Paramount+ will increase subscription fees and charge an impairment fee of up to $1.5 billion

The company expects an impairment charge of $1.3 billion to $1.5 billion in the first quarter of 2023 as Paramount realigns its content strategy with Showtime. 

Executives from Paramount Global announced on a Thursday earnings conference call that the company will increase the monthly subscription fee for its rebranded streaming service Paramount+ with Showtime in the third quarter of 2023. Paramount+ experienced strong subscriber growth in the fourth quarter thanks to such popular content as Top Gun: Maverick.

“We are all aware of the incredible value that streaming offers consumers, and the Paramount Plus package is by no means the most affordable option available. We fall under the value category of prices. Therefore, starting in 2023, we will increase the cost of Paramount Plus Premium and Essential in the United States as well as in a few other countries, CEO Bob Bakish announced during the conference call.

'Top Gun: Maverick'
‘Top Gun: Maverick’

The monthly cost of the premium streaming plan with no ads will increase from $9.99 to $11.99 for Paramount+ with Showtime, while the cost of the basic plan with ads will increase from $4.99 to $5.99.

When the integrated Paramount and Showtime offering debuts, these price changes will be applicable to both new and existing customers. Due to the method used to calculate the numbers previously, the company anticipates a slight decrease in the overall subscriber numbers when the two services are combined.

With Chris McCarthy leading the Showtime studio and linear channel and Tom Ryan in charge of Paramount Global’s streaming division, both the Showtime linear pay-TV channel and the premium tier of Paramount+ will be rebranded as Paramount ear channel, while Tom Ryan oversees the streaming business, Paramount Global CEO Bob Bakish had detailed in a memo in late January.

Paramount CFO Naveen Chopra on the call said that the company would see $289 million in payments for restructuring, merger-related costs, and transformation initiatives for the full year.

The company also expects an impairment charge of $1.3 billion to $1.5 billion in the first quarter of 2023, related to the content, as the company realigns its strategy with Showtime and says it will not “need the kind of content that you would need if they were operating on an independent basis.” Overall, Paramount expects to see $700 million of future annual expense savings, coming from a plan to reduce operating expenses in marketing technology and operations and reductions in content expenses related to integrating Showtime.

Bakish also discussed the company’s future strategy for “efficiently managing” its content spending, which will focus on the franchises that currently account for the majority of Showtime viewers’ attention.

Focusing on franchises is by far our most effective control mechanism for spending. On the call, Bakish stated that this IP’s higher levels of consumer awareness and built-in fan bases are what “drive strong subscriber acquisition volume, lower acquisition costs, lower churn, and extend LTVs.”

There’s no denying that franchises are a powerful advantage, he continued, “and while we will, of course, continue to take selective swings on new IP.”

The peak investment year for streaming, according to Paramount, will be 2023, with 2024 seeing a return to positive free cash flow and overall company earnings growth. The business also expects an improvement in the ad market in the back half of 2023, which should help boost earnings, alongside the price increases.

Going into 2024, Paramount said it expects reductions in the growth rate of headcount, and product and technology expenses, after a full year of integrating Showtime and Paramount.

The merged streamer’s price hikes come after other Hollywood giants have also boosted what their streaming services charge consumers as part of their focus on making them profitable.

“Given a shift of attention from subscriber growth to profitability, most over-the-top services (OTT) have moved into a price-raising mode,” Cowen analyst Doug Creutz wrote in a Jan. 23 report. “Disney and Warner have already announced price increases and Paramount is likely about to do so.” He added: “We think the degree to which this does or does not drive higher churn will be a critical factor driving valuations this year. We also note that industry-wide price raises could have distributional effects as well; second-tier OTT services are far more likely to be pressured than services consumers view as must-haves, even if the second-tier services are not raising price themselves.”