Monday AM Briefing: PARQOR's Quick Take on Berkshire Hathaway's $2.6B investment in Paramount Global
A quick essay on Berkshire Hathaway’s disclosure of a $2.6B investment in Paramount Global for 11% of the company.
There is speculation is that the investment is a bet on Paramount getting acquired. But, we have no idea whether that’s true. If we look at Paramount through a superficial financial lens, it is undervalued for a company with a rocket ship like Pluto TV (a price-to-earnings ratio of 5.31). Its cash to market capitalization ratio of 29.45% - which measures the liquidity and financial stability of a company - suggests it is financially stable despite ongoing investor skepticism. It’s reducing its debt, its two major streaming services are both growing, and its ad sales team has one of the best relationships with advertisers in the linear marketplace.
But, we’ve also just emerged from a week of upfronts where advertisers showed up “armed with data about their most likely customer, they are telling media outlets to run their commercials based on so-called “programmatic” technology that will insert the ad during a particular household’s streaming session or FAST watch, all according to the type of customer they need to entice.”
Paramount is well-positioned to deliver those types of outcomes, in part because of the ad-targeting platform it acquired with Pluto. But, when faced with a choice between Paramount or Roku, Google or Amazon, the last three offer more data across the consumer conversion funnel and more reach at a time when advertisers value that data increasingly, and at a time when networks seem to have limited solutions to answer that demand.
The PARQOR lens reveals two other perspectives on the news.
First, as I detailed in Streamers Hit a Dead-End (Macro) & Consumers Hit Dead-Ends In Streaming (Micro), Paramount+ scores 3.5 out of 5 BEADS attributes.
To remind you, The PARQOR Hypothesis argues that the media businesses most likely to succeed in streaming and beyond must meet five attributes, and highlights any missing pieces they (arguably) may need to solve to optimally succeed.
Those attributes are summed up in the BEADS acronym:
an Aspirational Brand
Existing user base at scale
Multiple Avenues to monetizing the same IP, and
Daily value proposition (something new for fans to consume daily)
Sales Channels: Online (digital) and offline (physical) commerce
Paramount lacks an Aspirational Brand and an offline (physical) commerce Sales channel. These are not necessarily fatal flaws. Rather, Paramount lacks elements of a consumer relationship that its competitors, especially Disney, leverage for additional sources of revenue and deeper data on consumers.
The other is that CEO Bob Bakish is a fiduciary executive - his decision-making has been constrained by both the financial and strategic objectives of controlling shareholder Shari Redstone (she pushed for the merger of CBS and Viacom), and the financial constraints resulting from the mismanagement of his predecessor at Viacom, former CEO Philippe Dauman.
CFO Naveen Chopra has become a bigger public figure for the company as of late, and should be considered a fiduciary who seems to be gaining responsibility (and/or influence) within the organization. I detect an implication in media coverage that but for Chopra, Paramount would not be in a place where Berkshire Hathaway would have invested.
Conclusion: Because Berkshire Hathaway’s investment in Paramount seems to be a bet on fiduciaries and not visionaries, the best outcome will be investors changing their minds on Paramount or Paramount finds a sale. I’m skeptical of both outcomes - the first especially after a weird upfronts that suggested advertiser demand isn't being met by networks - so I’m wondering what other outcomes Berkshire Hathaway may envision.
Must-Read Monday AM Articles
* Chopra told the MoffettNathanson conference that Paramount is no longer pursuing a licensing model for IP like “Yellowstone”
* TV measurement company and emerging Nielsen competitor iSpot raised $325MM from Goldman Sachs ($ - paywalled)
* To expand into Denmark, Sweden and Norway, Pluto TV is combining with a local ad-supported video on-demand (AVOD) service Viafree. Once the combined product launches, Viafree is set to be phased out as a standalone service.
The Vibe Shift
* All Your Screens’ Rick Ellis asked, “what if your [streaming] profile was more like one you'd have on a social media platform?
* Netflix’s struggles with its Disney-esque ambitions continue: Images have leaked online from an official Monopoly board game tie-in pegged to the long-awaited new season of the retro sci-fi hit. The images from the game’s cards spoil major plot points in the new Season 4 episodes.
Aggregator 2.0
* Dylan Byers of Puck reported In the wake of the Microsoft-Activision deal, Roberts approached Electronic Arts C.E.O. Andrew Wilson with a proposal to spin off NBCUniversal and merge the media and gaming giants
Sports & Streaming
* Why Fox is sitting out the TV streaming wars (for now), and could get bought by a rival
* YouTube TV is now offering a deal on its Sports Plus package, but upon closer inspection, the offer might not be worth it.
Creator Economy, Platforms & Transparency
* At YouTube’s Brandcast presentation for brands and agencies, held for the first time during upfronts week, the focus was on the gigantic video platform’s popular creators, its scale across internet TVs, and a new solution for marketers to set limits on ad frequency
* Google’s vp of product for YouTube, display, video and app ads Tim Craycroft spoke to Digiday’s Tim Peterson before the event
* It announced the YouTube player has been equipped with the ability to skip straight to a video’s popular moments, and individual clips can now be looped so that they replay over and over
* A good interview with Alex Piper, previously the Head of Unscripted Originals at YouTube, who will be running Night Studios, a content production operation that will work with the big-name creators who are partnered with talent management agency Night.
* The Verge's Nilay Patel spoke with Dave Wiskus who runs two companies in the creator space, including Nebula which recently got an investment from CuriosityStream
Original Content & “Genre Wars”
* Wall Street’s change of heart over Netflix is now radiating uncertainty throughout Hollywood. A new age of austerity may be emerging in the streaming wars. ($ - paywalled)
* Netflix laid off 150 more employees related to more “woke”-themed projects a week after it published an update to its corporate culture memo for the first time in nearly five years
* Lionsgate CEO Jon Feltheimer walked the Seriesfest conference through various pivots Netflix needs to take
* “Moon Knight" director Mohamed Diab told Axios after the Marvel show's finale that he never met one of the show's editors in person even though production for the show lasted three years.
* Disney shared its plans for the Star Wars universe with Vanity Fair
* AMC Networks CEO Matt Blank says they will not change their strategy in the face of Netflix’s recent challenges
AVOD & Connected TV Marketplace
* Charter CEO Tom Rutledge told the MoffettNathanson conference that rising content costs are a threat to Charter’s business: ““Where the content is, how you move that content into consumer businesses, is going to be a challenge because you could destroy your underlying opportunity if you do that, which is where all the money still is.”
* Good new cord-cutting data from Variety VIP+ and Leichtmann Research
* National TV scatter market advertising revenue is down 32% so far this season -- October 2021 through March 2022 -- versus the same period four years ago.
* A new study about to be released by IPG’s Magna unit in association with contextual intelligence platform GumGum suggests that ad-supported CTV providers should roll out overlay ads..
* Jeff Fagel, CMO of Madhive, argues digital players like Alphabet and Meta is the real enemy.
* Disney is anticipating that over the long term, the majority of Disney+ customers will pick the lower-cost, ad-supported plan, which is set to launch later this year.
Other
* The Information’s Jessica Toonkel reported Netflix cancellations are rising among long-standing subscribers ($ - paywalled)
* New features and functionality are helping Google win over more smart TV manufacturers, challenging competitors like Roku for their business
* According to Mediavision, some 60% of Swedish households subscribed to one paid video streaming service at the end of the first quarter, with growth of about 4% in Q1
* IAB's chief executive officer David Cohen shares five predictions for where video and TV ad measurement are headed.
* The vast majority of marketers are unhappy with their Customer Data Platforms, but then again, not many are sure what they really are