andy for the second. We have a great relationship with the NFL. We talk to the NFL almost daily. We're the very first NFL broadcaster back when it started, and it's been nearly a century of relationship. During that century, this past year was our most watched year ever, everything clicked this last year for us with the most viewership, the biggest watched game, the biggest watched window for CBS nationally. So everything is going really well with the partnership, and we feel very good about them, and I think they feel very good about us. So we're not particularly concerned. Obviously, it's been widely publicized that there is a renewal discussion coming up. We don't talk about individual negotiations. But suffice it to say, we feel pretty confident we're going to be in business with the NFL for a long time, and we have properly accounted for what we expect will be whatever impact of that negotiation in our internal forecast going forward. One thing about the geofencing, let's talk about that for a second. One of the unique things about our relationship with the NFL, and I would say it's similar to Fox's relationship with the NFL, is the anchor of their flywheel is really their reach, and the anchor of their reach is the reach of both CBS and Fox on Sunday afternoons. The way we get the NFL that reach, which has helped contribute for both of our benefits to the success of the NFL is by our vast array of both owned and operated stations, of which we have 28 and affiliates. It's important that those games get regionalized and that we aggregate that viewership and maximize the viewership in each market for the best game, both for us and Fox. I don't think we're going to be doing anything with Paramount+ that's different. I don't think that Fox is going to be doing anything different than we are on linear, which is to maximize that reach and that regionalization of that window, which I think works for all of us. Maybe pass it over to Andy for the...

Yes, sure. Steve, thanks for the second question. Let me take the investment-grade part first, and it's interrelated with free cash flow conversion. We are absolutely committed to getting to investment-grade credit metrics. This is, of course, relative to our stand-alone position, and we expect to hit those in '27. With regard to free cash flow, I'd just point out that notwithstanding the fact we paid down over $300 million of debt in the first quarter and in addition, have $800 million of restructuring charges, if you take those restructuring charges out, we are actually hitting a 5% free cash flow conversion this year, which is not where we want to be. As we sort of accelerate that into '27 and the out years, we expect to get back to industry norms and hopefully exceed that. That's certainly part of our strategic plan. So I would say there's no real change from what we talked about in November.

The next question goes to Robert Fishman of MoffettNathanson.

When you think about your growth ahead, can you talk about how critical it is to creating long-term shareholder value to reinvigorate and build upon your core franchises and IP? If you can comment on how Warner Bros. and HBO IP would help accelerate that growth over the next 3 to 5 years, either for a stand-alone Paramount+ or a combined platform with HBO Max? On a related note, how do we think about overall content spending, again, either stand-alone or with Warner Bros., especially factoring in the sports and the long-term strategy to grow that profit and cash flow?

Yes. Thanks, Robert, for the question. We won't be answering anything related to Warner, as David mentioned in his opening remarks. So just a reminder for everyone else on the line, but we'll go ahead and how do we think about sort of franchise and long-term value, as we mentioned in the letter.

Yes. No, absolutely. Look, as we're the largest shareholder of the Class Bs, we really approach everything through the lens of how do we create long-term shareholder value, which means we're long-term investors, we're long-term owner-operators, and we really have a long-term horizon in terms of how we're approaching this. If you step back across all of our businesses, we're really pleased about the investments that we're making, going back to our North Star priorities. We talked about streaming. I'll start in the Studio segment. As Dennis said, we inherited a slate that has underperformed. We're going to see significant improvement in the profitability of the film slate this year. If you look at how we are doubling down on our franchises, reinvigorating them and reinvesting in them, we actually will release 16 movies this year versus the 8 films we inherited. We'll be at a steady state of over 15 movies per year. We've greenlit 11 movies since we've been here in the first six months, including films like A Quiet Place and Sonic, which is really us doubling down on our franchises. Taylor Sheridan and Pete Berg are hard at work at Call of Duty, which we're really excited about. Scream is opening this weekend, again going to Paramount+ in addition to the investments made in the UFC and sports. We've also greenlit 11 original series on top of the slate we're fortunate enough to step into. We're investing significantly in the improved product experience on both Paramount+ and Pluto. Consumers will continue to get more incredible content they love and an overall better user experience, which we think will position ourselves well for growth into the future. Looking at our linear anchored by CBS, we had 8 of the top 10 shows on broadcast, the #1 show in Tracker, the #1 new show in Sheriff County, the #1 news program in 60 Minutes. We're seeing strong demand for our content across our portfolios and we're only seeing that accelerate going forward. It's been six months, but we feel good about the work the team has done to date, and you can expect that to accelerate into the future quickly.

How do we think about the content spend for Paramount overall?

Overall content spend is set to increase by $1.5 billion, as we mentioned last quarter. This investment will enhance our film slate, original series, and sports offerings. We believe this strategy will foster long-term shareholder value, as our goal is to excel in the content sector, become the most technologically advanced media company, and achieve operational efficiencies throughout the organization. These principles guide our decisions, and we're pleased with our strong start in the first six months.

The next question goes to Rick Prentiss of Raymond James.

A question in the letter, you talked about leveraging your IP across the ecosystem. Give us some concrete examples of what you hope to achieve going across film, television, streaming, live experiences, publishing, consumer products and how we might see that? If you were to benchmark yourself against the peer group, how do you think you are doing as far as monetizing that IP?

It's a great question. I'll point to a couple of things. First, I'll use Teenage Mutant Ninja Turtles as the most recent example of really what we're doing. We have two films that we're making in the Turtles landscape, we have series, and we also have consumer products. Huge compliment to Josh, who came to us from Mattel, who in the first month of being at Paramount, created the most significant consumer products partnership in the history of the company, over five times what have been done to date. This is a great example of how we're maximizing our IP across the flywheel we've created. One of the things we're really proud of is the Paramount One initiative that we've launched as a marketing platform. The UFC is one of the first things that we ran through that, where we activated all of our linear channels, our direct-to-consumer platforms, really the entire ecosystem to deliver billions of impressions, which drove the launch of UFC 324, again, ahead of our expectations and created the largest live event in the history of Paramount+. You'll see us activating that Paramount One ecosystem across a lot of our tent-pole franchises going forward, across our series launches as we integrate this business to operate as one company. We're seeing that work incredibly well in the first couple of months. I give tremendous credit to the team for breaking down silos and operating as one business, and the results are incredibly promising. We're still at the beginning, but we're excited about the trajectory.

The next question goes to Kutgun Maral of Evercore ISI.

A few on AI, if I could. First, GenAI is clearly progressing quickly and dramatically. Short-form clips don't threaten the core of your studios today, but future length personalized stories could become feasible. How are you positioning the company for that evolution? Do you expect content creation to become commoditized? Or do brands and IP become more valuable in this world? At a high level with AI, could you talk about your guiding principles on licensing and any guardrails? Finally, one of your peers recently outlined a path to bring curated AI-generated short clips into its streaming service. Do you see a future where AI-enabled short-form user-generated or prompted content lives inside Paramount+?

It's a great question. One of our core goals is to become the most technologically capable media company. It's no question that AI is going to be a significant transformation across our industry and others. First and foremost, we are a home for storytellers, and we are a content company first. We view artificial intelligence as an unbelievable tool for artists that will significantly unlock creativity. We believe that there's nothing that can replace artists or the creativity of original storytelling. The value of intellectual property speaks to the unique engagement around the characters and IP that audiences love. We are in a unique position to take advantage of that, and while there's not much I can elaborate on, the power of IP enabled by AI will be a tailwind for us as a company.

The next question goes to Michael Morris of Guggenheim.

I wanted to ask about the studio first. Dennis, you mentioned an expected decline in theatrical revenue in '26. I'm hoping you can reconcile that with the significant increase you expect in the number of titles being released. As you think about that decline, does that pertain to the Studio business overall? Or is it only the theatrical component and you expect growth in licensing? On Pluto headwinds, the trend there seems to be well below the CTV industry overall. Is this a business that you expect to turn around as a growth driver? Or is this maybe not core to the future as you see it?

Thanks, Michael. Let me take the first part and then hand over to David. On the Studio business overall, we will see growth on a revenue basis, driven primarily by the licensing and also combining Skydance into that segment. What I was talking about is theatrical. We are increasing the number of films, but we are comping last year, which had a big output in Mission Impossible. That drives the theatrical decline year-on-year for 2026. Regarding Pluto, in the DTC segment, Q4 grew 10% year-on-year. Paramount+ was up 17%, and non-Paramount+ was down 16%. That's primarily driven by Pluto and the monetization of Pluto. Pluto engagement is up. Monthly active users and engagement of those users is actually up. What we're facing is a monetization headwind, which we are addressing. We addressed that in our guidance. I think it's worth passing over to David to talk overall about how we think about Pluto and our FAST strategy.

Yes. I want to expand on what Dennis said on the studio side. We stepped into last year with a film slate that underperformed. We're scaling from 8 movies to 16 releases this year, which will be significantly more profitable. When you think of getting our core franchises back online, you won't really see that start until '27 due to the life cycle of making a tent pole. We're making significant improvements in profitability across our film slate this year. Then in '27, when you start seeing films like A Quiet Place and Sonic, Call of Duty, and several others released in '27, '28, you will see our box office numbers increase and profitability increase. But there is a minimum two-year life cycle for those big event films. The team has done an exceptional job putting us in a good position for this year for the growth across our theatrical slate. Regarding Pluto, I believe in the FAST space, and it will only grow in importance globally. We're seeing engagement grow. The headwind is monetization, and we're correcting that. While Pluto has been a leader in FAST, it's a profitable platform that was underinvested in. We're addressing that with new leadership to improve the advertising side, along with a product standpoint. The convergence of our streaming will occur in the coming quarters, with continued product improvement for both Pluto and Paramount+. We'll see monetization correct and better growth that aligns with peers' expectations.

The final question goes to Bryan Kraft of Deutsche Bank.

First on UFC, I know you had cited 7 million MAUs. I was curious whether you can give us some color on the number of unique viewers you had, given that you have 79 million subs, trying to understand what percentage of those subscribers overall are engaging with UFC at some level. Secondly, I was wondering if you could talk about what you've been seeing since you completed the acquisition, both in churn and CAC. How are those trending? How much opportunity do you see for improvement in both of those key metrics over the next one or two years? How critical is it to improve either or both for the long-term economic success of the streaming business?

Yes. I want to reiterate, we're incredibly happy with how our partnership with UFC has started. When it comes to the 7 million households across the U.S. and Latin America, that was above our expectation. It is the largest exclusive sporting event we have had in Paramount+ history. We're seeing that momentum continue. We are seeing churn trend positively, but there's room for improvement, which is why you're seeing us invest in content and product. We know with 79 million global subscribers, there are significant growth opportunities ahead of us. The investments we're making, including greenlighting 11 original series and the work Dane Glasgow and his team are doing to enhance the product, will improve all those metrics going forward. We believe these investments will yield significant long-term shareholder value. We're pleased with the work to date, but improvements will continue in the future. Jeff, anything you want to add to that?

I would like to highlight the seasonal trends in the business. Historically, we have seen an increase in churn at Paramount+ during the summer after the Masters, followed by a decrease with the onset of the NFL season. Additionally, both the UFC and our expanded movie offerings will have a notable impact on churn, beyond the points David raised.

And Bryan, just jumping in, this is Dennis. One thing to clarify: The stat is 7 million households that engaged in UFC 324.

Great. Thank you, team, and thank you all for joining the call today. We appreciate it. Feel free to reach out if you have any questions.

Thank you. This now concludes today's call. Thank you all for joining, and you may now disconnect your lines.