Good afternoon. My name is Nadia, and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount Global's Q4 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Jaime Morris, Paramount Global's EVP, Investor Relations. You may now begin your conference call.

Good afternoon, everyone. Thank you for taking the time to join us for our fourth quarter 2023 earnings call. Joining me for today's discussion are Bob Bakish, our President and CEO; and Naveen Chopra, our CFO. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. Before we start this afternoon, I want to remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Some of today's financial remarks will focus on adjusted results. Reconciliations of these non-GAAP financial measures can be found in our earnings release or in our trending schedules, which contain supplemental information and in each case can be found in the Investor Relations section of our website. Now, I will turn the call over to, Bob.

Good afternoon, everyone, and thank you for joining us. There's no question that 2023 was a dynamic and in many ways challenging year in our industry. We saw two labor strikes, a tough macroeconomic environment and continued evolution in the media industry. But we stayed focused on a disciplined execution aligned with our strategy, adapting as needed. In doing so, we position Paramount Global to deliver significant growth in total company earnings and growth in free cash flow in 2024. On today's call, I'd like to spend a few minutes speaking to our ‘23 accomplishments. Then I'll provide more color on our ‘24 priorities, before handing it over to Naveen for a deeper dive on the financials. With that, let's start with ‘23, a year where our content clearly continued to deliver, driving every platform. In fact, Paramount had the number one show on all of television and the number one broadcast network for the ‘22, ‘23 season, not to mention five Number 1 debuts at the domestic box office. And very importantly, we continue to scale streaming with Paramount+ and Pluto TV. Subscribers and MAUs grew nicely. In 2023, audiences spent nearly 40% more hours on our streaming platforms compared to 2022, which when combined with our mid-year Paramount+ domestic price increase delivered 37% D2C revenue growth. The disciplined execution of our strategy, including the integration of Showtime into Paramount+ led to a reduction in full-year D2C losses, and meant we had peak streaming losses in 2022, a year ahead of schedule, with further significant improvement expected in 2024. Disciplined execution has been a theme across the entire company to deliver both impact and efficiency. And that obviously extends to managing our cost base as we continue to streamline the organization. That brings me to the year ahead, where…

Thank you, Bob. Good afternoon, everyone. As Bob mentioned, our full-year 2023 results reflect a year of continued execution. In my comments today, I'll provide insights on key elements of our Q4 results. Additionally, I'll discuss how we're making notable progress in scaling our D2C business, which will result in significant earnings growth for the company in 2024 and drive Paramount+ to reach domestic profitability in 2025. Let's begin with our Q4 results. Paramount delivered total company revenue of $7.6 billion and adjusted OIBDA of $520 million. Despite navigating a variety of challenges posed by the strikes, we were able to deliver strong performance in our direct-to-consumer business and stable operating margins in TV Media. As always, you'll find a comprehensive review of our financial results in our press release. Let me walk you through a few areas of note, starting with advertising. In Q4, direct-to-consumer advertising delivered strong growth of 14%, benefiting from a 27% increase in total viewing hours across Paramount+ and Pluto TV. This viewership is monetized through our IQ platform, already one of the largest premium digital video advertising platforms in the United States, and its value continues to grow as engagement expands and as we evolve our digital advertising capabilities to attract new sources of demand. In linear advertising, we saw strong demand in sports due to a record NFL season and incremental Big 10 inventory. Other components of linear advertising were negatively impacted by the strikes, a decline in political spend and unfavorable FX. On a total company basis, advertising declined 11% in the quarter, including a 400 basis point headwind from the decline in political advertising. Looking forward, as Bob mentioned, we're seeing some signs of stabilization in the ad market, including healthy scatter premiums. And based on what we've seen to date,…

Thank you. [Operator Instructions] Our first question today goes to Bryan Kraft of Deutsche Bank. Bryan, please go ahead. Your line is open.

Hi, good afternoon. I had a couple. I guess, would you talk about the content slate for TV and streaming this year on the TV side? Or are you shifting programming originally slated for the fall and to the first half of the year and therefore going to have higher than normal programming costs in the first half of the year at Super Bowl? Or should we expect a more normal level of programming costs for TV in the first half? And then on the streaming side, how would you compare the strength of this year's slate to last year's? And what are some of the more important titles that you think will drive customer acquisition for Paramount+? And then, it would be really helpful if you could give us a sense of the mix between domestic and international Paramount+ subscribers at this point, as well as where most of the growth came from in 2023? And any color just on your expectations for sub growth this year, in total and anything on mix would be helpful. And then just the last one was just, if you could give us any sense for where the relative ARPUs are for domestic and international now, that'd be great? Thank you.

Yes, sure, Bryan. This is Bob. I'll take the sort of the first part of that with the content and let Naveen take the second part on what I'll call the metrics. So, with respect to content, Paramount, as you know, has a robust content engine and look it's really been delivering. And, now that we're through the strikes, it's again in full operation. On the TV Media side, we commented on the CBS slate earlier. Obviously, that was a delayed launch, but we're up and running now. And we will run a shorter slate in terms of number of episodes, but I want to highlight just how strong it is. We had the top 16 shows, all of the top 16 in the first week and we had 18 in the top 20. And that's really stunning for one network. So, feeling really great about where CBS is. And we will have a traditional fall slate launching again in the fall. So, that's CBS. In terms of the cable side, also have a whole set of programming coming there, things like Yellowstone and the new Yellowstone, call it Yellowstone 2024 for now coming to Paramount Network in the fall, a bunch of animation coming to Comedy Central, plus Jon Stewart by the way, which is Episode 3 this week continues to grow nicely, that whole set of programming with MTV, etcetera. Moving to streaming, we feel very good about the first half. Now the first half, we are still dealing with some strike delays with respect to content. So, we've been a bit creative. But if you look at the first quarter, obviously, you had the NFL and the Super Bowl, that's performed very well for us. The CBS slate, I talked about that. Also Halo, the Mean Girls movie, we're back in the UEFA business and we got March Madness. So Q1 looks good. Q2, add the Masters, the Bob Marley movie, Star Trek: Discovery, The Challenge: All Stars, the reality show originally from MTV, now broader, Dora, Sonic spin out called Knuckles, the return of The Chi. And then once we get into the back half of the year, we're really finally operating at full strength and frankly, it's chock full. Things like Mayor of Kingstown season 3, a new Ninja Turtles series, SEAL Team, Tulsa King, Special Ops, Frasier, The Chi for season 7, The Donovans, which we announced today, a spin-off of Ray Donovan, another Taylor series, Landman with Billy Bob Thornton, Jon Hamm and Demi Moore, plus of course the NFL and Big 10 come back. So we're feeling very good about Paramount+ and frankly, linear from a content perspective. Naveen?

Yes. Thanks. So Bryan, I'll try to give you a little insight on streaming subs. So, maybe just starting with Q4, as you saw, we added 4.1 million subs to Paramount+ in the quarter. I think it's fair to characterize that growth as being relatively balanced as between domestic subs and international subs. On the domestic side, I think the content slate performed really well despite, obviously, some strike impact. I think that speaks to the benefit of having a balanced sports and entertainment portfolio. So that worked well for us. We also saw some nice performance in the quarter from partnerships like what we do with Walmart and the bundle with Walmart+. And then on the international side, we launched a new hard bundle with JCom in Japan. So that obviously contributed to sub growth. In terms of what we're seeing this year, 2024 sub expectations, I do think sub growth in 2024 will be lower than 2023. Though importantly, I'd point out we do still expect very healthy Paramount+ revenue growth. And of course, revenue is the more important metric than subs. But just to give you a little color behind my comment on the sub trends themselves, there are a number of factors at play. First, you got the Super Bowl. We were very excited about the magnitude of starts that we saw from the Super Bowl. I think it's a little early to assess exactly what that means in terms of how many we retained. Obviously, you do have high churn on an event like that. But we're encouraged by what we've seen thus far. The content slate, because of the strike, as you heard Bob describe, is a little bit back half loaded and so that kind of affects the timing of subs coming on.…

Thanks, Bryan. Operator, next question please.

Thank you. The next question goes to Michael Morris with Guggenheim Partners. Michael, please go ahead. Your line is open.

Thank you. Good afternoon, guys. Two topics, one on sports and one on content, if I can. On sports, the sports JV between Disney, Fox and Warner Brothers has been pretty high profile. I'm curious if you can share your thoughts on what you think that means for the competitive marketplace, whether you expect it to impact you and whether it might spur you to look for a partnership yourself. So that's my first question. And then my second on content, as we talk about kind of repopulating the slate, the licensing revenue at the company has been pretty stable until this past year when it came down. I think during the strikes, do you expect it to return to a level that you saw in 2021, 2022? And just one other thing, Bob, when you were talking about windowing, you mentioned, Tulsa King and maybe putting that on linear before you put it on streaming, which seems a little inverted from what we would expect. So did I hear that right? And maybe if you could speak to that strategy a little bit, I would appreciate it. Thank you.

Yes. Sure, Michael. So starting with the sports topic, look, start with the fact that there's still a lot we don't know about this service, things like price, packaging, consumer appetite. And to the consumer point, for a true sports fan, this product only has a subset of sports. It's missing half the NFL, a lot of college, has virtually no soccer or golf, etcetera. So look, that's hard to believe that's ideal, especially at the price points that have been speculated. In terms of our view on sports, first, we serve true sports fans through our MVPD and virtual MVPD partnership that provides the full complement of sports really year round. And second, we see clear value to an integrated sports payment strategy, true both for CBS and Paramount+ by the way, but if you look at the streaming side, Paramount+, we clearly see consumers watching both. I referenced this 90% factor, i.e., people that come in for sports on Paramount+, 90% of their engagement is with non-sports. So that's a clear opportunity that we're continuing to exploit and we like. And our sports are Marquee, NFL, NCAA, UEFA, those are locked up into the next decade. So we have a real sustainable advantage here. Bottom line, we very much like where we are with respect to sports execution and see the Paramount strategy creating substantial value therein. Let me briefly comment on Tulsa. You missed, Herdie. What we're going to do is we're going to put the 1st season of Tulsa on CBS prior to the second season of Tulsa dropping on Paramount+, really using it as a broad marketing engine. And as you know, we did a variant to that idea with Yellowstone and we really saw continued broadening of the audience. And so we think that's a real opportunity for Tulsa as well, given Stallone, etcetera. And we also think it's attractive from an economic perspective. You want to comment on the licensing thing, Naveen?

Yes, sure. Mike, I think for the most part, your thesis is correct on licensing. We do expect licensing to grow this year. As I flagged in the past, the quarter-to-quarter trends revenue recognition. But given that licensing was impacted by the strike last year, this should be, call it, a more normal year from a licensing perspective. Probably does mean it's a little bit back half loaded because it will take a little time to be able to produce and then deliver all of that content. But in general, we're looking forward to the year. I'd also note that our licensing revenue includes things like studio rentals, which were also impacted by the strikes. That's another place where we get a benefit in 2024 versus 2023.

Thanks, Mike. Operator, next question please.

The next question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead. Your line is open.

Thank you. Questions are on Paramount+. Thank you for all the guidance that you laid out in your prepared remarks. Maybe for Naveen, you haven't talked about sort of international versus domestic EBIT or EBITDA in the past. And if there's any way to help us think about what domestic profitability means at the segment level or any way to dimensionalize that disclosure? And then on the $1 billion charge, it sounded like that was programming and restructuring. I just wanted to make sure that was true and if you had any rough sense of relative sizing. And if you could just tell us, is that programming tied to the sort of international strategy shift that you guys have talked about? And then lastly, also in Paramount+, you said programming cost growth at Paramount+ or D2C should be significantly lower than the ARPU growth of over 20%. That's a pretty wide range of outcomes. I was wondering if maybe you could put a finer point on your expectations for Paramount+ programming costs for ‘24. Thank you.

Yes. Thanks, Ben. Let me try to hit all those. So first of all, in terms of our comments on Paramount+ profitability and in particular sort of the domestic trend, if you will, versus the linear, I'd say a few things. So first of all, most of the year-over-year improvement in the D2C P&L in 2024 will be driven by the domestic Paramount+ business. That is driven by benefits we talked about, sub growth, ARPU growth to a slightly lesser extent, content efficiencies. While domestic is the bigger contributor, I do also expect to see some pretty material improvement in profitability at Paramount+ International. The drivers there are a little bit different. That's going to be more about the evolving sub mix and what that does to ARPU. I kind of touched on that on the prior question. Along with the benefits that we get from the content and marketing efficiencies related to really leaning into the global content and dialing back on local. There are some significant dollars to be saved there, not just on the content side of it, but on the marketing side as well, because the local stuff typically requires a pretty healthy dose of marketing to get to, call it, sufficient levels of awareness. So I think the international business, we generally think of as being, call it, 12 to 18 months behind the domestic business. We obviously launched outside of the United States later than we did domestically. And we're continuing to optimize that business in the same way we are the domestic side to get it to profitability soon after. So that's the first part of your question, your second question on the $1 billion charge, you're correct that includes programming charges as well as restructuring charges. I think you'll see some of the details around that in the K, but you should assume there's about $200 million of restructuring charge in that number. And the programming piece does include charges related to the changes that we're making in International. And then with respect to your last question on the, call it, trend line of programming costs relative to ARPU, we weren't trying to be cute in the sort of the 20%. You should assume that the growth rate on, I'll say, cash programming for Paramount+ is going to be significantly lower than the growth rate we talked about on ARPU. The Amor piece will be also lower than ARPU, but we'll still see some, call it, slightly abnormal growth because of the unwind from the strike in 2023.

Thanks, Ben. Operator, next question please.

The next question goes to Steven Cahall of Wells Fargo. Steven, please go ahead. Your line is open.

Yeah. Thanks. So first, I was wondering if I could just get your comment on, Skinny Bundle and how you're thinking about an industry push towards more Skinny Bundle. Kind of follows on the earlier question about the sports streaming JV. It seems like MVPDs are going to continue to look for this. I think you traditionally, often looked for CBS to be distributed with a lot of your cable networks. I'm wondering if you have any change in thinking in terms of sort of meeting MVPDs or consumers, especially as you have some renewals, I think, coming up this year. And then on the advertising market, I think after Q3, you said that you were seeing some modest improvement in domestic ads. It seems like that in Q4, that didn't quite come through. You seem more positive on stabilization, in the Q1 outlook that you gave. So would love to just, hear about what's changed to cause that and then specifically, anything on Pluto's sequential advertising growth trends as well? Thank you.

Yes, sure, Steve. So on the Skinny Bundle side, since we brought the companies together, we've obviously been distributing a full package, CBS plus the cable networks, by the way, including streaming products, advanced ad sales, etcetera. We are in some of the Skinny Bundles, if you will, Charter Spectrum Essentials, Sling, etcetera, with a set of cable networks. That is from deals that were done a while ago, which we continue to roll forward. So, it is a piece of the market we participate in. And look, we've seen some nice growth, particularly at Charter, but that's that point. Second, in terms of domestic advertising, look, in terms of the current ad market, strikes and political were clearly a headwind in Q4 and thankfully we're through the strikes and that's behind us. As I indicated in my remarks, we are seeing signs of stabilization, notably healthy scatter premiums. Sports clearly remains a bright spot, NFL, Super Bowl, and I'm thrilled that we have the NCAA and UEFA and Masters as we get into this continue in 2024. And more broadly, we are seeing healthy growth in many categories, including consumer products, quick service restaurants and retail. I'd also say that that's all domestic. The international side was tough last year. We are seeing stabilization there as well, but currency does really remain a headwind. In terms of Pluto, that's really part of our broader digital business, digital ad sales there. I'd start by knowing we have strong trends in digital ad revenue. We were up 14% in the fourth quarter. And while it's true, there's more competition in the connected TV space, that's a $25 billion plus business, a lot of spend out there and we're certainly not standing still. We like our positioning. If you want to take…

Thanks, Steve. Operator, next question please.

The next question goes to Jessica Reif Ehrlich with Bank of America Securities. Jessica, please go ahead. Your line is open.

Thank you. Couple of things. One, I mean, there's been tons of press on M&A interest. I was wondering if you could maybe talk about how you're thinking about strategic options and what the time frame would be to put this aside or move on. And within that, maybe some bundling options for Paramount+, how are you thinking about that? And then on the restructuring or the charge that you're taking in first quarter, it sounds like you're attacking costs. I'm just wondering is there do you feel like there's more to go? And post the $1 billion charge, how much will the cost base be reduced? And then finally, you do have a big contract coming up in the spring. Can you give us some help in how you're thinking about, if you think about what happened with Disney, if the diginets go away, can you size or help us think about what's the financial impact?

Yes, sure, Jessica. Let me take the first part of this and Naveen will pick up some of it. So first in terms of M&A, look, at Paramount, we're always looking for ways to create shareholder value. And to be clear, that's for all shareholders. But I'm not going to get into commenting on any speculation or time line, etcetera, but it's obviously something we are focused on. But this call is really about talking business, which goes to your second question, I guess, bundling or options for Paramount+. As you know, we're big believers in bundling. It is one of the tried and true methods of value creation in media. It's certainly the case in streaming. When you think about streaming, the benefits or potential benefits of bundling include, look, it's strengthening your consumer proposition that allows you to drive subscribers, enhance your share, reduce your churn. You get access potentially to an existing subscriber base that lowers or potentially eliminates SAC. As an offset, it does require some form of revenue concession, might be a revenue share, might be wholesale pricing. So it does have an ARPU effect. But if you look at LTV, the result is a clear win. And I'd point out that this is not a conceptual theory for us, we already have substantial experience with the power of bundling and streaming. As you know we have hard bundles internationally with people like Sky, Canal and others. They've been key to our market entry strategy. They are unquestionably additive to our Paramount+ sub base and economics. There's also things like Walmart Plus in the U.S., which is another form of a bundle. That partnership has been incremental to our overall Walmart relationship. It's clearly additive to subs and engagement. And by the way, it's now creating incremental opportunity in ad sales as we expand into retail media. Even Sky Showtime is another version of a bundle, albeit in a joint venture structure That again enhances the consumer proposition and actually allows us to reduce investment levels in a set of markets because it's a combined product we're going at. So net-net, we strongly believe in bundling and the associated value creation opportunity, and we continue to look to incremental opportunities in that regard. Naveen, you want to talk about the restructuring point?

Yes. So look, I think the short answer is that we believe there is continued opportunity to find efficiencies in the business. That's true both on the traditional linear side of the business and on the streaming side. On the streaming side, it's really more about how we grow even more efficiently. And on the linear side, it's really about how we preserve the margins in that business. And you've seen us take a variety of actions, not just the elements that we spoke about today, but over the past few years where we have combined organizations, we've taken out overhead, in some cases, we've leveraged programming across different platforms, and you'll see us continue to do more of all of that going forward. Content is still the single biggest cost item for us, and that's one of the reasons why, as I noted, we're focused on programming our linear nets as efficiently as we can while maintaining a strong volume of high-quality content. And on the streaming side, we're using what we've learned about viewership to really figure out where to place our bets and how to continue to drive engagement without having to significantly increase the amount of cash content spend that we're using for Paramount+. So this is something that we continue to be focused on, and you will see us unlock further efficiencies across the board going forward.

And then Jessica, in terms of your last question, we don't really comment on individual deals, but I'd ask you to remember three things. First, our content offering is strong. It's really must have in the eyes of U.S. Pay TV consumers. Second, as you know, we have many levers to pull in these distribution deals to address client objectives, linear networks, advanced advertising, streaming products, both free and pay, etcetera. And as you know, objectives vary across companies, so it's important that you can get to, if you will, bespoke solutions. And third, it's allowed us to get all of our deals done. In fact, we've now lapped every client multiple times over my tenure as CEO. So it's a lot to work with there. In terms of a U.S. deal that potentially involves D2C, I'd say the following. It is along the lines of our international hard bundle deals. And as we just said, we like the benefits of that structure, benefits are increased reach, ad monetization opportunity, reduced churn, lower SAC, yes, trade-offs a lower wholesale rate, but net-net, the LTV can be compelling. And again, beyond D2C, there'll be lots of levers to pull in this discussion. And in terms of the carriage question, the reality is these deals represent a combination of factors, so that's not necessarily the way future deals will play out. Net-net, lot to work with, demonstrated ability to get things done, and we're always focused on getting to a win-win solution for a partner, and we'll get there.

Operator, we have time for one last question, please.

The next question goes to Robert Fishman of MoffettNathanson. Robert, please go ahead. Your line is open.

Hi. Good afternoon. I have one for Bob and one for Naveen, please. Bob, can you talk more about the potential licensing opportunities? I'm thinking specifically for Paramount+ exclusive original content, to potentially third parties, and your view on keeping that original content and even your bigger library that's already in Paramount+ to yourselves versus looking to monetize that content to help drive upside to cash flows going forward? And then, Naveen, any way to help frame how much the Hollywood strikes benefited either the quarter or the full-year 2023? And then on the related note to the first question, as you think about growing free cash flow in 2024 despite the increase in content spending, just if you can help us think about how much licensing helps drive that growth?

Yes, sure, Robert. So, start with the fact that we continue to believe building a scaled streaming business is an attractive value creation path. If you think about it historically, networks of which streaming is the next or current iteration have had superior value characteristics relative to studios. They allow more control over monetization, particularly in success. They allow control over marketing and promotion, which importantly allows you to use one hit to build another, think the old concept of lead in. And you have direct connectivity with viewers and that's particularly true in streaming. And I'd remind you that Paramount+ our network really has sustained momentum. It's ahead of time in terms of the past profitability and it is poised for domestic profitability in 2025. That being said, we recognize the inherent value of our content and we know that others do too. And that is optionality we maintain, which we believe has real value because the market for high-quality content, feature films, signature series, kids franchises, which is really our wheelhouse in general and certainly with respect to Paramount+, that market remains strong and it just relate back to being at Mipcom in October, where countless clients that I met with and the whole team was there, were looking for great content and needing our partnership, if you will. So, there is a tremendous opportunity there. Again, we think using our content to drive asset value creation in the form of Paramount+ given the momentum we have, is the right Plan A, but we have optionality in that regard and we clearly have valuable product.

Let me try to hit your question, Rob, on free cash flow, licensing, strikes, etcetera. And I'd start by just saying we are intending to deliver free cash flow growth in 2024. That's very important. And the biggest driver of that is significant improvement in OIBDA, and we've talked about the various contributors to that. Licensing is one of the contributors. As I said, I expect licensing revenue to grow in the year, and that benefits both OIBDA and cash flow. But I wouldn't say that it's sort of an inordinate impact relative to what it has been in prior years. I'd also note that our cash spend in '23 came in at about $16.5 billion. That was lower than the prior year as a result of the strikes. And our plan for '24 contemplates spending really only about 50% of, call it, the strike savings back. And, that's a critical ingredient in our ability to drive healthy growth in free cash flow in the year. So, that's something we're looking forward to executing against.

Yes. So in closing, we're really proud of what we accomplished in 2023. And as we look ahead to 2024 and beyond, we're focused on disciplined execution and in doing so, positioning the company to return to significant total company's earnings growth this year and Paramount+ domestic profitability next, generating more value for our shareholders. With that, thank you for joining us. Be well, and we'll talk to you soon.

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