Entering text into the input field will update the search result below

Paramount: An Immensely Misunderstood Linear Networks Business


  • CBS is a highly profitable, misunderstood, and overlooked asset that is a hidden diamond in the Linear Networks segment.
  • Paramount offers immense upside with high downside protection based on a sum of the parts analysis.
  • The article offers a deep dive into the Linear Networks business and provides an alternative view to the consensus that "Linear Networks is a dying business model".

Paramount Global Posts Large Decline In Quarter Earnings

David McNew/Getty Images News

"Please Not Another Article About Streaming!" Don't worry, this won't be yet another article mainly about whether streaming will work or not (and yet I won't come around to say a few words about it).


This article was written by

My articles are mainly interesting for readers who think very long term (the best holding period is infinite). A contrarian view plays an essential role not only in my research process, but also in my daily thinking.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PARA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (116)

Interesting analysis. Thank you. I own PARA 20 year bond. BBB- on Moody negative watch current yield close to 8%. Good assets, enough to compensate creditors in the case of default I believe. Any thoughts?
Udith Fonseka profile picture
This by far is the best article on Paramount--with the most detail on many new important points that other writers have missed. I think whether you are a bear or a bull on Para--this article is the most illuminating of all the many recent articles.
@Udith Fonseka I agree unlike groupthink consensus Wall Street thinking, AI, GLP-1, etc is driving me insane
RS1409 profile picture
IP like Avatar Studios and South Park could be a big asset to Para. It’s not only Star Trek. Also BET had a valuation of 3 Billion. Para has potiential and I believe the stock is worth at least 20+ easy.
GibraltarAssetMgmt profile picture
definitely an eventual buy to own
@Second Level Thinking
Here is what I'm seeing. Please comment.

You are using EBIT numbers in your SOTP calculation for CBS, Linear and Filmed Entertainment. All these numbers are before corporate costs and SBC.

Go to schedule 6.

Here you will see Corporate cost of 487 million the last 12 months and 167 million in SBC the last 12 months.
That is a total of corporate cost 654 million per year.
Since this is not include as a negative value in your SOTP calculation you are assuming they are going to be zero going forward. Historically such cost are more likely than any other area to have positive growth each year.

Why not add that negative value?
Using a growth perpeptual formula, what is the present value of all these missing costs?

A side note:

"CBS was listed as the most-watched network during the 2022-2023 season totaling an average of 5.96 million primetime viewers, down 5 percent from last year. During the 2012-2013 season, the network was averaging 11.85 million viewers. "
Does this quote fit your idea of the future?
nerd_rage profile picture
@KingOfPower And how have the demographics changed? Well I know the answer, they've gotten older. So they have 6M viewers who are closer to the boneyard and who advertisers don't want.
purplemountaingirl profile picture
@nerd_rage Your relentless. You are short PARA no doubt. At what price is it a buy? Surely it has a few cents of value!
@nerd_rage those 6m viewers are where the money’s at unlike the generation that’s still living with mommy and daddy.
Based on BBG research, Paramount is adding more streaming subscribers than the rest (FY2022: 70.43%). Though the expectations of new streaming subscribers are poised to be lower in 2023/2024/2025, 18.67%, 13.29%, 9.65% respectively. Revenue by platforms also outstripped the other providers in terms of PoP Growth. I think they are growing faster since they have a smaller base, they have very good content as mentioned in alot of comments above.

And we must also understand that what the balance sheet can't value is the IP which is the brand/content itself and that can worth alot of money. Not to mention their real estate which can be sold for good size.

Paramount is probably the smallest among them and it is possible for a takeover by the bigger boys (consolidation). I personally think is a good bet given that heads i win, tails i don't lose much. It is simplistic to think "oh its a highly competitive industry and no good value exists". Many good investment ideas are usually in such negative situations where people fail to see the unseen.

Those who has the patience and balls of steel will be hugely rewarded.
@Glasgow Value Investor

In your opinion, how much could PARA get if it sell just the streaming business to a bigger player?

How low can PARA share price could go during the next 6 months?
@KFYY My investing journey has been trying to buy companies which has high intrinsic value (in this case its the assets within Paramount). Some intrinsic value can be calculated through future cash flow or existing assets). I do not know how low PARA can go because I am poor at forecasting. My business is to invest in low risk ideas but with high uncertainty, the higher the uncertainty the higher rewards.

I would like to think a knowledgeable buyer will pay in the region of anywhere 23 to 30 per share. This is based on performance on the company itself and not the unseen value. PARA gives this possibility of a supercharged return which I have no idea how much this can be, but one thing for sure it is likely to be above $20. I am in and pretty deep in.

Happy Investing!
@Glasgow Value Investor

"I would like to think a knowledgeable buyer will pay in the region of anywhere 23 to 30 per share."

I think a big reason for the pessimism around PARA is a concern, quite possibly well founded, that Redstone won't consent to a sale in the price range you suggest. If she holds out for something like $50, she could bring us all down with the ship. See KSS for an example of what that sort of thinking gets shareholders...

Redstone is feeling some pain now over at National Amusements, which is badly bleeding cash after the 80% dividend cut at PARA. However, I have yet to see any indication that she's even considering a sale of the whole company, which may ultimately be the only way to achieve a positive shareholder return.
The easy solution for the streamers is to make churning worthless by making their package $9.99/mo if you agree to one year or $29.99/mo otherwise. Or some variation of that idea - the free lunch period is winding down.

There are substantial accounting issues with streaming as well that force them to show huge upfront losses that are not necessarily a fair representation of actual losses - those should soften substantially over the next 1-2 years.

$PARA actually has an interesting opportunity to “partner” with $CHTR on the future of distribution. Especially after the Disney fiasco. Comcast has Peacock, Netflix is Netflix, and Max isn’t really levered to sports. They’re the most agnostic - as the author said - about the means of distribution. If they can negotiate the right deal with Charter, it could solve a lot of these profitability concerns. Maybe sell PlutoTV to Charter while they’re at it…
nerd_rage profile picture
@everlast00 Well that's an excellent formula for losing a lot of customers, especially if you're a Paramount and not a Netflix, and don't have a lot of leverage.

At $30/month, I'm incentivized to forget paying entirely and either ignore the content or pirate it. Any company that is forced to charge $30/month for streaming should admit they can't make it in streaming. Sell and get out.

If churn-happy customers aren't worth chasing, then stop chasing them. Figure out who your Never Cancel loyalists are. I bet the churners and the loyalists are watching somewhat different things, maybe completely different things. Invest your content dollars in stuff to keep the loyalists happy. Don't run them off with price increases.

All the streamers have this data sitting in their servers, but none of them seem to be using it. They sure don't talk about the clever ways they are using this data to be better investments.

Forget about deals with Charter, linear TV is doomed. Rearranging deck chairs on the Titanic.
nerd_rage profile picture
Streaming is not exactly a commodity but two things are going on:

1) Inertia. To a lot of people, streaming is just some babble in the background. I want an action movie, let's see what Netflix has, I'll watch that one. Doesn't matter if Netflix movies are incredibly bad. The point is they're convenient.

2) Churn. A subset of the streaming audience has caught on that the best way to get value is to churn around and skim the cream off the top of each one. This implies the person knows what "cream" means. This isn't the person who is happy with Netflix's bad movies.

The services that benefit from 1 are the ones with big audiences now, who are locked in by inertia and indifference. I don't think any service benefits much from 2, because it's hard to make a profit when people just watch your expensive new content and give you one month's worth of subscription each year.

NFLX, AMZN, DIS and WBD all have bigger subscriber bases than PARA. Whoever is big now, wins. Plus AAPL because they're playing their own private game.
nerd_rage profile picture
Nothing to say about demographics? That's what's causing linear TV to be doomed. Younger people have simply given up on linear TV and when sports migrates to streaming, it's a waiting game for the linear audience to finally die off.

Streaming is a brutal business and there won't be room for many winners. The trend now among households is to pare back on subscriptions. Used to be over 5 per household on average, now it's headed for 3. Probably will hit bottom between 2 and 3.

As the streamers keep raising prices, that forces the number per household down. The weaker entrants are the most at risk, which is why there is skepticism about Paramount+. When Netflix raises prices, Paramount+ gets cut.
purplemountaingirl profile picture
@nerd_rage How much of Netflix is licensed? I don't think Netflix has a better pipeline than anyone else either. Do you? I hate that WBD is going to license their good stuff just like PARA had to. All terrible.

I know the hate is on for PARA, but Paramount makes good stuff. Yellowstone is as good as the Sopranos. Unfortunately, they sold it away.

One day they won't have to do that. Anyway, long PARA and WBD to a lesser degree. I have been burned but I see now reason to sell now.

How low the share price of PARA can go during the next 6 months in your opinion?
LONGBULL+ profile picture
Nice article thanks. Still can you tell me why Disney is considering selling their lineair/broadcast networks if they are so money making and valuable?
Iger is no fool, agree?

My guess is that Disney has the streaming scale which Paramount lacks (over 200+ million versus 61 million) so Disney could be front-runner in selling Lin/Br networks.

Paramount does not have that option because the Lin/Br Revenue FUNDS their transition to streaming.
Streaming has lower ARPU in general compared to the old cable bundle especially if you consider that Paramount does a lot of joint venture deals with other companies (SkyShowtime for ex.)

The new Trend is bundling which also means less ARPU.

Wallstreet expects the current Lin/br. Revenue to deteriorate at a relative quick level and if Paramount does not scale quick enough to compensate that means their business model is in jeopardy.

(TV now accounts for less than 50% of TV viewing
Broadcast networks and cable networks dropped below 50% of TV viewing last month, according to Nielsen, the first time that has happened. Streaming accounted for almost 39% while “other” was about 11%.

People should spend more time watching live TV networks in the fall when sports come back, but this underscores the collapse in traditional TV viewing over the last few years. Broadcast and cable accounted for more than 60% of TV viewing just a couple summers ago.)


So why Paramount is not bought by any-one:


Time will tell if Paramount survives transforming the old cable/lineair br. business model into a similar streaming business model which has enough competition power to last.

In comparison:
( I see WBD as the closest Peer to compare to PARA)
most EBITDA (over 70%) for WBD and PARA come from Revenue earned by their lineair networks:

At its closing stock price on September 12th of $11.33, WBD’s enterprise valuation is now approximately $70 billion (equity market capitalization of $27.6 billion plus pro forma current net debt of $42.4 billion). The mid-point of the Company’s recent guidance for 2023 Adjusted EBITDA is $10.75 billion – resulting in an EV/EBITDA ratio of 6.5 times. (source: Palm Investor)

In comparison, PARA has a much higher EV/EBITDA ratio (based on forward EBDITDA estimate) – 10.74x (source – Seeking Alpha Valuation Grade and Underlying Metrics.) (source: Palm Investor)

In comparison Scale:
WBD has 97 million global streaming subs
PARA has 61 million global streaming subs.
Second Level Thinking profile picture
@LONGBULL+ Very good question, which I will try to answer here:

On point 1: First, about ABC. I would argue that ABC as a broadcaster is not comparable to CBS. ABC 1) has a much smaller scale than CBS and is also much smaller in both revenue and bottom line and 2) doesn't have the connection to sports that CBS does. This makes ABC a platform that is significantly less valuable than CBS in the long run, both for advertisers and in negotiating position with MVPDs. Another point that would speak for the sale of ABC is capital, which is needed for the financing of the Hulu acquisition of Comcast, but that is pure speculation.

Even if you compare ESPN and CBS, they are different stories because the business model is significantly different. ESPN is far more dependent on affiliate fees than CBS, since linear networks are largely financed by them. This is not true for CBS, whose revenue is largely advertising. This means that CBS does not care (for the most part) whether it airs on Paramount+ or under a cable TV bundle, as CBS is largely funded by advertising, while ESPN is very dependent on the success of cable TV. This means that the story between broadcasters and linear networks is a fundamentally different one. The fact that Iger only wants to sell a share of ESPN and not the whole business also gives confidence that he still sees value in sports assets, even if they are allied with Linear Networks.

So is Bog Iger a fool? No, of course not, but I think the stories are difficult to compare.

On point 2: I agree with you that you definitely have to critically observe the decline of linear networks and, at the same time, of course, the development of the streaming business. However, as I mentioned before, you have to distinguish very strongly between broadcasters and linear networks, which I think is practically not being done by Wall Street. So am I seeing a decline in linear networks? Yes, but it's hard to argue that the business model will no longer exist in 5 years and will be completely evaporated. With CBS, I also see, as I said, the possibility of maintaining
losses in viewership at Linear Networks through additions in streaming.

How will Paramount's streaming business evolve? I don't know. This remains to be seen and definitely involves risks that may invalidate my thesis, such as lack of scale to achieve profitability, as you mentioned.

To point 3: These are the figures from this year and a current picture. First of all, an undervaluation of one company does not exclude an undervaluation of the other company. One can argue that both companies contain a lot of value. However, the 2023 numbers are distorted and do not provide an accurate picture of Paramount compared to its peers. As I said, Paramount has huge headwinds this year, but huge tailwinds next year, which I think are not discussed enough. Taking the snapshot, Paramount of course looks unattractive, but that interests me quite little with a long-term horizon.
LONGBULL+ profile picture
@Second Level Thinking
Thank you for your reply.
My point is: you can only invest your money 1x to stay Long.
If I had to invest now my preference goes to WBD instead of PARA whereas both could be undervalued I agree.
I consider PARA the most vulnerable to the uncertain and harsh times for Media Streaming right now. Why take that Bet:
- a Sale of the PARA company is most unlikely to happen.
- In Scale they are the smallest compared to all the others
-Matching the old lineair (cable) Revenue in the new Streaming world (with all the different new bundles PARA has created) seems a real challenge to achieve.

Streaming is a Scale thing.
PARA already has a lot of joint ventures as a going business globally , they are growing but up to now the Scale has been limited to 61 million.
I have my doubts whether they will move towards a reasonable profitable Scale - 100+ or 200+ million subs soon enough.
(Those JV’s or bundling arrangements with others mean less ARPU.)

WBD has yet to start those JV’s or bundling arrangements and already have a Scale of 97 million subs globally.
Second Level Thinking profile picture
@LONGBULL+ Good and fair points. I totally agree with you that streaming is a scale play. Like you, I doubt Paramount will have the scale necessary to become reasonably profitable. WBD and the other streamers have clear advantages on this front. The question is whether it is even necessary to get streaming reasonably profitable, or whether it is also enough to be break even or make only small/marginal losses, due to the fact that the Linear Networks business is highly profitable. Personally, I don't buy Paramount because I'm very convinced about the streaming business, though the story would probably be different with me at WBD.

But even if the streaming losses keep being high: If you look at Sony, despite the lack of participation in the streaming business, the business is in my opinion well positioned for the long term. Such a model can work very well, provided that the streaming competition is high enough that there are many interested parties for the IP, which will most likely be the case in the long run. I highly doubt here that Paramount will finance a streaming business in the long run, which is highly unprofitable, as the financial incentives of the management positions are very much against it.

That is, if one is convinced that Paramount will generate significant cash flows in the linear business in the long term and at the same time believes that a streaming business with significant losses will not be financed in the long term, which I am, Paramount is more than attractive from a risk/reward perspective.
Udith Fonseka profile picture
Why does your "Best Value" for Filmed Entertainment not include the 2.5 B in real estate? Or did MGM have about that much real estate?
Second Level Thinking profile picture
@Udith Fonseka Thank you for your comment. The real estate value is indeed included in my best case. However, to remain conservative and due to lack of reference points, I would like to leave the asset value the same in both scenarios, which does not price in positive surprises. A sale of the studio can of course be significantly higher than the value I have priced in, although at the same time I do not assume that a potential buyer would pay less for the asset due to the downside protection mentioned above.
Maybe the Tiffany network is a hidden jewel, but there’s an entire generation that will never watch it, let alone a global market that asks, CBS who! CBS News, yes it’s a YouTube favorite for expats, but the CBS network of affiliates are dinosaurs waiting for extinction.

Paramount’s future is tenuous these days, as it’s tv assets (MTV, VHI, Comedy Central, Nick, BET, etc) are all for sale to the highest bidder, there’s always a bidder for platforms selling junk food & snacks!

CBS/Showtime/Paramount+ are beginning to feel like “also rans”. No doubt there are bidders, both public & private for all of Paramount
Global’s assets, but taken all together, there’s nothing to see here, unfortunately, it’s a liquidation in the making.
nerd_rage profile picture
@GalleryDog Yeah this article really needs to address demographics. Younger people have abandoned linear TV and sports is the thin thread holding it together. When that goes to streaming, it's just a waiting game for the linear TV audience to die off.

NFLX is shuttering its DVD business, which is still profitable, why? Trend lines are negative. Not good business to wait for a dying business to die off entirely.
@nerd_rage demographics is key, domestically and internationally. International linear is also feeling the pain as viewers opt for Netflix, HBOmax, Disney+ and Prime.

These entertainment companies tend to trade in unison, but Paramount appears to be a company in liquidation, Disney is in reorganization, while Warner is a company in formalization.

The Hollywood pendulum has swung again, and Warner sans the parks, cruises, hotels and legacy broadcast alphabet networks is pulling into the lead for both production & distribution of all genres, big & small screen.

Within a year MAX (formerly HBOmax) will be offering Sports & CNNGlobal News, in addition to series, movies and non-scripted, domestically & internationally … WBD is my favorite name in the entertainment space going forward.
purplemountaingirl profile picture
This is great. ONLY IN TV LAND does the cost of production escalate but the value of IP goes down...
Well done, agree completely
Great write up. One comment on the South Park deal you mention here: "As an example, take South Park, which was licensed in 2019 for $500 million for 2020-2025, with an EBIT margin close to 100% (Paramount has a 51% JV share, so $250 Million in EBIT for Paramount). If Paramount licenses the IPO again in 2025, it can take a very strong impact on the EBIT margin of that year."

They won't be licensing South Park again. Their actions during this deal with $WBD show they feel South Park is much more valuable on Paramount+.

Also, tangentially, South Park's creators are truly the greatest content creators of all time. They built an empire out of cardboard and swearing, and they captured a huge share of the seemingly endless streams of income it produces. Who has the remaining 49% of that JV? Matt Stone and Trey Parker. Actually, this is probably why they prefer South Park on Paramount+. Probably obfuscates the total profitability of that asset.
@smelly_farts PARA and ME. One more pig and you and I can be know as Three Dog Knights!
@Rob5253rob Well, join me in $MRNA lol.

I like investing in strong management teams, which is one notable trait they all share.
Very interesting analysis!

I tend to agree with the valuation. However, PARA is likely to go below $10 per share, or even below $9, before going higher.
GibraltarAssetMgmt profile picture
high debt level of $15 billion and a market cap of $8 billion.

stock in single digits is a good gamble
@GibraltarAssetMgmt Debt is not 15 billion.... :)
GibraltarAssetMgmt profile picture
@BerlinInvestor Long-Term Debt $15.614B
The market cap has nothing to do with debt metrics.

Shareholders' equity: $21 billion
Debt: $15 billion
Herbert +H-Dog+ Kornfeld profile picture
Thank you for the deep dive on linear. Could you explain further your conclusion that "Only <50% of the Advertising business is thus affected strongly by secular decline"? Is it the sports and political ad segments that you think are immune from decline? I wasn't clear on that.

At the last Berkshire meeting, Buffett was asked what BRK's thesis was for holding PARA, and he refused to answer. I sure would love to know what he is thinking...
@Herbert +H-Dog+ Kornfeld Don't we all. Truly the GOAT.

Imagine being 93 and still in your prime, his entire life is absolutely astounding and truly one of the greatest Americans to ever live. My goal is to gain the level of mental acuity Warren Buffett has at 93.
Herbert +H-Dog+ Kornfeld profile picture
@smelly_farts Agreed though honestly I'm surprised he hasn't eased himself further out of control of Berkshire at this point. Like let the next generation run the annual meetings and whatnot.

It seems like that would be the responsible thing to do, yet Buffett remains the face and voice of the company... which IMO subjects the share price to significant risk if mother nature suddenly removes him. I'd say BRK has the highest key-man risk of any major company except Tesla.
@Herbert +H-Dog+ Kornfeld There truly is no better allocator of capital on earth than Warren Buffett. Warren should be in charge of that as long as he's able. That said, Greg and Ajit run the energy and insurance businesses, respectively. Tedd and Todd are also great investors, they are the reason Berkshire owns Apple and will make smart investments going forward. Now that they have access to Japan (because of Warren) it's even possible to think they will make some smart Japanese deals.

Also, I don't think the annual meetings continue like they are now once Warren relinquishes control. The people are there for him and Charlie.
I can not believe that the major shareholder is so much out of reality that he is taking this huge bet in steaming and get himself into financial trouble (du to missing dividens). Paramount should have strong assets which will generate strong profits even in 10 years from now. The moment they reduce spending for paramount+ relative to revenues this will be once again a cash machine.
I just saw from Macrotrends that "Paramount Global annual free cashflow for 2022 was -$0.139 billion, a 123.21% decline from 2021. Free cashflow for 2021 was $0.599 billion, which was a 69.59% decline from 2020." This should not give one a lot of confidence that PARA is greatly undervalued and is more likely a good candidate to get bought out or taken over, probably at lot less than $30.26.
I_Am_The_Walrus profile picture
@teddie43 Who'd buy PARA and why?
Good question! I doubt there are that many interested, maybe a big tech operation who wants to expand more into entertainment, but they won't pay what the author says PARA is worth.
I_Am_The_Walrus profile picture
@teddie43 I've read that only NFLX makes a profit on streaming, and with over 200 streaming sites out there (many are free), it's no wonder.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About PARA

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on PARA

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.