Paramount Global recently made a strategic decision to raise prices on most of its Paramount+ subscription plans. The ad-free Paramount+ With Showtime plan will see a $1 hike to $12.99 per month, while the Paramount+ Essential plan with ads will increase by $2, reaching $7.99 per month for new subscribers. These changes are set to take effect starting on August 20 for all new customers.
For existing subscribers to Paramount+ With Showtime, the new pricing will kick in on their next billing date on or after September 20. Meanwhile, the Paramount+ Essential monthly plan subscribers will continue to pay the current rate of $5.99, and the prices for annual subscriptions for both tiers will remain unchanged. Subscribers on the legacy Paramount+ Limited Commercial plan will experience a $1 increase, bringing their monthly rate to $7.99.
The first quarter showcased a significant surge of 22% in subscription revenues, driven by a remarkable increase in subscribers and the implementation of price hikes for Paramount+. The platform’s subscriber base has now grown to approximately 71 million, with 3.7 million additions recorded in the quarter.
While this growth trend is anticipated to persist in the short term, the fiercely competitive landscape of the streaming market poses concerns for the long-term sustainability of the company.
The Streaming Wars and Paramount+’s Daring Move
The streaming television and movie industry has evolved into a fiercely competitive arena over recent years, with companies investing substantial sums in constructing their platforms and content libraries to challenge the dominance of industry titan, Netflix. Participation in the streaming era has thus become a costly endeavor.
Subscription fees across various services, including Netflix, Disney’s Disney+, Hulu, Warner Bros. Discovery’s Max, ESPN Plus, and Paramount+, have all seen continual increases over time.
After a decade of prioritizing rapid subscriber expansion over profitability, streaming enterprises are now compelled to focus on generating tangible profits to stay afloat. To bolster their financial standing, these companies are resorting to measures such as price escalations, clamping down on password sharing, canceling shows for tax advantages, and even selling off content to other platforms.
Interestingly, even with the updated pricing, Paramount+ With Showtime remains priced lower than the ad-free tiers of Netflix, Disney+, and Max.
Observing industry trends, Warner Bros. Discovery recently upped the prices of Max’s no-ads plans in the United States. Meanwhile, NBCUniversal’s Peacock tiers witnessed price increments for new subscribers just before the commencement of the Paris Summer Olympic Games.
Impact and Future Projections
Despite Paramount shares plunging by 31.4% year-to-date, trailing behind the Consumer Discretionary industry’s modest growth of 0.3%, the company’s recent pricing actions and expanding subscriber base offer a glimmer of hope for Paramount Global.
While outranked by Netflix, which has surged by 37.4%, and Disney’s growth of 12.9%, Paramount Global remains a Zacks Rank #3 (Hold) company. The company is certain to face stiff challenges in the form of relentless competition in the streaming domain.
A matter of concern for investors is PARA’s high debt level, which stood at $14.6 billion as of March 31, 2024, with cash and cash equivalents totaling $2.38 billion. Such a leveraged financial structure and limited liquidity levels do not bode well for stakeholder interests.
The Zacks Consensus Estimate for PARA’s second-quarter 2024 earnings per share is projected at 14 cents, reflecting a decline of one cent over the past 60 days. Similarly, the consensus figure for third-quarter 2024 earnings stands at 32 cents per share, down by 3 cents in the last 30 days.
