Paramount, Disney and other legacy media giants are grappling with a change in consumer tastes that's upending the industry. The emerging trend has sent Paramount stock and other shares on a wobbly ride this year.
At Paramount Global, the famed movie studio made headlines after various outlets reported that controlling shareholder Shari Redstone was considering buyout offers that could break up the Paramount empire. Paramount is also known for sub-brands including CBS News and Nickelodeon. And Disney got caught in a high-stakes drama after Bob Iger, the returning CEO of The Walt Disney Company, fended off a challenge for board seats from activist investor Nelson Peltz.
Paramount Stock: Spotlight On Disruption
Meanwhile, the disruptions highlight the trend hitting media stocks. Audiences have been turning away from traditional TV, or linear TV, as they embrace streaming services. The change is happening fast, said Alex Yip, director of product discovery at AppsFlyer, a brand marketing and analytics company.
"2027 is when streaming is meant to take over linear, and you do see the growth," he told Investor's Business Daily. "It's happening, and if you don't figure out the plan now, you just see [linear] shrinking."
Buyout Chatter
Paramount stock saw a modest rally as news of a possible buyout by Skydance first broke in January. Shares hit 15.70 with a spike in volume, before retreating as talks dragged on.
However, buyout talks at Paramount have reportedly foundered, according to Variety. For now, Paramount will likely continue to operate as its own entity.
Additionally, Paramount stock retreated as the chances of a buyout deal began to wane. The shares saw trade volume spike in early May as the exclusive talks period with Skydance lapsed. That freed Paramount to consider the rival bid from Sony and Apollo.
Paramount stock holds a Composite Rating of 30 and ranks No. 17 in the Media-Diversified Group, according to IBD Research.
Disney's High-stakes Drama
The Paramount news followed an unusually high-stakes battle at Disney. Peltz mounted his activist campaign on criticism of Disney's declining margins. Especially compared to contemporary peers like Netflix, according to CNBC.
Disney stock has slumped since reporting earnings in early May, breaking beneath its pivot point and into a loss zone, according to MarketSurge. Heavy volume accompanies the movement. It comes after Disney stock completed a massive cup-and-handle base that began in 2023 and ended in February of this year.
Disney stock surged in April after Disney shareholders rejected Nelson Peltz's campaign for board seats. Disney stock holds a Composite Rating of 61 and ranks No. 6 in the Media-Diversified Group, according to IBD Research. Disney did not return a request for comment from IBD.
Who's Watching TV?
The move away from linear TV is driving this wave of change, which for decades generated steady returns. "The profitability center for a lot of these businesses was in the linear side of the business," Harry Browne, vice president of media innovation at Tinuiti, a performance marketing firm, told Investor's Business Daily.
"It's pretty substantial — the graph is pretty steep," Yip of AppsFlyer said. The change in revenue streams has been "pretty substantial," he added.
People just aren't watching TV anymore. With the loss of viewership and ad revenue, media companies are rethinking every part of their business strategy, especially the way they present their offerings to consumers.
Falling Linear Revenues Chip Away At Paramount Stock, Disney Stock
Scheduled cable television, as the industry also refers to linear television, once offered a reliable stream of revenue for media companies. But its power is waning, usurped by cord-cutting and streaming, and the rise of video competitors like video-based social media, such as TikTok and Google's YouTube.
In its Q2 earnings results for the 2024 fiscal year, Disney posted operating income of $752 million for its linear networks. That was a 22% decline from the same quarter a year ago. Paramount stock saw its TV media revenue grow just 1% to $5.2 billion during its first quarter in the 2024 fiscal year, boosted mostly by the CBS broadcast of the Super Bowl.
Paramount Stock Grapples With Ouster Drama
But the surprise ouster of longtime Paramount CEO Bob Bakish overshadowed the media giant's earnings. The company removed him before an abbreviated earnings call in April. The move came amid reports that Bakish opposed a potential merger between Paramount and Skydance. The Skydance bid was one of two offers the media giant was entertaining, the second being a joint offer from Sony Pictures Entertainment and private equity firm Apollo Global Management.
So far, no deal has emerged and Paramount has continued to operate as its own independent entity, ultimately owned by Shari Redstone. Paramount declined a request from IBD for comment.
The industrywide decline in linear viewership, as recorded by TV ratings specialist Nielsen and Leichtman Research, has hurt subscription revenue, which is projected to fall by around $15 billion annually by 2027, accounting and consulting firm PWC says. In another report, PWC expects global revenue from TV advertising to remain largely stagnant, growing just under 2% from $157 billion in 2018 to $160 billion in 2027. Internet advertising, meanwhile, is expected to grow from $266 billion to $663 billion, a nearly 150% jump, in that time frame.
The Rise Of The Media Bundle
Media companies are hoping to staunch the pain with their own streaming entrants. Disney, Paramount and Comcast have each launched their own streaming services at various price points.
But streaming revenue poses challenges. "The faster than expected decline of linear is not being made up for by streaming," Tinuiti's Browne said. "The way to achieve exit velocity as a streaming platform is in gathering audiences, and gathering audiences really comes down to consolidation of content and consolidation of quality content."
This has led to the rise of the streaming bundle. Disney offered one of the earliest examples in the space, with bundles that combine ESPN, Hulu and Disney+.
Bigger Bundles Herald Bigger Media Shifts
But the push to bundle is still evolving. The system now usually incorporates crosstown rivals and even utility companies.
"Instead of these media partners competing, they're saying 'let's just package this up with one set price and it'll be cheaper than you buying individually,' " said Yip. The idea is to retain customers and reduce churn, or cancellation rates.
In May, Comcast announced a new bundle for consumers that would include Peacock alongside a Netflix and Apple's TV+ subscription, combining rival offerings together with its own flagship service.
Earlier this year, Disney, Warner Bros. Discovery and Fox announced a joint venture that would produce an upcoming sports streaming bundle. The move could potentially cut through the messy tangle of sports deals and exclusivity and aims directly at sports fans, often cited as the main driver behind linear TV subscriptions.
Competitive Content
"One of the things driving these combinations is because they have a competitive degree of content in aggregate that allows them to go up and compete against something like Netflix, which has one of the largest content libraries there is," said Browne.
But the biggest evolution comes from incorporating streaming subscriptions alongside a necessary utility like internet or cellphone service. AT&T and T-Mobile offer access to streaming services like Warner Bros. Discovery's HBO Max and Netflix as part of their wireless plans. The move guarantees streaming customers, says Yip. "I'm never going to turn off the internet."
Such moves could herald even bigger shifts in the media landscape. "Some of these joint ventures I would expect at some point will become outright mergers," said Tinuiti's Browne. "Five years from now, we're going to see a streaming landscape with fewer but larger players in it."
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