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Paramount Global, the home of streaming service Paramount+, lost its CEO Bob Bakish on Monday. He resigned and was replaced by controlling shareholder Shari Redstone with a newly formed “Office of the CEO” with three executives: George Cheeks, president and CEO of CBS; Chris McCarthy, president and CEO, Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, president and CEO of Paramount Pictures and Nickelodeon.
After a few failed stabs at writing this essay since Sunday night, I have finally realized why Bakish’s departure has felt like a moving target to analyze. Part of the problem is that the news cycle that started with rumors he would be fired continued through Tuesday morning. But, I had not realized that he is the first C-Suite departure of the “streaming wars” era who is leaving because of an ill-conceived streaming strategy of their own (more below).
As I told Brandon Katz —then of The Observer, now at Parrot Analytics—back in 2021:
“Sports plus breaking news plus kids plus Pluto is a business,” Rosen surmised. “Everything else they’re better off selling to Netflix.”
The point was that Paramount+’s “A Mountain of Entertainment” tagline—reflecting an exclusive library of content and originally reflected more than 2,300 movies and over 750 TV series—betrayed a weakness: The Paramount+ platform failed to offer customization and personalization like Netflix or YouTube. For that reason, its value proposition was, effectively, “Find Your Favorite Needle In a Haystack”. That made its ambitions to compete with Netflix dead on arrival.
Three years later, that problem persists on Paramount+, which at 71 million subscribers reaches only 26% of Netflix’s current subscriber base. As Deloitte wrote in its 18th annual Digital Media Trends Report for 2024, U.S. consumers “may not be willing to give up the degree of customization they gained from unbundling pay TV, or the personalization they enjoy from social media.” That mistake lies with Bakish, but it ultimately falls at the feet of Shari Redstone, who pushed for the merger of CBS and Viacom over the protests of shareholders five years ago. Her rationale—similar to Disney CEO Robert Iger's decision to acquire the film and TV assets of 21st Century Fox for $71.3 billion—was that a bigger company with a bigger library could compete with Netflix.
With Bakish out the door and Redstone rumored to be open to selling Paramount’s controlling shareholder National Amusements to someone other than Skydance, the next owner of Paramount has the opportunity to restart with a retail-first, consumer-first strategy.
What should that owner do?
Key Takeaway
Shari Redstone's preference to keep Paramount intact is right in the sense that “Today’s problems will not be solved tomorrow nor anytime soon.” But, with CEO Bob Bakish gone, a unique opportunity has emerged.
Total words: 2,100
Total time reading: 8 minutes
The First True Failure
Bakish is the fourth major legacy media CEO to be ousted during the streaming era (that list goes up to nine if we include AMC Networks’ three CEOs between 2021 and its appointment of Kristen Dolan last November). The most notable was Disney CEO Bob Chapek, who was ousted in part for dutifily executing his predecessor-and-successor Robert Iger’s streaming plan while openly questioning its value proposition to consumers as video, only. Another notable exit was former WarnerMedia CEO Jason Kilar, whose direct-to-consumer strategy lost the confidence of AT&T management. But, as I have written before, it also was the most prescient as to where the market was headed.
Last, Jeff Shell was ousted as CEO of NBCUniversal last year for reasons related to “sexual harassment” of an employee, and nothing to do with streaming. Like Chapek, Shell was executing a streaming strategy he inherited from his predecessor, Steve Burke.
Bakish is the only one of the group of ousted CEOs who both architected the streaming strategy and oversaw its entire execution. With him gone, Redstone is the only remaining architect and she seems eager to sell. That decision leaves both the C-Suite and its streaming strategy open to new direction under new management.
Step #1: Library (Neurosurgery or Amputation?)
Anyone taking over for Bakish and Redstone and seeking a new consumer-first, retail-first path forward for Paramount+ faces a key challenge: The business relies almost entirely on its TV business for profitability ($4.8 billion in operating income before depreciation, interest, taxes and amortization (OIBDA)). That business is shrinking—down 13% year-over-year from $5.5 billion—because of cord-cutting.
Streaming is not the profit center that Redstone, Bakish and Paramount management imagined or hoped it would be. The business has lost nearly $5 billion since 2020, and lost $1.7 billion in 2023, alone. Bakish had led the charge to spend aggressively on expanding its streaming library of titles. But, as of last November, the Paramount+ library has dropped in size to over 830 movies from 2,300 (see above) and the same amount of TV series over the past few years, the result of cost-cutting in the footsteps of Warner Bros. Discovery. Licensing of its library to competing platforms has emerged as a small but growing business, with $8 million in revenue reported in 2023 and $4 million in revenue in Q4 2023 alone.
I wrote in “Investors & The Unsentimental Media Consumer”: “Consumers seem increasingly more sentimental for the intellectual property of media companies more than they are the formats.” That presents a dilemma for anyone buying Paramount with a bullish eye for its retail-first, consumer-first future: Which titles in the library are multifaceted enough to serve audiences across formats (e.g., "Teenage Mutant Ninja Turtles")? Which titles do not and are therefore easiest to license or sell?
I highlighted one version of this dilemma in last week’s essay on Sony joining Apollo’s bid for Paramount: The Paramount Pictures library of content offers plenty of pickings for Sony to improve its batting average, including franchises “Mission Impossible”, “Star Trek,” “The Godfather” and “Indiana Jones”. It also has children’s titles like “Paw Patrol” and “Spongebob Squarepants”. But, Sony’s “communities of interest” strategy may value the titles in the libraries of Paramount’s cable channels more than Paramount Studios titles.
Apollo values the cable channels more than Sony, and “the cable networks without cable library assets will be less valuable to Apollo.” In other words, the optimal consumer-first, retail-first library already exists in Paramount, and the Apollo bid with Sony could inadvertently undermine that value.
Step #2: Growth > Cash Flow
Assuming the buyer can successfully navigate that tricky territory, the next question is what business models they should build around that remaining library. That is primarily a question of cash flow given both the lost cash flow of the linear business and the unpredictable profitability from the theatrical business (also in decline).
Paramount’s stock has suffered from investors switching their focus to profits in recent years after legacy media streaming services like Paramount+ failed to grow much during the pandemic. Streaming is a loss-leader at Paramount and investors have reacted accordingly. The challenge is, as research firm Antenna highlighted in a recent report on streaming churn, streamers are increasingly “working more for less” growth. So, cash flow may be secondary to growth because investors may tolerate losses if Paramount’s new owners can figure out new channels for consumer-first, retail-first growth.
The model will have to evolve—if not pivot—past streaming, and sooner than later. The existential question is, “But, to what?”
Examples of successful pivots to retail-first, consumer-first models include Yahoo (owned by Apollo) and The New York Times, both of which found success by focusing on products its most engaged customers would pay for. Both reflect something I wrote in “A Theoretical Physicist Walks Into A Media Company…: “We no longer may evaluate media businesses through the lenses of finance and traditional distribution models, only.”
Step #3: Five Foundational Building Blocks
I analyzed Skydance’s bid in “Paramount, Skydance & Shari Redstone's Moral Hazard”, and concluded the outcome of the proposed merger “would not look like a retail-first, consumer-first business.” I also noted that we do not yet know whether Apollo’s offer favors the linear business over the retail and studios businesses, or vice versa because the special committee has refused to consider it.
I argued in “A Theoretical Physicist Walks Into A Media Company…” that the “businesses whose fortunes are likely to change for the better in the consumer-first, retail-first medium of the internet” possess a mix of these five elements:
Finance
Game theory (or, the study of mathematical models of strategic interactions with rational consumers)
Programming (or, designing and implementing algorithms and step-by-step specifications of procedures by writing code in one or more programming languages); and,
Distributed systems (or, a collection of computer programs that utilize computational resources across multiple, separate computation nodes to achieve a common, shared goal)
Creative (content that delights consumers).
Those businesses also should pass the test for companies proposed by venture capitalist Marc Andreessen: “A good test for how seriously an incumbent is taking software is the percent of the top 100 executives and managers with computer science degrees.”
In other words, even if there may be no hard answers to the question “But, to what?”, there is a framework for the pieces that the next owner of Paramount should put in place.
Step #4: Walled Gardens(?)
Notably, the Skydance bid offers none of these pieces. One of the rumored conditions for the participation of Redbird Capital is that Jeff Shell and former CNN Chief Jeff Zucker would be brought in to replace the existing Paramount C-suite team. It is also rumored that Skydance has promised to Redstone to keep Paramount’s major film and TV assets largely intact in a sale, and a partnership with Oracle’s cloud and artificial intelligence businesses will become the new technological back-end of Paramount+. In short, Redstone’s bet on growth is effectively a paint job on the previous business, new management with the same skillset as the old management, and the only difference will be a cash infusion.
As I wrote in “Paramount, Skydance & Shari Redstone's Moral Hazard”, if the deal with Skydance does not replace the current C-suite of Paramount with some “software people”, “then at a macro level nothing will change Paramount's current trajectory.” That would be the worst corporate strategy at the worst possible time. As I wrote in “How Valuable IP Will Succeed Beyond The Walled Gardens of Media Conglomerates”, “In retail-first, consumer-first models, consumers no longer need media companies to shape and dictate the storytelling of popular IP. “
Emerging media models that put that IP in the hands of consumers—“back to the people”—are increasingly capturing media audiences and being funded by investors private and public:
Gaming (e.g., licensed third-party character “skins” in online games like Fortnite and Roblox)
Blockchain (e.g., non-fungible tokens (NFTs), memecoins)
Generative AI tools (e.g, learning language models that learn from data and produce content autonomously); and,
Creator economy (e.g., media companies partnering with influencers for promotion)
So, market conditions will inevitably force the next owner of Paramount to make its walled garden more permeable. That said, advertising businesses increasingly value and acquire inventory based on first-party data within walled gardens. That creates both a counterforce and counterincentive for making the walled garden more permeable.
The Core Tension: Timing vs. Economics
A gaming executive told me at the DLD Conference back in January, “Today’s problems will not be solved tomorrow nor anytime soon.” I had asked him about Netflix’s gaming strategy, which it is betting on to evolve past media consumption via DVDs and streaming. He thought Netflix was only part of the way there: Without offerings for community within and around those games, Netflix’s mobile games within its walled garden were not a competitive offering with games beyond its walled garden. Community was not a plug-and-play solution.
The same take applies to any potential acquisition of Paramount. The company’s evolutionary struggles in an increasingly retail-first, consumer-first media marketplace will not be solved overnight. Simply replacing the C-suite with computer science degrees or making the walled garden more permeable, alone, will not result in instant success.
The ultimate challenge is one of basic economics: Audiences and advertisers still will invest time in TV and theatrical. Even with a generation shift towards streaming, over 50% of U.S. homes still have a linear connection, and over 50% of U.S. homes consume Cable or Broadcast TV, according to Nielsen's most recent The Gauge. There are over 1 billion TV households worldwide, and in five years Paramount+ has struggled to capture over 7% of them. The future is here in many shapes and forms that have yet to prove to be viable substitutes to "the financial backbone" of the media industry.
So, yes, Redstone's conservative instincts in this sale are right in the sense that “Today’s problems will not be solved tomorrow nor anytime soon.” But, with Bakish gone, there is no better opportunity to solve Paramount's problems today with more forward-looking management and consumer-first, retail-first strategies than the one proposed as part of the Skydance deal.