Paramount Skydance Corporation Aktie

All right. Thank you, everyone, for being here again. I hope everyone enjoyed lunch. So we are very excited to have Dennis Cinelli, CFO of Paramount Skydance, here. Dennis, thank you so much for being here.

Thanks for having me.

Making your PSKY Investor Conference debut.

Right.

So we are excited to host you for that. So before we jump into Paramount Skydance, can you tell us about how your experience? It's a nice wide-ranging experience that you have GE Ventures, Uber and then Scale AI. How did that help position you for the CFO role at Paramount Skydance? And maybe what attracted you to the role after you did join the Paramount Board back in September?

Yes. So it's been a journey, so let's see. I grew up in New Jersey, so not too far from here. Went to University of Maryland. I thought I'd be more of an entrepreneur. I started a small business in high school. I studied finance and entrepreneurship at University of Maryland. And so I joined GE out of college, thinking I'd be there for a few years and end up spending 11 years, 13 cities -- I was at GE for 11 years, 13 cities, 7 right businesses, everything from locomotives and power equipment to -- I did a brief stint actually at NBCUniversal, which is my first education in the media business. I helped lead a team when we sold NBC to Comcast. I then went on and did -- I was at lighting, I was at health care. And my last -- I knew I wanted to get to tech. And so my last job at GE was kind of my bridge into Silicon Valley. I was the CFO for GE Ventures.

And then from there, I got lucky, it was middle of 2016. I joined Uber in 2016, when Uber was primarily a rides business. And Travis was still the CEO. And we were on a journey. I spent 6 years at Uber. I went on to take on all the finance teams over the first 4 years or so. I was in that seat and we took the company public in 2019 as we went through the crazy ridesharing war days. We burned $20 billion during my time at Uber. So let's come back to sort of like operational efficiency and analytical rigor.

And then I got a chance in my career to step out of finance and be more of an operational GM. So I ran the U.S. and Canada rides business as the GM, which was interesting time coming out of COVID. And then I also ran the Jump in bike and scooter business. And in the middle of 2022, I kind of followed which is a very sort of cliche business track in Silicon Valley, which is at some point, go earlier stage. And so I joined a company called Scale AI, and this was pre-ChatGPT. This was in the middle of 2022, Scale AI was a very different company than it is today. And really over the last 3.5, 4 years, got to see the AI evolution from a front row seat, right? ChatGPT launched in November, December of 2022. Scale AI revenue went vertical at a smaller scale, but like NVIDIA. And our largest customers were all the model builders, OpenAI, Anthropic, Google, et cetera.

And it really got -- and then I played a broad role. I was able to run finance and parts of operations and data science analytics. And it really sort of helped me sort of stay both at an operationally complex companies, but also at the front edge of technology. And so I did have an opportunity to join the Board of Paramount in September. And I thought this would be like a quarterly Board gig. We meet quarterly. And then when David Ellison called me to join, he's like, well, at your first Board meeting, we're going to launch you, and then we're going to start bidding on Warner Bros. And it went from a quarterly Board gig to nearly daily.

And long story short, I'm excited to be here. And the reason why I think it's hard to also talk about yourself a lot. But the reason why I think I'm uniquely positioned in the state of this company is I have this experience, having spent a lot of time in GE in operationally complex large organizations, right, and sort of getting my teeth in finance at those places where we'd run around chasing pennies at the quarter end, but spent really the bulk of my career in technology, right, and sort of bringing technology in to transform businesses. whether that was growing Uber or Scale. And now, we're really excited about what we can do here at Paramount Skydance.

Awesome. All right. So that's a great setup in terms of where we're going to be going with all this. So you guys just obviously gave us your first quarter earnings update. So maybe just taking a step back, there's the 3 North Stars priorities that you guys have laid out for Paramount. Talk to us about your confidence level of achieving these priorities. And we understand it's early days, obviously, to your point, but how you feel about what the path ahead is on executing upon them?

Yes. We really feel like Q1 was about building momentum, building momentum as Paramount Skydance, but also building momentum into what we want to accomplish, when we combine with Warner Bros. Discovery. So our priorities for the business were accelerate our content engine, scale streaming and do it efficiently. And we really feel like Q1 goes to show you we did those thing, right? So number one, we've seen the content engine start to scale. We've talked about how at Paramount, last year, we released 8 films. This year, we're on track for 15 films. Scream 7 came out in the first quarter, exceeded our expectations, $200 million of worldwide box office. We're going to produce over 100 titles this year across both internal and external consumption.

We -- on the streaming business, Paramount+ grew 17% year-on-year. Growth is accelerating as we both realize the benefits from a lot of the content investment we're making. So this is UFC, a lot of the new shows. Landman was the #1 show on Paramount+. We've seen great pickup on Marshals, which is both CBS and on Paramount+. And we're doing the things around in -- Paramount+ on monetization. We're starting to see our digital ads investment come through and seeing growth in digital, and we expect that to accelerate.

And on TV Media, which is our broadcast and linear business, we said, hey, "We would manage the structural declines in that business by driving stable to improving margins." And in Q1, revenue was down 6% in that segment, and we drove up 5 points of margin year-on-year. And so we feel like we're building momentum going into the deal. We talked a lot about the synergies on stand-alone Skydance, which is when we announced the deal, we'd say we'd do $2 billion in synergies. We now said we get to through $2.5 billion this year and exceed overall $3 billion as our stand-alone Paramount Skydance merger, let alone what we're going to do combined. And so we just feel like Q1 was a good momentum driver, right? And we have reaffirmed our guidance. So it's still early in the year, but feeling good about where we're going to perform.

And then on the deal side, right, we continue to build momentum towards close. We expect to close the deal in Q3, and we announced some milestones along the way. We have the shareholder vote in April, where the Warner Bros. Discovery shareholders approved the deal. We've announced a portion of the equity has been syndicated to strategic investors. And we've also made progress along in our debt financing, where we put in place $10 billion of permanent capital, and we've syndicated out the rest of the bridge to about 18 banks. And we've talked about going forward, as we go to place that debt, the mix we're going to have. So we're going to have a mix of investment-grade debt as well as high yield. And so overall, we feel good about the momentum we have going into Paramount Skydance and what we've laid out to execute and then feel good about closing the deal and starting to execute on that as well.

Okay. So clearly, there's lots going on at the company right now. Let's try to talk about the Warner Bros. deal as much as possible. I understand there's limitations in terms of how much you can share, given the pending deal. But help us understand, and you've started to allude to it, how much Warner Bros. Discovery can really help accelerate some of these priorities and especially what we focus on is the global streaming scale, but even in terms of all of the linear assets that you bought as well.

Yes. We've always talked about M&A, and obviously, this is a big M&A as an accelerant to our strategy. And we really feel like it does just that, right? Overall, this deal creates a more competitive offering for the consumer, for creators. We also think it's very good for the market. But you have to sort of take the pieces of the deal. So the first, right, we combined with Warner Bros. Discovery, 200 years of storytelling, right? The core of this company is storytelling and creative. And you're talking about a company that will combine the Harry Potter and Game of Thrones, a Landman universe versus the Taylor Sheridan universe. We just were at the Dutton Ranch premiere last night. It's going to be amazing new launch in Paramount+ on Friday. You're talking about in Kids & Family, Nickelodeon and PAW Patrol with Looney Tunes. So we just feel we're really excited about the compelling IP and portfolio we combine together. It's very complementary as well as what we're going to drive.

Number two, we get to scale in streaming immediately, right? You're talking about a company that has about 200 million subs immediately, and then we can continue to scale and grow from there. We'll talk about that. And then a global reach linear portfolio that we've taken a clear-eyed view on what that portfolio will do, and we can talk about that. But you're talking about you bring together CBS, CNN, the cable nets around, Discovery, TNT, TBS, Food, HD Network, right, and the ability to leverage those profits to reinvest in our North Star priorities to really grow the Studios and streaming business. And so we put this together, we feel like we get to a very scaled business very quickly. It accelerates our North Star priorities. And we're going to do this by marrying -- we talked about a next-generation media company by marrying art and technology.

And you see this expression here from our leadership team, right? You have amazing executives that have storied careers in Hollywood, coupled with -- those of us from -- coming from Silicon Valley, our Chief Product Officer and the people he's bringing in. I've spent a lot of time there, our Chief People Officer. And so you really get this combination of art and technology that I don't think the market's really seen. And we're really excited about what they can deliver, and we'll talk about what I can deliver financially since -- I'm the CFO and the finance guys, we'll get through it.

Okay. We will get there. Another part of large media M&A that I think many in this room are very familiar with is where the expected revenues and cost synergies are promised and then failed to come to fruition. So talk to us from the CFO's perspective, how you approach the deal math and why this time will be different?

Yes. So we are clear. This is a big undertaking, right? But we've been planning for it. So I think, number one, just sort of the culture around this is very different than prior mergers. You're talking about a company that's owner-operator led, right? The CEO is the largest shareholder in the company that permeates and the leadership team is incentivized in such a way. It's very much like the mindset in Silicon Valley, right, where everyone is an owner in that company. And so that is a different lens than prior media mergers, but it's not the only thing.

As we think about this, and the way we've done this is, given that lens, we also have thought about the model conservatively. What we've put out in terms of our financial guidance, and I want to walk through the pieces is what we believe is a conservative model that recognizes the challenges ahead in the business as well as the opportunity. So if you think about the business, right, so what we've said is on a revenue side, we can drive growth in the business mid-single digits. We do that through a couple of ways. Number one is through streaming, right? You combine the scaled streaming platform. We'll talk about unifying the platform under one service. You get all the benefits of that in terms of like technology and the compelling content portfolio, and that will really drive growth over time.

That will also be complemented by our studio business. So on Studios, we're marrying Warner Bros., a film and TV studios with Paramount. Warner Bros, we're assuming that effectively they continue on their trajectory. But a lot of what growth is driven in the Studios segment is us completing the rebuild on the Paramount side that we've been on, right, moving from 8 films last year to 15, executing on our TV studio strategy, which was really the Skydance team coming in and what their strategy was. And so when you combine on the Studios business, this is 30 theatrical films a year. That 30 theatrical films is very complementary. If you think about it, 30 films a year means every 11 days we're landing a new film on the streaming platform and the benefits there and as well as continue to ramp our TV slate. So the growth engines will be definitely streaming and studio.

And then we've taken a clear-eyed view on the revenue decline for linear. We are not assuming any revenue synergies, even though there could be some as we put these portfolios together. But we are assuming that the structural decline in the pay TV sub-universe will continue. But that being said, we can still use these highly profitable assets as a cash flow generation to fund and reinvest in the business. And so that's on the revenue side.

And then on the synergy side, you're talking about -- we talked about the $6 billion plus number. So $6 billion put into context, it's about 11% of the combined company cost structure. So on a pro forma basis, when you put Warner Bros. and Paramount together, it's about a $50 billion-plus cost base. So $6 billion is, we think, a very approachable and achievable number that will fall through the bottom line, and this is net of our reinvestments because you're putting 2 complementary businesses together and you can really drive efficiency. You think about marketing spend, right?

Today, we have 2 teams marketing to similar audiences in some ways, right? We can reduce that efficiency or realize that efficiency. You're talking about a technology stack that has many different systems that we can streamline, right? And today's AI tools like to get that even faster. And then you talked about corporate functions and procurement efficiencies that you can really drive across the organization. And so we put the business together, we really see why it's different is because you can drive growth, we can execute on the synergies. We're going to do that. We're ramping up our integration efforts. And the result is you have a business that even if we just get to peer level margins, this is mid-20% EBITDA margins, generating -- excuse me, $10 billion of free cash flow by 2030, which allows us to both reinvest in the business and continue to pay down the debt.

Okay. So you talked a lot about reinvesting as part of that answer. So we've gotten a lot of questions and our focus, too, is how combined company or even stand-alone Paramount Skydance today balances the content spending increases and that reinvestment that you're talking about with the elevated debt levels, again, pre or post deal. So help us think about the sustainability of the current content spending as a stand-alone PSKY and anything you can comment on the combined very significant $30-plus billion of combined content spending as part of the pro forma deal?

Yes. So I think it's helpful on content. We view content IP, our storytelling as our growth driver. And so my job is to make sure we deliver -- we spend that content money to deliver the most -- the best long-term value, but it truly is the lifeblood of this business, right? It truly is what will drive growth. I have a saying, which is I think the best companies walk and chew gum, the best companies grow and make money. So this deal is not just about cutting for the sake of cutting. It is about we need to grow, and we need to make money and we're going to balance both those things.

And so the content budget we have, to your point, is $30-plus billion pro forma. For example, Netflix has announced about $20 billion in cash content spend. Disney is at $24 billion. We think it's a healthy number to help us continue to grow. And in our model, we expect content spend to continue to increase and continue to grow as we realize the benefit of that, right? That's the growth driver for us. But you're right, look, there are ways for us to continue to be efficient. And you have to kind of piece out the content spend, right? In our Studios business, content is both an internal deliveries as well as external deliveries. And so part of that content spend is truly driving third-party deliveries and growth and profitability.

In the streaming business, we'll have opportunities for us to sort of look at that portfolio and make sure it's the most efficient portfolio. And we use a lot of analytics around this to think about what drives the most subs growth, user growth and engagement over time and we can optimize that portfolio. And on the linear side of the business in broadcast, we have our strong sports portfolio. But we also have the ability, and this is the playbook we had -- we have at Paramount is to leverage our library and leverage our broadcast studio capability to really drive efficient content and high-quality content in the cable nets, but doing that at the right level. So overall, we kind of view as we have the tools with the pro forma company to make sure we are growing content and growing the business, doing that efficiently, while also hitting our financial goals.

Okay. You talked about sports. So I need to go there. Understanding that there might be only a limited amount that you can say on the NFL potential negotiations. But anything you can share with us just in terms of how you see this playing out? Clearly, adding an extra late-season, primetime game to the lineup should be viewed positively. But maybe just talk to us about the relationship with the NFL, the potential negotiation and maybe more broadly, how you see that fitting in within your overall sports portfolio?

I get asked this question a lot.

Yes, I think so.

And mostly, I can say what we've said externally already, which is we have a great partnership with the NFL to put it into context, right? So last season on CBS was the most successful broadcast season in NFL history for us. Viewership continues to grow. And so CBS and the Paramount ecosystem, including Paramount+, are a broad reach engine to drive fandom for the NFL. So there's a lot of value for them as well as us. We expect to be in business with the NFL for a long period of time. I also think they -- I can't only speak for them, but I hope and I assume that they do the same, just given the value we're driving. And we have a relationship. There's a lot of active dialogue around this. We're planning now for the next season, right? That schedule is already coming out. So we're moving forward. So that's hopefully a good signal for everyone. Like this relationship continues to remain healthy and active. And we'll have more to say if there's more to say on the NFL.

I would also take the point of, we have a broad sports portfolio, both at Paramount and as well as what we get when we combine with Paramount and Warner Bros., right? So just on Paramount, we made a big investment in UFC. This is performing really well on Paramount+, 10 million viewers, 100 million cumulative hours. These are users that are coming in and engaging more content. They're generally younger viewers. The UFC is also helpful because it's a year-round sport. We have fights continuously. So it drives that engagement you want, whereas other sports are more seasonal. We complement that with UEFA and the Champions League. And as you think about what we get when we merge with Warner Bros., we have NASCAR, we have the TNT Sports, we have Olympics in Europe. We have MLB. We just feel really good about sports being a compelling offering in the company -- for the combined company. And so we think sports will be a key driver, not just the NFL, but the overall portfolio.

Okay. I imagine sports is also going to play a big part in the combined streaming offering, too. So let's go to streaming for a second. When we think about -- and we talked about it at the beginning already, but the combined scale that you will get with putting these 2 services together, how do you think about the future of the streaming business, both in the U.S. and I'd say maybe even more importantly, as we think about global scale, which is, I think, the defined priority, thinking about the international growth of putting those 2 services together?

Yes. So as we talked about, when we combine these 2 services, and we've talked about that we want to unify the service, and I think we'll get into technology. But you have just this amazing compelling offering. We're putting 2 premium content portfolios together, right, the HBO content portfolio, the Paramount+ content portfolio. So it's really premium lined up in terms of general entertainment. And we think one of the most compelling general entertainment portfolios out there. Then you couple that with the broad new -- sorry, sports portfolio that we talked about, right, and news when you have CBS News and CNN. So we just view the capability, the content portfolio and the IP portfolio as one of the most compelling in the market.

You couple that with what we're going to do on tech. We talked a little bit about like tech and art coming together. And so as we realize the benefits of converging our platform, unifying the service, you start to get the benefits of user growth, retention, engagement and we start going through that.

So ultimately, the streaming platform comes together, and we view it as 2 engines. The way we see it is the streaming business will power the growth of the business in the future, and we can do that profitably. And we'll do that through a mix of continuing in the domestic, to your point, and there is tremendous growth internationally. And as we think about international, you're seeing us really make sure we can leverage both the global portfolio of content we have, sports being a good one, all the premium content also is really interesting, like the CBS procedurals are really good in international markets. But we'll add in local where needed, right? One of the reasons why we really feel good about the competitive nature of the deal is we're going to be another local buyer in these markets for creators. And they're really excited about that. And so we can complement that.

And then we have sports rights. UFC in Latin America is performing really well. In Europe, we'll have the Olympics and the Champions League that really drive acquisition and growth for the overall stream business. And so I think we feel like as you put that portfolio together, it's a compelling portfolio and a really big growth driver for us going forward.

Okay. Maybe as a follow-up to what you alluded to, anything you can share about how quickly we should expect? I think there's a big question on timing around this as you think about bringing these different services together and maybe any financial expectations that you can share around that, too, would be helpful.

Sure. So it's helpful context on what we've been doing at Paramount to instruct what you might be able to infer as we execute the platform convergence in the combined company. So if you remember, Paramount had 3 different tech stacks, Paramount+, BET+, Pluto, running not just a separate tech stack but siloed. So we've been on a journey, and we'll complete that journey this summer, where we're converging all of those services into one service, one tech stack, underlying tech stack -- and we'll be able to launch -- relaunch Pluto in the summer under that new tech stack.

And what does that give you, right? It's the benefits of what you get at tech companies, right? You have the ability to put all your users, all your data into one container into one box and be able to deliver a better end-user experience, more features in the app, better search, better recommendation, better discovery. At the same time, you're able to drive efficiencies in how you operate the technical operations. So given the learnings from the conversions in Paramount, as we think about unifying the back end between Paramount and Warner Bros., we do think we can do it faster. And our expectation is we can do it in half the time. And that's not -- I think a lot of people -- I get a lot of questions around what the brand is going to be and what the name of the service is going to be.

You can make an announcement here.

That's not -- I can tell you that we have an amazing marketing team that's studying that and make sure we honor the legacy of both studios when it comes out. But the real -- what I'm really concerned about is the substance behind it, right? Like what do you have in terms of the substance of the content portfolio and then how do you think about the experience and the ability for us to get the leverage of monetization up. And so that's what we're talking about, which is when you merge the platforms together, you get all the user, all the data in one spot. It allows you now at scale, right? And so this is where I think we have -- we want to continue to articulate the value of scale.

When you have that scale, we have more data, more users, more content, all your levers get better, right? Our growth engine gets better to acquire new users. Our engagement levers get better. Our retention levers get better, right? They feed on themselves. And so that's what we're really excited about as we put them together. And given the learnings we have, given the tech team investment we have, we really feel like we can do that very quickly when combined.

Okay. That's very helpful. When thinking about pricing as part of this monetization lever, Paramount+ just put through a price increase, I believe, in January. So if you can talk about how that's performing, I think you've mentioned some initial data points, at least on the earnings call. But when thinking about the lessons learned from that, maybe help us think how that gets applied when thinking about putting these services together as well.

Yes. It's a great example of our owner-operator mentality coming through thinking long term. So we made -- we came in, I've been here 3 months, the rest of the leadership team, 9 months. We're about 9 months into this journey. We came in and recognized we needed to invest in the content on the platform. So we've been greenlighting -- we greenlighted 20 TV shows since we've been here. We made investment in key sports content with UFC.

And so we realized there's the ability when you deliver value to a consumer, you can monetize that. And one of the ways we monetize that is through the price adjustment we announced in January. And as I talked about on the earnings call, it's performing at expectations, right? You naturally saw a little bit of a churn increase when you announce it and execute it, and we've seen that moderate, and we're delivering the value through in terms of revenue. ARPU was up 14% in Q1. So that is sort of a microcosm of how we think about long-term value pricing, bundling for the service going forward. We first start with do we have a good compelling offering. We talked about the IP and the storytelling and what we can deliver. Do we have a good user experience.

And then over time, we will be open to, and this is the Silicon Valley mindset of experimenting and iterating on what's the best way to price and bundle it, irrespective of the brand conversation, but like how you monetize it over time. And I think it's worth also noting is sometimes I find in this market, everyone really thinks about subscriptions and price, and that's a revenue driver. But what we are about is not -- that's not the only lever, right? We're investing in Pluto, which is an ad-supported model, right? And that's a lever. We have an ad tier in Paramount+. We have launched new features. We have Clips, which is early days. And so our goal is to drive more monetization levers, right? It's not just subs and sub revenue. It is about really using the leverage of the art and technology to make sure we monetize different levers over time.

So you've alluded to this through a lot of your answers, but I think that the terms that you guys have self-described is building a tech hybrid or a next-generation media and entertainment company.

So maybe just putting all that innovation and focus on the tech side together with the content side, maybe help us understand how does that change the trajectory or what we're used to seeing from traditional media? Why should we be thinking about this differently?

For sure. I think first and foremost, it is very much we're powered by storytelling, accelerated by technology. This is a storytelling company, first and foremost. And this is coming from a person who's spent the last 4 years at the forefront of AI. The reason why I'm here is I believe it, right?

The human creativity, the talent you can bring, and we want to be the #1 attractor of talent, you start there, right? The creativity is that power is the engine. That being said, David has been very clear, Hollywood has really been pushed in. The tech companies have really pushed into Hollywood, and they're becoming more and more media companies. We fundamentally believe, based on what we're building, we can have a high-quality creative storytelling company, a media company push back because we can bring in the appropriate technology talent. And how I've seen this evolution is you're going from -- you have a couple of layers, right? The first is team.

You're going from media companies, and we have a lot of great people in the team, but have been primarily IT organizations, and we are retooling how they think, their stature in the company, the quality of the talent in the company for them to be much more Silicon Valley product-led and a mindset shift in how we execute. And that's quality, that's mindset, et cetera. And that goes as we've elevated our leader, our Chief Product Officer and Technology Officer, to the leadership level, right? He's not buried in the organization. He is a member of the leadership team. So that's first and foremost.

Number two, you started to see us build momentum. In technology, these things start to build momentum, right? And so you're kind of seeing that. We've talked about convergence of the tech stack. We've talked about what we're doing in terms of features and Clips launched on the app that came out from idea to the first iteration in a few months.

We talked about improving our ad tech. So Precision Plus is a tool that we're using for advertisers to help them target more effectively. And so what you'll start to see as you get through convergence, better ML tools for search and recommendation. So as we get the better tech stack, we put everything in the box, that becomes the flywheel for technology organizations to really deliver on the value.

Okay. So clearly, storytelling, as you've mentioned, plays a big piece of that. So let's go to the studio side. You've talked about this 30-plus theatrical release slate and been very clear about the 45-day window commitment after acquiring Warner Bros. and even building towards that today. Maybe help us understand how does the performance of that slate dictate what it looks like in the future? Is that going to be based on specific ROI or the whole slate and how you reevaluate that commitment over time?

Yes. So we've been very clear. The combined company will produce 30-plus films theatrically. They will be -- have a full 45-day theatrical window before they move on to transactional and SVOD. That's not just a good for creators in the Hollywood industry. It's actually good for business.

So 30 films, sometimes we get some skepticism around, but it's just basic math. Paramount is doing about 15 films this year. Warner Bros. do about 15 films this year. We're going to add the 2 studios together, and we're going to continue the output, right? So there's not anything special about 30 other than that we are committed to continue the output of both studios side by side. So that's number one.

Number two, the output is good not just for theatrical, but it's good for our streaming business. So what does that mean? So we have 30 films a year. So that's a film dropping on our streaming business every 11 days. They are -- films are -- and these films are coming in full theatrical release, full marketing budget, right?

If you want to generate IP that's going to last forever that you can monetize over many years and generations, you're not doing that on made-for-streaming movies, right? This is the challenge that other platforms have, which is they spend a lot of money on films, but they're not generating IP.

So we have films that are full marketing budgets, right, which is an amazing marketing team we have, full theatrical, and they're coming into our platform and our platform doesn't have to pay the full cost. It's being underwritten by a full ultimate windowing strategy, theatrical plus others.

And so not only are they the best user and engagement drivers, user acquisition and engagement drivers, but they're also coming into our platform cheaper than they would otherwise with the full marketing behind it. And so we just see the studio, especially the film side as this amazing flywheel.

And so it's not just about sort of this creative commitment, it is very much good for business. And that's on the film side.

On the other side, which is our TV studios, right? And our TV studios are generating some of the most iconic TV on Paramount TV studios and then think about HBO. And so when you put those 2 together and you start to generate both for the streaming business as well as for external, we see this overall studio being a growth driver for us. And as you get to the scale, generating really healthy margins. And Warner Bros. already put out there that they expect their studio business on its own to generate $3 billion in adjusted EBITDA. And so we feel really good about what we get when we combine the 2 services together.

Okay. Let's go to linear because that is still an important part of the current cash flow. So thinking about the cord-cutting trends we all know actually saw some improvement over the past couple of quarters. Maybe just help us think about the stability of the core linear network cash flow? And how does skinny bundles play into this?

Yes. So it's good to make sure we separate linear into 2 pieces, right? You have broadcast, CBS, which is a stable asset, right? This is -- we talked about for the NFL, our primetime lineup, we have 13 of the top 20 TV shows in primetime, 4 of the top 4 new TV shows in broadcast. So you have an asset here that's performing really well for us. That being said, we are, as I talked about, very clear eyed on the secular declines, especially on cable. And so we've modeled that conservatively going forward.

But we do think there's a playbook, and we've seen that -- we've executed that playbook here at Paramount is that you can drive cost savings and the synergies and efficiencies when you put these portfolios together and you can do it across the P&L, more marketing efficiency we delivered in our TV Media segment, more content efficiency, all the other costs. And so this will allow us to sort of ride the secular decline, but also generate healthy profits to overall fund the business. And we're going to go through that shift, right? If you look out the next 3 years, majority of our business by 2030 will be Studios and streaming, right?

And so we're going through that business model shift that a lot of other industries have gone through, and we're going to leverage this linear asset to help us fund that next generation.

Okay. We did talk about the debt at the beginning, but let's go maybe bigger picture. Think about the overall capital allocation for this combined company, maybe just help us think about the priorities in terms of deleveraging versus the organic reinvestment that we talked about and even potential portfolio actions. Maybe think about how important investment grade is within all of this. You guys have been very clear about the target to get there.

Yes. I mean we understand the challenge ahead. We think we have a really compelling company as we talked about. And the financials, it's my key job is to deliver. And so we think about capital allocation, one, you do start with a very scaled company. This is a pro forma company, $70 billion of combined revenue.

Our capital allocation priorities are: number one, we're going to invest owner-operator mentality to generate long-term growth. We're going to bring more analytical rigor around making sure those investments are paying off. Number two, we are accelerating our priorities through M&A, big M&A transaction with Warner Bros. And then the third one is just delivering on our commitment to get towards investment-grade metrics in the next 3 years. We've talked about that being about 3x net leverage by 2030. And we think we have the plan, our plan A to do that. That being said, we realize this is a challenge. And so there is plan B and there's plan C, right? We have a lot of levers in the company of this magnitude to be able to execute to make sure we stay on track towards our overall growth goals and deliver on the deleveraging that we've talked about.

Okay. A big piece of that is going to be the free cash flow conversion. Clearly, there's a lot of working capital dynamics as part of running this business. So maybe just help us think about the levers on that free cash flow conversion over the next couple of years.

Yes. I mean the first step is getting -- and we've talked about is getting the business up to peer set margins, adjusted EBITDA margins. We'll do that through executing on our synergy program, which we talked about $6 billion in synergies, only 11% of the cost base. So we're lining up to execute that. And so as you get the business overall to mid-20s percent adjusted EBITDA margins, then our model is to get to about peer set, which is about 50% free cash flow generation conversion through that. And there's a lot of levers, right? We will have levers around driving working capital improvements, while levers on the synergies. We'll start to see some of the content investment realizing growth. And so we feel good about this business by 2030, generating $10 billion plus of free cash flow.

Okay. So I think we're almost out of time, but -- maybe out of time. But just to wrap everything up, hopefully, when you're sitting here a year from now, maybe help us understand the most significant surprise or shift to the Paramount Skydance business or maybe even the overall media landscape as we're trying to think about how all these pieces land.

Yes. So we're 9 months in. I'm 3 months in. We're 9 months as a new leadership team. I think overall, I hope and I expect this will happen. You will be amazed at what we can accomplish in 12 months. We will have closed the deal. We will be well on our way to executing on our synergy targets. We will have a unified platform that's delivering one of the most compelling content and experience content portfolios and experiences in streaming. And lastly, we'll be hitting our financial goals, right? Our goal is to make sure we deliver for our consumers as well as make sure we hit our goals. And I hope to come back next year and talk you through it.

Awesome. We hope to see you there.

Thank you.

Thank you.

Good afternoon. My name is Krista, and I'll be your conference operator today. I would like to welcome everyone to Paramount's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Corporate Finance and Investor Relations. You may now begin your conference call.

Good afternoon, and thank you for taking the time to join us for the Paramount Q1 2026 Earnings Call. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer, David Ellison; our Chief Financial Officer, Dennis Cinelli; and our Chief Strategy and Operating Officer, Andy Gordon.

As a reminder, we will be making forward-looking statements today that involve risks and uncertainties. Our remarks will also include non-GAAP financial measures. Reconciliations of these measures can be found in our earnings letter or in our trending schedules, which contain supplemental information. These can be found on our Investor Relations website.

I'll now turn it over to David for a few brief remarks before we take analyst questions.

Thanks, Kevin, and good afternoon, everyone. As you've seen in our first quarter results and most recent shareholder letter, we're off to a strong start in our first full year at PSKY. The progress we've made in just 9 months is a testament to the amazing team we've assembled that has worked tirelessly and with great conviction to deliver on all areas of our business. We are executing deliberately against our priorities and seeing tangible results, attracting top creative talent, nearly doubling our film slate, delivering shows audiences love and greenlighting dozens of new and returning series while achieving our financial goals. At the same time, we are transforming how we operate, unifying platforms, data and workflows and embedding advanced technology to drive efficiency, better serve our partners and elevate the overall consumer experience.

Across the business, we are getting things done, and it's translating into real momentum. As a storytelling company, our top priority is and always will be delivering great films and television series from the world's leading creators that resonate with broad global audiences. Recent highlights include Scream 7, which became the highest grossing installment in the franchise's 30-year history, Landman, now the most watched series in Paramount+ history and the continued strength of CBS, which has 13 of the top 20 primetime series, including all 4 of the top new series, an achievement no broadcast network has matched since the early 1990s.

On streaming and sports, engagement remains strong with more than 10 million households watching over 100 million hours of USC programming on Paramount+ and CBS Sports delivering the most watched final round of the masters in over a decade. These are just a few examples of the progress and growth taking place company-wide. As I mentioned, we are also making meaningful strides improving our products to deliver more dynamic, personalized experiences and superior monetization. New features such as enhanced mobile experiences, short-form video and more advanced recommendations are helping us to better serve consumers. We're also leveraging AI-powered capabilities across the businesses, including our agentic data warehouse and Precision+, our targeted and optimization platform to move faster and operate with greater effectiveness in support of our advertising partners. While there is still significant work ahead, we remain confident in our strategy and the trajectory we are on.

Finally, we continue to make steady progress towards completing the Warner Bros. Discovery transaction, which we believe will accelerate our transformation, strengthen our competitive position and enhance our ability to help shape the next era of entertainment. To date, we have satisfied our U.S. HSR obligations, and there are no statutory impediments remaining. And we continue to advance through European and other international regulatory approvals, several of which have already been secured. Earlier in April, we announced a broad syndication of the PIPE equity commitments to strategic investors, underscoring continued investor confidence, secured $10 billion in permanent financing and syndicated the remaining $49 billion of our bridge to a group of leading banks and institutional lenders.

Additionally, on April 23, WBD shareholders voted to approve the transaction. We're pleased with the momentum and we'll continue to take the necessary steps to bring this deal to completion. At every stage, we remain guided by our strong conviction that the combination of these 2 iconic companies and their extraordinary teams will create a leading global media and entertainment company, powered by storytelling and accelerated by technology that strengthens competition, better serves the creative community and delivers even more compelling stories to audiences worldwide. We're excited for all that's ahead and look forward to the opportunities it will create.

And with that, I'll turn it back over to Kevin for your questions.

Thanks, David. Just a quick note before we open the line. Given the pending transaction for WBD, we won't be taking questions on the deal today beyond what we wrote in the shareholder letter. With that, Krista, we'll go ahead and open up the line, please.

And your first question comes from Sean Diffley with Morgan Stanley.

I was hoping you could comment on business transformation early learnings as you converge your tech stacks between Paramount+ and Pluto and any things that you could apply to a larger asset base? And then broadly, how you see AI transforming the business? You mentioned on the ad tech front, but anything else that you think is notable to call out?

Yes, sure. No, absolutely. So what I would say in terms of early learnings is really our ability to execute and move quickly in regards to the transformation. we're on track, as we discussed previously, to really consolidate our 3 streaming services into one unified platform by really the middle of this year. Those learnings are going to be crucial as we get into basically the transaction with WBD. I think if you look at our ability to execute on our cost saves and efficiencies, we've had great learnings there. And I think we've been delivering on what we said we were going to do regarding plan. So I do believe that what we've been executing at Paramount will be a good kind of accelerated learning for everything we're doing at WBD. Getting more specific into that, as Kevin said, we're not -- we're going to kind of stay a little bit away from the transaction today given we're obviously still in the middle of the process. I'll turn it over to Andy, if there's anything you want to add to that.

Yes. I would just say what we're learning also is as we integrate BET+, Pluto and Paramount into one tech stack, it's going to accelerate our ability to do the same when we close WBD. And in particular, when you see the consumer product that comes out this summer, I think we'll be pretty pleased about how they all will function together and create a better experience both for the free consumers on the FAST channel business of Pluto, but also on the paid subscription businesses of Paramount+, both ad and ad free. So we're pretty excited about what we're doing.

And look, to dive into some more specifics on in terms of what we're seeing on the platforms we're operating. As we said, we remain on track for conversions. That obviously has significant benefits across personalizations and recommendations. On the front end, we're modernizing the consumer-facing technology to create more dynamic personalized experiences. As of April, you're able to see, obviously, short-form video clips, servicing trailers, sports pilots and library content and curated more personalized feed. We're working on enhanced personalization across discovery, including AI-driven artwork. We're also focusing on building other mobile optimized experience like live stats for live sports. All of these are really designed to deepen engagement across the platform.

For Pluto, basically this summer, Pluto is going to get the most significant update really since the inception of the platform. Other areas you're really seeing us really utilize technology is across our tech and product org. Approximately 80% of our engineering organization is using code-assisted technology, which is driving meaningful production gains and really cutting approval times by more than in half. So again, it's really accelerating how we work across the business. And these investments all support our long-term D2C growth and are foundational to where we're taking the business. And again, these are all great learnings that will prepare us for the transaction at the end of the third quarter.

And the only thing I'd add around AI transformation is we're spinning up pods to go after work or AI-based workflows in the back office, so think finance, HR, operational functions. And we're really enabling both on the Paramount side, and we think this sets us up for the combination to go after AI-based workflows and efficiency in the back office. And we think that's going to be a real benefit. And so we're doing that today with the teams that David talked about and that will set up well in the future as well.

Yes. Just one more thing to add is on Oracle and Fusion, our ERP system. We made a major milestone in the first quarter with the remainder of that transformation to the Oracle Fusion system for Paramount stand-alone by early '27. So again, that puts us in a much better spot as part of the closing Warner Bros. Discovery as well.

Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities.

With WBD, you will undoubtedly have some of the best industry assets and of course, library or library is plural. But you really do need to integrate and execute. So I guess, any changes in how you're thinking about allocating capital or management attention as you integrate for the second time or about to integrate for the second time in 2 years? And then one specific question, you really do seem committed to having 30 films from once you combine. And just maybe you could talk about -- it just seems like such a daunting task given the marketing and distribution needs. And maybe I'm the only person on this call that might remember this, but in the early Disney days with Michael Eisner or Jeffrey Katzenberg, they tried this, and it was just too much. So I'm just wondering how you're thinking about 30 movies and why that many? Like what will it do to elevate Paramount Skydance and whatever the new company will be called?

Yes, sure. Thanks, Jessica. And before we jump in, I just want to be clear, we've had a couple of questions on WBD now. We want to focus most of the call on our results for the quarter and the outlook for the business. But with that, I'll go ahead and kick it over to David.

Yes. No, Jessica, I really appreciate the question. So look, zooming out to 30,000 feet, we really view our pending acquisition of Warner Bros. Discovery as a powerful accelerant to our strategy, right? It expands reach and enhances our ability to create the world's most compelling stories and experiences. And it positions us really well to build a next-generation media and technology company. And if you look at that across basically kind of 3 core pillars, on the production side, we'll become the premier destination for the industry's leading creative voices. We are firmly committed to 30 theatrical films per year. If you look at the schedule, we have 15 films on the calendar to release this year, up from 8 last year.

So we've come close to basically doubling the output of our film studio, Paramount. If you look at the great job that the team at WBD has done, they have 15 films on the release calendar for this year. So the 2 companies are actually making 30 films to date, which I think is important to note and accelerating. And under those studios will be some of the most beloved franchises of all times, including Harry Potter, Top Gun, Star Trek, Looney Tunes, Game of Thrones, Yellowstone. We really do think it's an incredibly exciting and powerful creative content engine. By bringing these 2 businesses together, we really do build a scaled DTC competitor, and it accelerates our goals there. It gives you over 200 million DTC subscribers across more than 100 companies -- or sorry, 100 countries, which really does basically position us well to compete with the leading streaming services in the space.

And across our linear businesses, it's a presence in over 200 countries, a portfolio of cable and free-to-air networks such as CBS, CNN, TBS, TNT, Food Network, all of which we think positions us really well across every single vertical in the business. And as we've talked about in regards to operational efficiencies, we're pleased with the way we've been executing at Paramount and believe we'll be able to deliver on exactly what we said we're going to do at Warner Bros. Discovery. So from a strategic standpoint, we could not be more excited about the transaction. We are also on track to get this done by September of this year. So those are all the reasons that we're excited and have a high degree of confidence around our ability to execute. And with that, in the most respectful way, we really have to kind of stay away at this point in time from stuff on WBD and really focus on the company that we're operating today.

Your next question comes from the line of Robert Fishman with MoffettNathanson.

Is the current plan to allocate more of your overall company programming budget towards the higher-quality content like NFL, UFC, obviously, and the blockbuster Paramount movies? Or do you prefer to spread your budget out to more of a volume-based approach going forward?

And then on a related note, just following up on the first question. After launching those short videos and clips on Paramount+, is the ultimate goal to better compete with YouTube and TikTok for those short-form ad dollars? Or is it just to drive more engagement and extend the premium ad dollars that you're already getting from your networks?

Yes. So look, I'll take the first half and then Andy and Dennis, if you guys want to obviously jump in on the back end around monetization. So look, I'll say kind of a core thematic for us has always been quality as the best business plan, really making sure you aim high and you don't stop working until you get there. And in the competitive landscape that we find ourselves in today, we think that's essential from a creative standpoint. And that's the philosophy that we're going to continue to deploy across our film and television studios as well as our streaming services. CBS across the sports side has really focused, we think, quite well on big events that matter, delivering a record-setting NFL season.

We just delivered one of the most successful, obviously, Masters finals. So we do think that emphasis on quality and aiming high in terms of a storytelling standpoint is really critical. But at the same point in time, we've also increased our investment in content this year. As we said, we've doubled the output roughly of the film studio. And in the DTC space, we've effectively come close to doubling the output in terms of our original series that we've obviously bringing since we've been at the company. And so we do believe that we can maintain that quality bar while scaling, and we think that's essential towards accomplishing our growth goals. And Dennis, anything you want to dive -- I turn it over to you around monetization.

Yes. I mean I think you should think about the content portfolio across our segments, right? And so in TV Media, the CBS team has been executing -- to execute with a balanced portfolio of both the NFL and other sports as well as a really solid prime time lineup. And you've seen them there with 13 of the top 20 shows in prime time. Overall, on DTC, we very much are building. We talked about this. This is a multiyear journey to build a portfolio that drives growth and engagement. And you're seeing that start to come through. In Q1, our Paramount+ revenue was up 17% through a combination of both delivery on price increase as well as our healthy underlying growth in the business from subscribers. We added nearly 2 million subscribers in the quarter on an underlying basis.

And then David talked about in the studio, right, we will continue to see the studio rebuild in Q1. Our overall studio revenue was up 11%, a combination of both the delivery on films like Scream as well as continuing to build our third-party TV studio. And we'll continue to monitor the content performance. We're spending a lot of time internally around building out appropriate content ROI analysis, making sure that every investment is underwritten with the appropriate level of rigor, and you're going to continue to see us do that as we build the portfolio.

And then, Robert, look, on clips, we obviously know where people want to watch our content. Typically, it's on more than one screen. If it's not 2, it's kind of 3. And so the ability to have a vertical short-form product that we can then deepen engagement across our user base, keep people more involved and want to spend more time with our content is critical to our future. So this is just the beginning. I would view it as a beta test. But I would say right now, we're seeing high engagement of people looking at clips and then coming into our various forms of content, whether it be news, sports or entertainment. And so we're pretty excited about sort of what that means for the future.

And the last thing I would say, as you look at how fast the team has been able to roll out these level of innovations, there is incredible momentum building across the company as we basically take a test and learn fast iteration approach. And we're really pleased with the early metrics. But again, it's early innings right now.

Your next question comes from the line of Rich Greenfield with LightShed Partners.

David, you've got very large DTC ambitions, if I go back to your original manifesto letter that you wrote when the transaction closed. I'm curious, as you think about your engagement goals for Paramount+ in 2026 and 2027, given sort of the size of the investments you've made since taking control, I guess, how should we think about how fast you think you can move the goalpost on engagement? And how does the tech or UI tech stack rebuild this summer play into that engagement change or the step function you're hoping in engagement? And then just quickly on the same -- sort of the same topic, but you -- Paramount+ has used channel stores pretty aggressively since its launch, even going back to the CBS All Access days. What is your view on channel stores? And should you be using them or should you not long term?

Rich, great question to kind of -- look, to summarize basically the first part, it's a combination of increased content investments and increased tech investments when you look at it, right? Like it really is to achieve our goals that we're working towards in streaming, we need to invest in obviously more content on platform. I think if you take a look at what's obviously coming in 2026. We have new seasons of The Agency, Star Trek, Lynas, MobLand and Tulsa King. We have Dutton Ranch obviously coming this -- obviously, this summer, Frisco's King from Taylor Sheridan. On sports, you're seeing us obviously continue to invest. UFC is obviously year-round. We have the NFL, March Madness, UEFA Champions League, a new partnership with the WNBA.

And we've also greenlit a significant amount of new series from third-party studios such as Discretion with Nicole Kidman and Elle Fanning, 9/12 with Jeremy Strong and Fear Not with Anne Hathaway. So we do need to invest, obviously, more in content, which you're seeing us doing across the platform. We also have to invest significantly in terms of the tech piece of our product. And what I would say is we are on track to basically accomplish convergence by the middle of this year. You will see significant improvements on the platform once we roll that out. But that really is, in our view, getting to the starting line of all the work that we need to get done to really reach to be what we would define as best-in-class. And we are hiring against that goal.

When you look at the resources that we're putting into engineering talent and AI talent to really put us in a position to compete with the leaders in the industry. And it's that combination of art and technology working hand-to-hand together that drive growth, that drive engagement and all of the key metrics that are required to building a truly scaled business. The pending transaction serves as an accelerant towards that goal. So I think if you then go to the channels question, that really is on a case-by-case basis. We evaluate all partnerships, really looking for win-wins across the board. And that's really going to be the philosophy that we continue going forward. And so there's nothing further we can comment on that at this time other than we will continue to look for what we think positions us and our partners to be able to win side-by-side along one another.

The only thing I'd say, Rich, it's a good question on engagement, but you're going to see us just focus on making sure it's like high-quality, high-caliber engagement. If you look at the UFC viewers, they're averaging 15 years younger, right? They're staying on the platform longer. What we're doing on Pluto, we are switching to VODs. So these are VODs up 60% per user. So these are higher quality engagement metrics. This helps us as we think about monetization, right, as we think through the year as we continue to invest in our ads monetization, fill rates were up in Paramount+ and Pluto. And so your point is valid on engagement, but we're also sort of taking a step further, making sure it's high-quality, high-caliber engagement.

Your next question comes from the line of Steven Cahall with Wells Fargo.

A couple of questions on DTC. So Paramount+, I think, grew around 17% in the quarter, strong for sure. I know it slowed just a little bit the last couple of quarters even with the addition of UFC. I don't think the hard bundles had a big impact on that, but maybe it did. And I think your guidance has revenue growth kind of second half weighted. So just wondering if there's a good way for us to think about the underlying drivers of growth at Paramount+ and how we think about it maybe accelerating towards the back half of the year? And then just a follow-up on DTC EBITDA. I think there was a content expense benefit in the quarter on programming amortization, maybe a change in accounting from Skydance. Can you just help us understand how that impacts the business going forward in terms of adjusted EBITDA? And if there's any comparability we need to be aware of for the segment?

Yes, Steve, let me -- this is Dennis. Let me sort of work through that. So maybe it's helpful overall context for the quarter on EBITDA. For the quarter on EBITDA, we came in at the high end of revenue, beat on adjusted EBITDA. In general, expenses were a bit lighter than we had planned for. This is primarily around slower pacing of hiring. And to your point, some of the shift in timing of content. We generally view overall expenses for the year will be on track with our expectations is including DTC. So we're trying to balance some of the content timing. What you'll see on DTC in terms of EBITDA, we will see some margin hit in DTC just based on when the slate launches in Q3 and Q4, we should plan for that.

As we think about overall Paramount+, we feel really good about the trajectory. As we talked about, Paramount+ was up 17% year-on-year, driven by a 14% increase in ARPU. That was a mix of both the price increase in January as well as our continued improvement in the underlying subscriber base and the mix there. So on the quarter, we were up 700,000 subscribers. Underneath that, we added 2 million underlying subscribers, and we exited a little over 1 million of international hard bundles. I think for context for everybody, those hard bundles, the average ARPU is less than $1. So these are really uneconomic subscribers. And so what will continue to drive the business through the rest of the year is we'll continue to see healthy growth on underlying subscribers, especially as our content slate fills in and throughout the year. And we will continue to see our improvement in ad monetization.

Great. And then content benefit, do you want to just quickly...

Yes, we had -- just on the content expense benefit, I mean, I think we talked through the timing for some of the phasing for the quarter. We do have some benefit from the Skydance transaction that flows through this year. It steps down next year. So we won't get into any specifics, but there is some benefit and we recast the financials. You kind of see that -- you'll see that in the recast, and we'll call out if there's any material -- anything material each quarter.

Your next question comes from the line of Michael Ng with Goldman Sachs. Michael, your line is open.

Your next question comes from the line of Peter Supino with Wolfe Research.

I wondered if you could talk about the programming cost environment generally. You and others in the industry seem very focused on investing targeted but increasingly aggressive ways. And I'm wondering if you're seeing that in the unit cost of programming and then a question on ad sales. You all have rethought so many aspects of the business. And I wonder now having owned the assets for almost a year, if you have any fresh ideas about the way in which Paramount selling advertising, especially in the DTC space.

I'll jump in real quick, Peter, on programming costs and then Dave, why don't you take how we're thinking about transforming ad sales?

Yes.

Peter, on programming, generally, we find we're able to work through the greenlight process and be competitive. I think what you're -- I would say you can see it flow through. Number one, what the team is doing in TV media, especially in CBS. They're managing the linear declines and doing that through rightsizing our programming at the same time, hitting creatively with the performance of the slate. And so we feel -- we see that team executing really well. And then across the studio, we're not seeing any impact on budgets or overall creative costs. So nothing generally we're seeing in terms of trends that we would call out.

Yes. And then -- and look, when you're talking about advertising and particularly ad tech, I mean, we talked about this on our previous earnings call where the advertising business is a big focus for us and a big area of opportunity that we identified early on. And we're actively working to obviously improve our ads business. We're retooling our go-to-market. We're consolidating our national sales organizations into a single client-centric structure under unified leadership. We brought in new talent from, I would say, digital leading platforms like Amazon, Google, Hulu, Roku, et cetera. We're making platform investments and working through carriers investment on the ad tech side. We have Precision+ which is our AI-powered ad product that combines first-party and third-party data. That's generating positive early market feedback and driving performance efficiency above benchmarks.

You're also seeing us basically on the -- we have a format innovation pod that's driving new ad experiences, including streaming fixed units, sports DAI and scaling for UFC. And we're also using AI-driven QA, which has also been really impactful. So what I would say is that is overall an area that we identified as a real opportunity for us. We are making all of the adjustments, and we're really pleased with the, I'd say, early results that we're seeing. We also just completed our first upfront. Feedback has been incredibly positive. So I'd say underlying momentum is really good. There's work to do, but we're excited about how fast the teams are accelerating.

I could just add in terms of the results. So as David said, we feel pretty good about the building momentum in terms of ad performance. Q1 overall ads declined 3%, but it improved versus Q4. And we saw the D2C business, the ads business part of D2C return to growth. So as we think about the rest of the year, our expectation is the overall ad business in total for the company will return to growth in the back half of this year. This will be driven by DTC accelerating and more than offsetting the declines in TV Media.

And we have time for 1 more question, and that question comes from Michael Morris with Guggenheim Securities.

Two things. One, I'm hoping you can share a little bit more detail on UFC and how that's been performing in the first several months now that I think you've had about 10 events there. Curious how it's performing and also how it benefits the business more broadly, whether there are more sort of things to come over the course of the year as you use that property? And then second, in the letter, you note at the studio several titles that you have in production that will be released on Netflix and on Prime Video. So I'd love to hear, again, maybe why it's important for the studio to be selling content to services that are also competitors for both engagement and subscriptions.

Yes, of course. So look, I'll start with the UFC piece. And so look, we could not be more pleased with our 7-year UFC partnership. It really has exceeded our early expectations across the board. A couple of key performance metrics. More than 10 million households have watched UFC programming on Paramount+ with over 100 million hours of UFC content viewed. To contextualize, average UFC viewership across our platform is more than 15x the average pay-per-view event over the past 2 years. In addition to that, new UFC subscribers are on average 15-year younger than the average P+ viewer. And these subscribers are coming in for UFC and then engaging with our broader offering around with series like South Park. So we're really seeing that subscriber engage with other content on the platform. They're spending more time.

I think it's also important to kind of note the highlight of the -- some of the events that we obviously housed on CBS. When you look at the main fight cards across UFC 326, 327, those averaged 2.8 million viewers. For context, that viewership is nearly 50% higher than ABC's NBA primetime game on the same night. So the UFC content really is performing for us. We've also seen advertising demand exceed expectations, and that was a meaningful contributor to us in terms of our Q1 advertising. And so we're really excited about the way the UFC partnership is performing. And again, we're just -- we're under a year into the 7-year journey, but we are very excited about how it is driving the business.

And then I believe -- just I want to make sure I fully clarify, the second part of the question is you're asking around why we're obviously continuing to sell to third parties. And look, I'll break that up into a couple of places is one, when it comes to content licensing, we do not believe in a one-size-fits-all approach to that. We actually think that's an incredibly meaningful part of our business and intend for that to continue. There are certain series and shows that you'll want to keep exclusively on your owned and operated platform, but there are other series that absolutely make sense to sell to third parties. And I think one of the things that is surprising is some of those series when they actually come back to your owned and operated platforms will actually increase in viewership.

So you really can't take a one-size-fits-all approach to this problem, really has to be evaluated on a case-by-case basis. I think also when you look into original series on the studio side, we are in the business of being the #1 home for the most talented artists in the world. And when it comes to take a show runner, for example, it's really critical to be in a position to where you are offering that particular piece of talent that you're working with the most opportunities to get their show made. And we think it is powerful from a platform perspective to say we can sell into our owned and operated. But if for any reason, it doesn't make sense for our owned and operated, we can also sell into third parties. We own those shows. They generate revenue for us. And it also makes you a much more desirable place from a talent perspective. So again, we really do evaluate all of these things on a case-by-case basis and do not take a one-size-fits-all approach. That served us really well, and we plan on that to continue for the foreseeable future.

Thank you. I will now turn the call back over to Kevin for closing comments.

All right. Thanks, Krista, and thank you to everyone for taking the time to join today. We appreciate the questions, and please reach out if you have any follow-ups. Thanks all.

This concludes today's conference call. Thank you all for joining, and you may now disconnect.

Good afternoon. My name is Nadia, and I'll be the conference today. I would like to welcome everyone to Paramount's Q4 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Investor Relations. You may now begin your call.

Good afternoon, and thank you for taking the time to join us for the Paramount Fourth Quarter 2025 Earnings Call. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer, David Ellison; our President, Jeff Shell; our Chief Financial Officer, Dennis Cinelli; and our Chief Strategy and Operating Officer, Andy Gordon. As a reminder, we will be making forward-looking statements today that involve risks and uncertainties. Our remarks will also include non-GAAP financial measures, and reconciliations of these measures can be found in our earnings letter or in our trending schedules, which contain supplemental information. These can be found on our Investor Relations website. I'll now turn it over to David for a few brief remarks before we take analyst questions.

Thanks, Kevin, and good afternoon, everyone. As you saw in our Q4 results and in the most recent shareholder letter, we ended the fiscal year with a strong first full quarter under our leadership team and positive momentum heading into 2026, meeting or exceeding guidance for the quarter that we laid out in our Q3 letter. It's been a productive 6-plus months since the launch of the new Paramount, and we are pleased with the progress made in a relatively short time. Our North Star priorities continue to guide everything we do, and we're confident we are on the right trajectory and are excited about the opportunities ahead.

Before we get to your questions, I did want to take a moment to acknowledge Andy Warren's tenure as our interim CFO. Andy is widely respected across our organization and the industry, and we are truly fortunate to have had his leadership during this important period. We're incredibly grateful for everything he's done to help position the company for success and appreciate his continued partnership as a strategic adviser. I also want to officially welcome Dennis Cinelli. He brings significant financial and operational experience, having held senior roles at GE, Uber, and Scale AI, where he served most recently as CFO. He was also briefly a member of our Board of Directors before assuming his current role. We're thrilled that he's joined our leadership team and look forward to you getting to know him better going forward.

Finally, I'll briefly address our proposal to acquire Warner Bros. Discovery. On Monday, we submitted a revised bid of $31 per share, all cash, and we look forward to continuing to engage with their leadership team and Board. While we appreciate that this is obviously something you all have questions about, we won't be commenting further during today's call. With that, I'll turn it back over to Kevin for your questions.

All right. Thank you, David. And Nadia, we'll go ahead and open it up for questions. Thank you.

[Operator Instructions] The first question goes to Peter Supino of Wolfe Research.

I wondered if you could comment on your initial experience as the home of UFC on your streaming service. And maybe tie those comments more broadly to your latest thinking on the viability of being something for everyone every day. I think that's your stated strategy in streaming. And obviously, it's an extremely tall competitive order. And I just wondered kind of what you've learned in the last 6 months of owning the asset that makes you more or less confident in that objective.

No, absolutely. And really appreciate the question. First, we couldn't be more thrilled about the way the UFC partnership has started. UFC 324 was really a phenomenal start for us. We reached approximately 7 million households across the U.S. and Latin America and was also the platform's largest exclusive live event to date. We've also seen the advertising demand for UFC be strong. And overall, the partnership has really started ahead of expectations. In addition to that, we've really seen UFC fans engage with the vast others of our content offering. They're watching Landman, they're watching other series. So we're really seeing that flywheel work for us. And we also are really seeing it work well with Zuffa Boxing. And we really believe in the theory of actually owning combat sports, having that entire category as a home on Paramount+ is something that's been working really well for us to date.

More broadly, we greenlit our 11 original series since we took over 6 months ago and are really seeing strong basically growth in our streaming service, up over 17% year-to-date on Paramount+. So from that standpoint, we're really seeing that momentum to continue and feel really good about the start of the partnership with UFC and Dana White.

Is there anything we want to add on sort of the last 6 months in streaming?

Yes. So first of all, I would just add to the UFC comments that David just made that we're really at the very beginning of this partnership, and we're going to experiment a lot. The beauty of having this sport exclusively and being the exclusive partners of the UFC is we can try lots of stuff. Our upcoming fight on March 7 is going to be on Paramount+, and we look forward to lots of experimentation as we grow the brand. I think the first 6 months on streaming have gone really well. We've seen accelerating growth in Paramount+, doing better and better every quarter. The key now is to get ongoing engagement and the content that I'm sure we're going to talk about later that we have coming is pretty exciting for doing that. From a kind of financial perspective, the ad revenue has been much more promising than we expected. And there's really -- the key now is driving that engagement and that usage because we can monetize it at Paramount+. And so we're feeling pretty good about the momentum we have at streaming so far.

The next question goes to John Hodulik of UBS.

Jeff, maybe for you, a follow-up on the comments on DTC. You guys guided to better profitability next year against some slightly higher subs. What are you seeing in terms of ARPU? There seem to be some moving parts with exiting the hard bundles with some price increases that translate to better revenue growth. And then on the cost side, just aggregate sort of that commentary on leading to better D2C results.

Yes. Thanks, John. I'm going to actually pass over to Dennis for this one.

John, good to meet you, and I'm excited to be here. So thanks, everybody. I think it's -- John, is it helpful probably for us to just frame our guidance overall, which a big part of that is DTC. As we put out, overall, we expect revenue this year of $30 billion, up 4% year-on-year. DTC is going to be the driver of that. We expect DTC to continue to accelerate growth year-on-year. So growth will accelerate in '26 versus '25. The driver of that is a couple of things. We continue to see subscriber growth, what we're calling underlying healthy subscriber growth accelerate in '26. This will result in better ARPU from a mix shift as well as as we realize the price increases in Q1. As we previously mentioned -- as we sort of mentioned, and I want to call this out is we're making this deliberate decision to exit some uneconomic hard bundles. So you'll see that in our subscriber growth this year. But if you take those underlying exits out, we will continue to see net adds grow year-on-year. And just to give you a call out, those uneconomic hard bundles represented less than 2% of Paramount+ revenue in 2025. So coupled with the subscriber growth, we also expect DTC ad revenue to grow this year. We've been talking a lot about how we're investing in programming to drive better engagement, better ad tech as well as the team there that Jeff alluded to. And so we expect to meaningfully recover DTC ad growth in the year. At the same time, back to your question, how that comes together, we are investing in the business, but we expect DTC profitability to improve year-on-year as we both grow revenue and manage our investments.

It's worth just taking a step back maybe and talking about the rest of the business. So DTC will be the growth driver. But as we think about the rest of the portfolio we have, right, so TV Media, we expect to see some declines in revenue, mostly in line with the industry headwinds around pay TV that we expect our advertising revenue decline to be more moderate as we execute overall and better ad sales. We feel really good about the upfronts coming up this year. We also have tailwinds from political spending in 2026. One thing to call out, we do offset some of the -- you do have some impact from our sale of Telefe and Chilevisión. In TV Media overall, I just want to call out, we've been really impressed with the team managing that business in -- while the revenues will decline, we expect overall profitability in that business to be stable on both a profit dollars and a margin basis.

And then the other thing is the studios, right? So studios, we do expect theatrical revenue to decline. I think we've been very clear overall that we're in a rebuild phase of that business. As we execute that rebuild, we'll see some of that come through in the '26 slate, but most of that will come through in future years. And so even with theatrical revenue dropping down, we do expect better cost management as well as benefits from our licensing deals to drive studio profitability up. So if you put this together, overall, we're reaffirming guidance for the year on both on revenue as well as profit, adjusted EBITDA outlook of $3.8 billion. That excludes our $300 million of stock-based compensation but is improving year-on-year driven by both the top line and as we realize our synergies. So we put out there, we will expect to realize $3 billion plus of our synergies. This includes both across our entire business. And so we expect to sort of profitability to improve in DTC and our new studio segment, still margins in TV Media. And I think the last question probably is just like what does it look like beyond '26? And I think without giving specific guidance, we just want to make sure we're here talking about how the team around the table, David on down, we're owner operators. We're investing for long-term value creation, and we expect that to show through over the next many years.

The next question goes to Stephen Cahall of Wells Fargo.

First, I just wanted to ask if you've had any conversations yet with the NFL. It's a big topic for investors, especially with you and Fox having so many games on Sunday. And as you're thinking about where that could go in the future, I was wondering if there's any potential for the games on Paramount+, which I think are currently geo-fenced to be available sort of nationwide within that rather than only being on Sunday ticket. So it seems like you've got some opportunities maybe as well as some risks with the NFL renewal. So I would love to know how you're thinking about that. And then just on the outlook for '26 and maybe '27, if we think about free cash flow, I think you've said before that you're committed to investment grade with all 3 rating agencies. I think that implies that on a total basis, including restructuring, you'd be free cash flow positive by next year. So just wondering if I'm thinking about that one correctly.

Thanks, Steve. This is Jeff. I'll take the first and then pass it over to Andy for the second. So we have a great -- you asked have we talked to the NFL. We talk to the NFL almost daily. We have a great relationship with the NFL. We were the very first NFL broadcaster back when it started, and it's been nearly a century of relationship. And during that century, this past year was our most watched year ever. everything clicked this last year for us with the most viewership, the biggest watch game, the biggest watch window, that 425 window nationally for CBS. So everything is really going well with the partnership, and we feel very good about them, and I think they feel very good about us. So we're not particularly concerned. Obviously, there -- it's been widely publicized that there is a renewal discussion coming up. And we don't talk about individual negotiations. But suffice it to say, we feel pretty confident we're going to be in business with the NFL for a long time, and we have properly accounted for what we expect to be whatever impact of that negotiation in our kind of internal forecast going forward.

Let me just -- one thing about the geofencing, let's talk about that for a second. One of the unique things about our relationship with the NFL, and I would actually say it's probably similar to Fox's relationship with the NFL is the anchor of their flywheel is really their reach and the anchor of their reach is really the reach of both CBS and Fox on Sunday afternoons. So the way we get the NFL that reach, which has really helped contribute for both of our benefit to the success of the NFL is by our vast array of both owned and operated stations, of which we have 28 and affiliates. And so it's important that those games get regionalized and that we aggregate that viewership and maximize the viewership in each market for the best game, both for us and Fox. And that accrues to the benefit of the NFL and to us and really maximizes the reach on any given Sunday. So I don't think we're going to be doing anything with Paramount+ that's any different. And I don't think that Fox is going to be doing anything different than we are doing on linear, which is to maximize that reach and that regionalization of that window, which I think works for all of us. Maybe pass it over to Andy for the...

Yes, sure.

Steph, thanks for the second question. Let me take the investment-grade part first, and obviously, it's interrelated with free cash flow conversion. But we -- as we told you in the last quarter, we are absolutely committed to getting to investment-grade credit metrics. This is, of course, relative to our stand-alone position, and we expect to hit those in '27. With regard to free cash flow, I'd just point out that notwithstanding the fact we paid down over $300 million of debt in the first quarter and in addition, have $800 million of restructuring charges, you take the restructuring charges out, we actually are hitting 5% free cash flow conversion this year, which, of course, is not where we want to be. And as we sort of accelerate that into '27 and the out years, we expect to get back to industry norms and hopefully exceed that. That's certainly part of our strategic plan. So I would say there's no real change from that and what we talked about in November.

The next question goes to Robert Fishman of MoffettNathanson.

When you think about your growth ahead, can you talk about how critical to creating long-term shareholder value to reinvigorate and build upon your core franchises and IP? And if you can comment how Warner Bros. and HBO IP would help accelerate that growth over the next 3 to 5 years, either for a stand-alone Paramount+ or a combined platform with HBO Max? And then on a related note, just how do we think about overall content spending, again, either stand-alone or with Warner Bros., especially factoring in the sports and the long-term strategy to grow that profit and cash flow?

Yes. Thanks, Robert, for the question. We won't be answering anything related to Warner, as David mentioned in his opening remarks. So just a reminder for everyone else on the line, but we'll go ahead and how do we think about sort of franchise and long-term value, as we mentioned in the letter.

Yes. No, absolutely, Robert. I'll speak to that. And look, as we're the largest shareholder of the Class Bs, we really approach everything through the lens of how do we create long-term basically shareholder value, which really means we're long-term investors, we're long-term owner operators, and we really have a long-term horizon in terms of how we're approaching this. If you step back across all of our businesses, we're actually really pleased about the investments that we're making really going back to our North Star priorities. We've talked about streaming. I'll start in the Studio segment. As Dennis said, we inherited a slate that has underperformed. We're going to see significant improvement in the profitability of the film slate this year. But I think if you really look at how we are doubling down on our franchises and really reinvigorating them and reinvesting in them, which is something that we did in partnership when we were -- obviously, when I ran Skydance, -- and to date, in the little over 6 months that we've been here, we've actually -- we're going to release 16 movies this year versus the 8 films that we inherited. And we're really going to be at a steady state of over 15 movies per year. We've greenlit 11 movies basically since we've been here in the first 6 months, including films like A Quiet Place and Sonic, which is really us doubling down on our franchises. Taylor Sheridan, Pete Berg are hard at work at Call of Duty, which we're really excited about. And we have Scream opening this weekend. Again, going to Paramount+ in addition to the investments that we've obviously made in the UFC and sports, -- we've actually greenlit 11 original series on top of the incredible slate that we're fortunate enough to step into. And we're also investing significantly in the improved product experience on both P+ and Pluto. So consumers are going to continue to get more incredible content they love and an overall better user experience, which we think will really position ourselves well for growth into the future. And then when you step back and look at our linear really anchored by CBS, we had 8 of the top 10 shows on broadcast, the #1 show in Tracker, the #1 new show in Sheriff County, the #1 news program in 60 Minutes. And so we really are seeing strong demand for our content across our portfolios, and we're only seeing that accelerate going forward. So it's been 6 months, but we really do feel good about the work the team has really done to date. And you can expect that to accelerate into the future quickly.

How do we think about the content spend for Paragon overall?

Yes. So overall content spend -- sorry, I go to that. So we talked about -- we've obviously increased our content spend as we announced last quarter by $1.5 billion, which is really going towards all the things that I talked about, which is really scaling our film slate, scaling our original series, investing more into sports. And we do believe that, that will create long-term shareholder value because, again, like it is a priority for us to make sure that we can win in the content space, make sure that we are the most technologically capable media company and really have the appropriate operational efficiencies across the company. that's what really drives all the decisions here, and I think we're off to a really strong start in the first 6 months.

The next question goes to Rick Prentiss of Raymond James.

A question in the letter, you talked about leveraging your IP across the ecosystem. Give us some concrete examples of what you hope to achieve going across film, television, streaming, live experiences, publishing, consumer products and how we might see that? And if you were to benchmark yourself against the peer group, how do you think you are doing as far as monetizing that IP?

So it's a great question. And I'll point to a couple of things. Like one, I'll use Teenage Mutant Ninja Turtles as obviously the most recent example of really we're obviously -- we have 2 films that we're obviously making, obviously, in the Turtles landscape, we have series, and we also have consumer products. Huge compliment to obviously, Josh, who came to us from Mattel, who in the first month of basically being at Paramount, created the most significant consumer products partnership in the history of the company, over 5x what have been done to date, which I think is kind of a great example in this quarter of really how we're maximizing our IP across the flywheel that we've created. And one of the other things, if you take a step back, I think that we're really proud of is really the Paramount One initiative that we've launched really as a marketing platform. The UFC is one of the first things that we obviously ran through that, where we really activated all of our linear channels, our direct-to-consumer platforms and really the entire ecosystem. to deliver billions of impressions, which really helped drive that launch of UFC 324, which again came in ahead of our expectations and really helped us create the largest live event in the history of Paramount+. And you're going to see us activating that Paramount One ecosystem across a lot of our tentpole franchises going forward, across our series launches as we really integrate this business to operate as one company. And we're seeing that work incredibly well in the first couple of months. And I just have to really give a tremendous amount of credit to the team that have really been breaking down silos and operating as one business, and the results are incredibly promising. We're still in the beginning, 6 months in, but we're really excited about the trajectory.

The next question goes to Kutgun Maral of Evercore ISI.

A few on AI, if I could. First, Gen AI is clearly progressing quickly and dramatically. Short-form clips don't threaten the core of your studios today, but future length personalized stories could become feasible. So how are you positioning the company for that evolution? Do you expect content creation to become commoditized? Or do brands and IP become more valuable in this world? And at a high level with AI, maybe you could talk about your guiding principles on licensing and any guardrails? And finally, one of your peers recently outlined a path to bring curated AI-generated short clips into its streaming service. Do you see a future where AI-enabled short-form user-generated or prompted content lives inside Paramount...

So it's a great question. And first, look, I'll kind of step back to where really say like it is -- one of our core goals is to become the most technologically capable media company. And there's no question that AI is going to be a significant transformation across our industry and others. But I want to say that, first and foremost, we are really a home for storytellers, and we are a content company first. And so we really view artificial intelligence as an unbelievable tool for artists that will be a significant unlock on creativity. With that said, we are also big believers that when you really go back to 1992 when -- I believe it was James Cameron and Digital domain when they basically did away with opticals and actually started getting into digital composites was really the beginning of the kind of software-based CPU pipelines that we've all been iterating off of for the last several decades. And I think there's no question that we're at one of those inflection points where model-driven GPU pipelines are going to get deployed across the business. But again, we really view that as a tool for artists to be able to unlock creativity.

When you look at some of the things we're doing internally in terms of how we're investing, when you look at the engineers that we obviously have at the company currently, you can expect us to kind of 10x the size of the headcount that we are basically investing towards this and really want to be in a position where we can be a leader in the industry in terms of how this transformation is shaped. To your question about, do I think it will be commoditized, the answer is no. I don't think there's anything that's going to replace artists. I don't think there's anything that's going to replace the creativity of original storytelling. I would actually point towards -- when you look at the value of intellectual property, whether it was Sora on their launch or whether it was Seedance, and I think you saw us obviously defend against both of -- defend our IP against both of those things. But the fact that there was so much engagement around the characters and intellectual property that audiences love, I think, speaks to the value of that intellectual property. And we are in a unique position to be able to take advantage of that. There's nothing I'm really in a position that I can fully elaborate on further. But again, I think when you look at the power of IP enabled by AI is going to be something that is, I think, a tailwind for us as a company, and we're excited to help kind of be key drivers of that innovation.

The next question goes to Michael Morris of Guggenheim.

I wanted to ask about the studio first. Dennis, I think you mentioned an expected decline in theatrical revenue in '26. I'm hoping you can reconcile that with the significant increase that you're expecting in the number of titles being released. And as you think about that decline, does that pertain to the studio business overall? Or is it only the theatrical component and you expect growth in licensing? And then if I could, just on the Pluto headwinds that you cited, the trend there seems to be well below the CTV industry overall. Is this a business that you expect to turn around as a growth driver? Or is this maybe not core to the future as you see it?

Thanks, Michael. Yes, let me take the first part and then hand over to David. So on the studio business overall, we will see growth overall on the studio business on a revenue basis. And that will be driven primarily by the licensing and also combining Skydance into that segment. What I was talking about is theatrical, right? So in theatrical, we are increasing the number of films, but we are comping last year, which was a big output in Mission Impossible. So that's what will drive the theatrical decline year-on-year for 2026. And then the second part of your question, as we think about Pluto, I mean, I think what you'll see is in the DTC segment, right, in Q4, we grew 10% year-on-year. Paramount+ was up 17%, non-Paramount+ was down 16% as we call out, that's primarily driven by Pluto, and it's primarily driven by the monetization of Pluto. I think what we should call out is actually Pluto engagement is up. So monthly active users, the engagement of those users is actually up. And so what we're facing is a monetization headwind, which we are addressing, and we addressed that in our guidance. And I think it's worth passing over to David to talk overall about how we think about Pluto and the and our fast strategy.

Yes. And I want to expand on what Dennis said on the studio side. So again, we stepped into last year a film slate that underperformed. We have scaled from 8 movies to 16 releases this year, and it's going to be significantly more profitable. But when you really think about getting our core franchises back online, you don't really see that start to occur until '27 just because of what the life cycle is of obviously making a tentpole. It's 2 years to basically from beginning to release at the earliest. So I would look at -- we're making significant improvements in profitability across our film slate this year. And then in '27, when you start seeing films like A Quiet Place and Sonic, Call of Duty, several of our other franchises that basically will be releasing in '27, '28 and beyond, you will see our box office numbers increase, you will see profitability increase. But there is a 2-year life cycle kind of minimum to those big event films. And I actually think the team has done an exceptional job putting us in a good position for this year for the level of growth that we're going to have across our theatrical slate. And then you will see that accelerate significantly into '27.

As Dennis said, really looking at Pluto, stepping back I am a big believer in the FAST space. And I think when you really look at globally, FAST is something that is only going to grow in importance. And when you look at the signs that are also really encouraging on Pluto is we are seeing engagement grow. The headwind we're facing is really monetization, and we're doing several things to correct that. And while Pluto has always been a leader in the FAST space, it's a profitable platform. It was, from our perspective, underinvested in by the previous owners and managers, both in a content standpoint as well as from a product standpoint. And we've also brought in, obviously, new leadership to help us on the advertising side. We have new leadership on the DTC side that are really working really well hand-in-hand to make sure that we improve the product and improve the monetization. Really, our overall streaming convergence that we talked about on our last earnings call, where we had really 3 separate stacks that were running on multiple clouds, all independent of one another. That convergence obviously will be done in the coming quarters. And you will see continued product improvement to both Pluto and Plus. And with that, we'll see the monetization curve correct, and we'll really start seeing better monetization, better growth and more in line with peers with expectations to be above.

All right. Nadia, we'll go ahead and turn it back over to you, please.

The final question goes to Brian Kraft of Deutsche Bank.

First on UFC, I know you had cited 7 million MAUs. I was curious as to whether you can give us some color on the number of unique viewers that you had, just given that you have 79 million subs, trying to understand what the percentage of those subscribers overall is that are engaging with UFC at some level. And then secondly, I was wondering if you could talk about what you've been seeing since you completed the acquisition, both in churn and CAC. How are those trending? How much opportunity do you see for improvement in both of those key metrics over the next 1 or 2 years? And how critical is it to improve either or both of those to the long-term economic success of the streaming business?

Yes. No, absolutely. So look, I want to reiterate, we're incredibly happy with the way our partnership with the UFC has started. When it goes to the 7 million households across U.S. and Latin America, that was above our expectation. And again, it is the largest exclusive sporting event that we've had, obviously, in Paramount+ history. So -- and we are seeing that momentum continue. In terms of basically churn, we are seeing that trend in the right direction. But I still think there's areas for us to be able to continue to improve, which is why you're seeing us invest the way that we are both in content as well as in the product. We know at 79 million global subscribers, there's a lot of opportunity for growth ahead of us. And when you look at the investments that we're making, again, in the first 6 months, greenlighting 11 original series as well as the work that Dane Glasgow and his team are really doing to significantly improve the product, I think you'll see us improve in all of those metrics going forward. And obviously, we believe those investments will significantly yield long-term shareholder value. So we're pleased about the work to date, but you're only going to see that improve going forward in the future. I mean, Jeff, anything you want to add to that?

No, I just think -- what I would say is there's a seasonality aspect to the business, too. So churn is something that we traditionally saw at Paramount+ really spike up in the summer after the masters and kind of come back down with the NFL. So 2 of the things we've talked about today that David's talked about, both the UFC and its year-round programming, combined with the increased movie slate, which then pays dividends as it goes to Paramount year-round. I think that's going to have a significant impact to churn in addition to the other factors that David just talked about.

And Brian, just jumping in, this is Dennis. One thing to correct. The stat is 7 million households that engage in UFC 324.

Great. Thank you, team, and thank you all for joining the call today. We appreciate it. Feel free to reach out if you have any questions.

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

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's Q3 2025 Earnings Conference Call. [Operator Instructions]

At this time, I would now like to turn the call over to Kevin Creighton, Paramount EVP of Investor Relations. You may now begin your conference call.

Good afternoon, and thank you for taking the time to join us for the Paramount Third Quarter 2025 Earnings Call. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer, David Ellison; our President, Jeff Shell; our Interim Chief Financial Officer, Andy Warren; and our Chief Strategy and Operating Officer, Andy Gordon. As a reminder, we will be making forward-looking statements today that involve risks and uncertainties. Our remarks will also include non-GAAP financial measures, and reconciliations of these measures can be found in our earnings letter or in our trending schedules, which contain supplemental information. These can be found on our Investor Relations website. I'll now turn it over to David for a few brief remarks before we take analyst questions.

Good afternoon. Before we get to Q&A, I'd like to take a moment since this is our first earnings call to share some thoughts on what we've accomplished so far and where we're heading. We launched the new Paramount just 96 days ago. And as we approach the 100-day mark, we're encouraged by the meaningful progress we've made in a relatively short time. We moved quickly, laid a strong foundation for what's ahead, and there's a real sense of energy and purpose across the company. Our goal in bringing these 2 companies together was simple, to honor Paramount's incredible legacy of storytelling while taking the necessary steps to transform it for the future. The combination unites an extraordinary and diverse collection of entertainment assets, spanning film, television, animation, interactive games, news and sports, supported by a rich library of celebrated and award-winning content. This powerful portfolio gives us the tools to achieve scale and succeed in today's fiercely competitive media landscape, and we intend to build on this strong foundation, investing the necessary resources and talent to ensure our company is not only well positioned to compete, but to lead in the industry.

Our vision is to transform Paramount into the global home of world-class storytelling, powered by one of entertainment's most storied studios, the leading broadcast network and a scaled global streaming platform that delivers much-watched programming to audiences everywhere. Achieving this vision requires reimagining how we operate, driving greater efficiency, unlocking new opportunities for creativity and positioning the company for sustainable long-term growth. With this in mind, on day 1, we identified our North Star priorities, the areas where we see the greatest opportunity to drive meaningful progress. They are: first, investing in our growth businesses, anchored by our creative engines and exceptional storytelling. Second, scaling our direct-to-consumer business globally; and third, driving efficiency enterprise-wide with a focus on long-term free cash flow generation. Over the past 3 months, as part of a thorough review of our assets and organization, we've taken early but significant steps towards advancing these priorities by making key leadership hires, pursuing high-impact partnerships, expanding our world-class roster of creative talent, reigniting performance across our studios, maximizing the value of our highly profitable CBS portfolio and driving efficiencies across the organization, all while staying true to our mission as a creative company. Storytelling is and always will be the heart and soul of everything we do.

Every effort serves a single purpose to bring the best stories to the broadest possible audience. Thanks to our actions to date, we are now well positioned to align resources with strategic priorities and invest boldly in areas with the greatest long-term potential. Just prior to this call, we issued a letter to shareholders outlining our third and fourth quarter results and expectations, which we encourage you to review. The letter details our 2026 guidance, including total revenue of $30 billion, driven by strong growth in D2C revenue and global profitability as well as adjusted OIBDA of $3.5 billion. Additionally, we have increased our run rate efficiency target from $2 billion to at least $3 billion. Building on these financial and operational priorities, we're also taking decisive steps to streamline studio operations and elevate performance, particularly at Paramount Pictures. In the near term, this includes adjustments to our film slate. Our plan is to grow theatrical output, targeting at least 15 movies per year over the next few years, beginning in 2026. While this rebuilding will take time, we are confident that our creative direction and business strategy will deliver the quality films that will enable us to engage and expand audiences worldwide.

More broadly, over the next year, we plan to make incremental programming investments in excess of $1.5 billion across both theatrical and direct-to-consumer platforms. These investments are designed to expand our pipeline of premium films, television, sports, news and gaming content for global audiences. We've clearly demonstrated this commitment through a series of major creative partnerships and long-term deals from South Park and the UFC to the Duffer Brothers, James Mangold and our landmark collaboration with Activision to bring Call of Duty to life on the big screen and much more. Our top priority is our direct-to-consumer business, where we are focused on rapidly and efficiently scaling subscribers, engagement, revenue and profitability. Since 2023, Paramount+ has achieved the largest U.S. subscription growth among all major streamers, excluding bundles, and we aim to aggressively build on that momentum. In Q3, we added 1.4 million new subscribers for a total of 79 million. We are committed to scaling our subscriber base and are pursuing a more balanced year-round programming strategy to drive higher engagement. As we know, this is the single greatest factor in subscriber growth and loyalty. Over the past 12 months, Paramount+ is ranked as one of the top 3 most sought-after sources of preferred content among major streaming services.

We believe we can do even better, and we are fully committed to doing what it takes to become consumers' top choice for great storytelling. Finally, our goal is to accelerate innovation by making technology a core competency of our company. Competitors from Silicon Valley have quickly expanded into media and broader forms of entertainment. And if we want to remain competitive long term, we must strengthen our technology and do what it takes to position ourselves as the industry's most technologically capable media company. Again, I want to stress that technology at Paramount is not and never will be a replacement for human creativity. Rather, it serves as a powerful multiplier, enhancing performance, elevating the consumer experience and equipping our creative teams with the tools that will enable them to tell even better stories more efficiently and effectively. We're excited about several innovation initiatives already underway, and we'll be sharing more details soon. While we're still in the early stages, as I mentioned, this is only day 96, we're energized by the progress we've made and the clear path ahead, and we look forward to answering your questions.

[Operator Instructions] The first question goes to Robert Fishman of MoffettNathanson.

Can you talk more about your confidence for Paramount+ to gain global scale? And what role does growing your overall content spend play into better competing with the other large SVOD platforms in the future? And then just on a related note, when you think about this global scale, how do you balance growing the overall subscriber base while reducing investments in select international markets that you called out?

Yes, absolutely. By the way, David, thank you so much for the question. First, we just highlight, we had a really good quarter as it relates to our DTC business, 75 million total subs. Paramount+ revenue growth was up 24%, and we're up 17% for the segment. So I think we've made really good progress in that arena. To achieve scale, I think we really need to accomplish 2 main priorities.

One is we need to increase our investments, obviously, in content. As you guys know, high-quality storytelling, sports, entertainment, all increase engagement, which drives subscribers. We've been doing that across our business. That we've made the investment in the UFC and Zuffa Boxing, incremental, obviously, storytelling investments as well in addition to bringing over talents like the Duffer Brothers, all of which will be telling stories across our ecosystem and on Paramount plus. We're also making investments on the technology side of our business to really improve the product. We brought over Dana Glasgow, formerly of Meta. And we're really in the process of converging the 3 streaming services that we have now onto one platform.

For clarity, the company currently operates 3 separate streaming services across multiple clouds and multiple stacks. By unifying those all into one platform, we'll be able to significantly improve the user experience. We'll be able to significantly improve our recommendation discovery, obviously, work on platform. That will also improve our capabilities across the ad tech we'll be able to deploy. And we think while improving the content and the tech that's available on platform, that will lead towards incremental subscribers, growth and engagement.

Jeff, anything you want to add to that?

Yes. I just -- let me touch -- let me just touch really quickly on the international part of your question. So interestingly, the 2 big things that David just outlined, content investment and platform investment, both are global investments. So let me give you an example. One of the biggest content investments we're making is scaling up our studio output and film studio output, and there's nothing that drives platforms in most markets internationally other than filmed entertainment and good movies, both animated and live action. So that's a perfect example of where our content investment is going to be global, not just domestic. And then obviously, the platform investment that we're making is a global investment.

It's not market by market. And one really important piece of that is that Pluto, which is an asset we don't talk about that much, is a very critical asset in some international markets. which are low ARPU, which could be a weigh in for our DTC business and often a good business on its own. Right now, Pluto is on a separate tech stack, you can't even upgrade somebody from Pluto to Paramount+. So I am very hopeful that once the platform investment is live, we will be able to use that product to start with Pluto in some international markets and over time, use that to scale in markets which are not a high ARPU.

The next question goes to Steven Cahall of Wells Fargo.

So David, if I have maybe an initial conclusion from the shareholder letter, it's that you want more, more originals, more licensing, more sports, news, wide releases, tech and I guess, a lot more efficiency. Is there any way you can help us think about how much investment you plan to put into Paramount Skydance over the next several years? I'm guessing it's well in excess of that $3 billion, and there's a lot of revenue as well.

But just in terms of the size of the company, any way to put this into sort of a big number? And then just on the studio side, with the turnaround you're looking to do and the additional wide releases, what did you learn from your experience at Skydance, especially creatively that you all think you can now apply since the studio, at least financially has kind of underperformed historically?

Yes. No, look, I really appreciate the question. Again, everything for us is really going back to driving our North Star principles that we outlined in the letter. We're going to continue to obviously invest in our growth businesses, anchored by our creative engines and superior storytelling and scaling our D2C business is absolutely one of our North Stars. So to your point, we're going to continue to do both of those 2 things. And the company we acquired, we think has an incredible foundation. But we do think that there's obviously more to be done there.

We talked about in the letter the additional $1.5 billion of content investments that we're going to make. And our goal is to be a global scaled streaming service. So from that standpoint, we are going to obviously invest accordingly. But please note, everything for us as owner and operators of the company the way we think about this is really how do we drive long-term value creation.

And as we're currently the largest shareholders and will continue to be the largest shareholders in the company, we really are looking at this in terms of how do we increase and drive value long term for all of our shareholders. Then I would say one of the things that we've obviously learned on the creative side at Skydance is a lot of our core principles was always quality is the best business plan when it comes to storytelling and a dedication to aiming high and you just don't stop working until you get there. That enabled us theatrically to deliver films like Top Gun: Maverick, and we've always had -- when we were just a stand-alone company at Skydance had an incredible partnership with Paramount. But we've consistently obviously delivered hits on all of the platforms that we've worked.

What we're really doing now is taking everything that we've learned at Skydance and that incredibly powerful creative content engine, partnering it with the phenomenal creative engines at Paramount to really be able to get to scale across all of our growth businesses.

That includes direct-to-consumer, but also for reference on the film side, as you said, the studio was making 8 movies a year roughly when we acquired the business. And we're getting to 15 movies a year minimum starting next year, and we will be -- and that will obviously lead towards increased scale and profitability across all those segments of the business.

So David, maybe I'll just add, Steve, I think it's important to also understand that every investment we make, we're looking at how it drives value for the entire company and has a proper return on investment. Two, we definitely want to get to investment grade so that we do want to get delever. And three, the goal is to have high cash flow conversion as we get through the initial investment cycle. So all those things should be factored into how we think about investments.

The next question goes to David Karnovsky of JPMorgan.

With the TV Media segment, just be great to get your updated view on your portfolio of networks. How are you thinking about advertising and cord cutting trends from here and within your 2026 forecast and then within that context, investing into or optimizing these brands?

Absolutely, Jeff, why don't you take that?

Great. David. So one of the original things that we, as a group, were kind of united on is that people talk about linear as one homogeneous business. It's really very different. And when you start to look at it that way and you look at the disconnect between broadcast and cable, it's pretty stark and growing more stark. And that's why CBS was one of the cornerstone assets that we were excited about when we acquired Paramount. And that -- those trends are continuing since we've owned the company, and we expect them to continue in the future. On the broadcast side, obviously, it's declining. It's a linear asset like any other linear asset, but the declines are very modest compared to the cable side.

And those don't even take into account the fact that the content on the broadcast side is increasingly a huge driver on DTC both in terms of subs and engagement, not just the sports, which is becoming barbell. If you look at where leagues are going, they want reach and they want dollars. The dollars increasingly come from streaming and the reach still comes from broadcast. And we have a perfect company for that barbell with the biggest reach vehicle in CBS, which is the most watched broadcast network for the last 17 years and will be so again this year. It's off to a great start, by the way, in this season. And then the streaming product, which is our North Star to grow and scale globally. So increasingly, we will put investments into the CBS side of the coin, and we see those trends continuing. On the flip side, cable is continuing to decline and each quarter is accelerating decline, not just for us, but for everybody around the media business. And -- it's increasingly clear that streaming, first and foremost, is a replacement for the multichannel cable environment.

We're fortunate, yes, we have cable channels, but we don't have -- they're not as large proportionately for us as for others. So we're really focused on taking those brands and seeing what we can do as far as driving value long term, both in terms of overall and in terms of for our streaming product as it scales. We're not going to spin off cable assets.

This company has a history of spinning assets and it hasn't gone very well for us, and we think for others. So one of the big rationales for spin is that when companies are stand-alone, they can focus on driving the value of the brands that they have in a more specific way. We are going to do that, but we're going to do that within our company, so our shareholders get the value of that. We think we have some pretty good brands on the cable side. Obviously, Nickelodeon is a core kids and family pillar for us, and that's going to be a very important segment for our company, not just in terms of streaming, but in terms of licensing and consumer products. So we just brought in a new leader for that business.

But if you look at music, which is an important category, MTV is the traditional leader there, comedy, where Comedy Central is a great brand and then BET, which has a great position with that audience. So our goal is to look at those brands, see if we can transform those businesses in a digital way to drive value long term and make them increasing pieces of our overall scaled global streaming strategy, which is our core business. So that's our plan.

The next question goes to Jessica Reif Ehrlich of Bank of America Securities.

One of the things that differentiates your narrative from other media and entertainment companies is the focus on entertainment and tech. I'm just wondering, David, can you give us your vision of how tech and entertainment interrelate and how you drive growth? Like can you give us concrete or specific examples or color on how you think about that? And then just one thing in the release, when you talked about your partnership with IPG and Publicis for digital ad sales, what did they bring to the company? Like what tools will they bring to help drive revenue growth?

Jessica, great question. I'll take the first part of it, and then I'll pass it off to Jeff to jump into the second part of it. So Again, what I would say is, as we've stated, our goal is to become the most technologically capable media company. And there are several areas where that's going to directly impact our business, and I'll just talk about a couple of initiatives that are underway currently. When we acquired the company, as I said previously, we kind of -- we're operating in 3 streaming services currently, Paramount+, Pluto and BET+. Those are 3 completely independent tech stacks. They operate across 2 different clouds, and there's no connectivity, obviously, between those businesses currently. Convergence is currently underway to basically unite them into one unified platform, which should be done around the middle of next year. Then from there, we have a road map to obviously significantly improve the overall product for Paramount+. And again, when you improve products, you get benefits like you increase engagement, you get -- your recommendation engine obviously improves dramatically. Your ad sale monetization will improve as you improve the ad tech.

So there's several areas where obviously that this is going to impact the direct-to-consumer business. I'd say another bucket is we're currently in the middle of an Oracle Fusion integration. The company when we acquired it, did not have an enterprise solution. We're currently in process of deploying that across the business.

That will lead to significant operational efficiency across the entire company. It will also give better real-time information to managers to be able to think of it kind of like if you're a pilot, do you know I am, instrumentation is important. The better visibility you have in terms of how the company is doing on a day-to-day basis, that improves your decision-making. So we're in the process of deploying that. We also -- artificial intelligence, obviously, is going to have a significant impact across every business, and we do plan to utilize that here. We obviously feel that frontier technology, working with more traditional machine learning is going to really impact how things like search, rec and discovery work on platform.

There will be increased efficiencies across the business by deploying those tools. And we also believe it will have an impact on content creation. But I want to be really clear that when it comes to content creation, we really view AI as a tool for artists to be able to iterate more quickly, to be able to tell better stories and basically create even further accessibility really across the entire content creation pipeline.

So from that standpoint, we think technology is going to impact all aspects of our business, and we want to be a leader in that space. And with that, I will turn it over to Jeff to talk about the second part of your question.

Thanks, David. So Jessica, when we signed our deal before we owned the company, one of the things we found in due diligence is that the company hadn't done the traditional media reviews in a long time of their buying relationships with the agencies. So we worked with prior management to do a review. And the initial objective of the review is more traditional, which was we -- the cost by which we were buying marketing were much in excess of what I have seen in my previous employers and we've seen in the market. So the initial objective was try to use this review to lower the cost of buying marketing for our various marketing entities, most notably our streaming and our film divisions, which are the 2 largest buyers of advertising.

Once we got into the process, we realized that the opportunity was significantly bigger than that. And we met with all the top holding companies multiple times, us and previous management, and we ended up doing 2 deals with the 2 largest agencies, Publicis and IPG. And the relationships, the deals that we did were much broader than just buying. On the buying side, we're going to get significant savings in the cost of buying marketing across the company in addition to a lot of more benefit in going with the 2 largest buyers. But the real opportunity here is more 2 other areas. The first is just these agencies, these holding companies are not just buyers of advertisers, but represent all of our sales clients. And as part of the deal, we got significant revenue commitments over 3 years with both Publicis and IPG. As you can imagine, part of the nuance of this was what's incremental. We didn't just want to get advertising buys that we're just replacing current advertising. So we expect to see most of this advertising in the digital area where we need it the most, and that you should see that in our numbers over the next couple of years.

But more broadly, we're now partnered on a broad basis with the 2 biggest agencies as the world transitions from linear to digital. And we see lots of opportunities as we do the things that David talked about in building our platform and building our ad tech and our capabilities to work with the 2 biggest and most forward-looking partners we have.

And as part of that, we brought in a new head of our advertising business, Jay Askinasi, who most notably, he came from Roku, but before that was the Head of Digital for Publicis, who is one of our 2 new big partners. So this is obviously a big micro thing that we did. But on a macro basis, we see a lot of opportunities in the coming years to grow our business in this way.

The next question goes to Ben Swinburne of Morgan Stanley.

David, I'm guessing you probably can't talk about all the WBD speculation out there in the press. But I was wondering if you could talk a little bit about Paramount S guidance's broader M&A philosophy and just how you think about industry consolidation as something that could benefit the company or benefit overall returns in the industry. Obviously, we've sort of seen kind of rolling M&A through this sector for a number of years.

And I noticed you guys divested some assets, so it would be interesting to hear how you think about just the portfolio broadly going forward. And then just one kind of clarification question from the letter. You guys talked about getting to investment-grade metrics by 2027. I was just curious if you could talk about what that actually entails in terms of leverage level that you're aiming for to help us think about your balance sheet goals.

Yes, Ben, thank you for the question. And so look, first and foremost, we're focused on what we're building at Paramount and transforming the company. And today, 96 days in, we are more confident than ever in terms of our ability to achieve all of our North Star principles that we've discussed in the letter and previously on this call. And so -- and I appreciate that we can't comment on numbers and speculation. So first, I just want to say thank you, honestly, for saying that. Look, what I would also say, as it relates to M&A in terms of our mindset, I think it's important to know that there's no must-haves for us.

We really look at this as buy versus build, and we absolutely have the ability to build to get to where we want to go. We believe we can achieve our goals with our creative content engines. We believe we can achieve our streaming goals and that we can drive enterprise efficiency and create value and long-term free cash flow generation, all through the building standpoint. As it relates to M&A, everything for us is going to tie back to does it accelerate those 3 core principles. And for us, we're fortunate that we have the balance sheet to be able to be opportunistic when we think that M&A will accelerate our goals. But we're also long-term disciplined owner operators. So from that standpoint, we'll always approach things through the lens of how do we maximize value for shareholders. And from an M&A standpoint, it's always going to be how do we accelerate and improve our North Star principles. So that's on that standpoint. Actually, Jeff, do you want to talk about the divestitures?

Yes. I mean we -- as I think we mentioned in the letter, we are divesting 2 of our over-the-air businesses in Spanish-speaking Latin America. The company has a lot of different assets. We clearly laid out in the letter, as David just said, our North Star priorities. If there's assets in the company that don't -- aren't critical and aren't essential to our North Star priorities, then we'll look at them case by case and make decisions to divest when they don't -- we have enough to do and invest in without investing in things that are noncore to what's going to get us to global streaming scale. So I think you will periodically see us divest smaller assets.

Yes. And I would just add on the leverage point, it's Andy, Ben, that we're not sort of investment grade across all the agencies today. So we want to get all 3 remaining agencies to rate us as investment grade. And as you know, there's a numerator and denominator to that equation relative to leverage ratios, and we're going to focus on.

The next question goes to Rich Greenfield of LightShed Partners.

I guess from a really high level, David, it would be great to get your view on the UFC strategy. It was obviously by far, the biggest sort of statement you've made since acquiring Paramount. And how do you think about earning a return? You obviously put up a much bigger price than what was being paid before. And so between the subscriber base of Paramount+ getting this included, price increases, you said one is coming, but you didn't specify how much. Like how do we think about how you drive return and how you'll use the UFC assets across Paramount plus, CBS and even maybe some of your cable networks. I'd be curious just how you think about that. And then just for Andy, just a couple of housekeeping points. One, you -- the projections you made, and I realize this transaction took way longer to close than you had expected. But obviously, the projections in the original filings were, I think, like $3.4 billion and $4.1 billion for '25 and '26.

Those are now $3 billion and $3.5 billion, it looks like. Just would love any color beyond just took longer, but any color on why those came down or major issues to think about? And then you also made a comment about content write-downs that have helped Q3 and will help the go forward. How significant dollar-wise? Is there anything you can give us to quantify those comments would be really helpful as we think about modeling the next 12 months.

Yes, Rich, thank you so much for the question. I'll obviously take the first part and then pass it off to Andy. One, we could not be more excited about our partnership with TKO, Dana White and UFC. And look, I'd also loop into that Zuffa Boxing. Those 2 deals obviously makes Paramount plus really the home for combat sports in -- obviously, in the United States, and we also have rights in Latin America and Australia. And when you also look at the UFC, it is the largest sport that is not basically split off across multiple platforms. And so it really is a unicorn sports property, and we think it's going to drive a tremendous amount of value in terms of both subscriber growth and engagement across Paramount plus as well as CBS, where there will be some aspect of the UFC that also lives on CBS. In addition to that, I think when you think about the UFC and the opportunity there, there's 100 million fans in the U.S. alone.

It's grown 25% since 2019 to date. And it's been doing all of that behind the double paywall in its previous home. And so from that standpoint, we think when you eliminate the double pay wall, it's going to become much more accessible, and we think that growth rate will increase. Additionally to that, we think we're offering to our subscribers at Paramount+ really significant value in the fact that for approximately pay-per-view, you basically can access all of the UFC across Paramount plus. And so from that standpoint, we think it's a great value for consumers. And really going back to kind of our North Stars of scaling our direct-to-consumer business, we need to obviously invest into more content. I mean, Rich, you know this, you talk about this all the time. having an asset like the UFC is going to increase engagement on platform. It's going to drive subscribers, and we're feeling incredibly confident in the investment that we just made.

With that, I'll -- and then look, bridging into the second part of the question, one of the things I would just note before Andy dives into some more of the details here versus kind of the -- where we were in the investor announced round numbers 18 months ago is I think what's important to note there is we are investing significantly more into content than was contemplated at that time. And we're also driving greater efficiencies. And we believe the combination of those 2 things will drive greater long-term value from a company perspective. With that, Andy, I'll let you.

Yes. I mean I think you kind of hit it, which is when we put the investor deck out there is what we expected at the time of the announcement. And as David just mentioned, we had some really significant opportunity that came to us right around closing, South Park, UFC and all the different talent deals we've done between August 7 and today. You combine that with our increased goal and understanding and now actually confidence in our expense efficiencies going forward. And we think we made the right decision based on where we were last year versus today, i.e., the $4.1 billion that we put out versus our $3.5 billion guidance. So we think given those investments, we're making the right choice for the long term. And then I would just say, on the efficiencies, we're going to start '26 with $1.4 billion of those accomplished and run rate.

By the end of '26, we'll have accomplished most of the $3 billion plus that we've outlined in our letter. So we feel very good about our ability to hit our projection next year. And then look, on the -- on the content write-downs, I think, as you may know, in transactions like this, there is a review of all the content and all of the libraries, and we made the appropriate economic and accounting adjustments to make sure they're consistent with our strategy and the company going forward.

Can I add one thing on UFC?

Yes.

To go back, Rich, if you don't mind on UFC. If you were going to go design a sport for us, UFC is perfect in so many ways. It just if I want to punctuate what David said, when we started looking at this asset Paramount, we had a real desert of sports that ended at the end of the masters and started again in the NFL, and we saw lots of churn over the summer as people turned off the service and then turned it back on for NFL. And this is a year around sport, which is very unusual for major sports. And then the second thing I'd want to add is the sports are not homogeneous.

They're increasingly bifurcated sports that are kind of regular and sports that are events. You kind of look at the recent NBA deals, there's a lot of regular season and then there's a lot of postseason. And I think everybody who bought those rights would say that post-season NBA is different than regular season NBA. And with the UFC, there is no regular season and postseason. Every one of these numbered events that David talked about coming out from behind the paywall is an event and the ability to have events throughout the year is exactly where we think sports is going. And then I will add one thing. We talk about CBS under George Chef's incredible leadership. We have huge volume of engagement on DTC and CBS. These tend to be older female. They skew a bit over female all of our procedurals and the shows that are awesome on CBS and ad hoc and Blue Buds and you can go down the list. So having a sports property like this that was available that year-round event-based and drives young male is like perfect. So this was a bit of a unicorn for us and where we were trying to go.

The next question goes to John Hodulik of UBS.

Two, if I could. First, David, how should we think of the long-term profitability of the D2C business? And what are the major levers to get there? It sounds like from the letter, you think ARPU is one of them where you guys could make some substantial headway in the near term. And then getting back to the comments on the investment, is this a situation where you guys are investing so heavily on the front end that, that free cash flow may turn negative in the near term before the platform scales up? Or how should we think of free cash flow trends over the next couple of years?

Yes, Bob, I'm going to turn it over to Andy to take that question, and then I'll fill in after that.

Sure. Yes. So the -- John, it's Andy. The free cash flow is one of the biggest opportunities that we have and we see going forward. For '26, we are -- we know there's going to be about $800 million of transactional and transformation costs. So on a reported basis, it will be negative. But on an adjusted basis, taking out those kind of onetime items, it will still be positive.

But I think most importantly, when we look at going forward, it really comes down to our ability to do 2 things. Working capital has been a big negative for this company for many years. It's a real opportunity for us to both get better payable and sales terms, but also one thing David spoke of was our ability to get better systems in place, visibility into accumulating receivables by customer and by area is going to be a big driver of this. The other area I mentioned that's going to, I think, accelerate our free cash flow growth is cash tax rates. Ours is marginal today and will get significantly better over time. One real benefit of having, as you know, a global portfolio of IP is where you domicile that IP has big influences on cash tax rate, and that's something else we're focused on.

David, do you want to answer -- do you want to go back real quick and double-click on D2C profitability?

Yes. No, absolutely. Look, I think if you go and it's obviously outlined, the D2C segment, obviously, will be -- it is profitable next year. It will be increasingly profitable in 2026. And so from that standpoint, when we look at the growth rates across the business, we believe that we can grow and scale in service, and we're doing that in a fashion that is profitable.

The final question goes to Kutgun Maral of Evercore.

I just had a follow-up on the content ROI discussion, maybe away from the UFC specifically and speaking more broadly in the context of the plan to make incremental programming investments in 2026 in excess of $1.5 billion. What does the $1.5 billion look like across the various categories or verticals, whether it's between sports, originals, licensing, DTC, theatrical? However way you're able to slice it would be helpful, along with what the total content spend budget looks like in 2025 versus 2026?

And then how are you approaching the decision-making process and ROI analysis of these investments as we move forward and manage the balance between investing for global scale while also anchoring around profitable growth?

Yes. No, absolutely, great question. So as we've talked about, really revitalizing our creative content engines is obviously a key driver and goal for us.

So from that standpoint, like a couple of examples to talk through. We've talked about the UFC. We talked about Zuffa Boxing. South Park as an exclusive for -- obviously, for Paramount+ in terms of the streaming rights is another investment that we've obviously made, which has performed incredibly well for us, both in cable as well as on the DTC platform. Having the Duffer Brothers join next year is another area we've obviously invested in the content -- obviously, in the content space. We obviously announced the film with James Mangold and Timothée Chalamet. So we really are investing really across the board in our growth businesses.

I also think everything we do is through the lens of long-term value creation. So whether that's streaming, whether that's sports, whether that's our film business, it really is how do we grow and scale for -- to create long-term value for our shareholders. When you think about Paramount Pictures in particular, that's definitely an area where there was some weakness when we obviously came into the studio.

And so from that standpoint, we are diverting a lot of resources from the combined content engines, Paramount Pictures as well as Skydance to make sure that we can get that studio to scale and get that studio to scale profitably, which we're incredibly confident in our ability to be able to do that, especially with the great leadership under Dana Goldberg and Josh Greenstein. And so that's really kind of how we look at it. Andy, anything you want to add.

Yes. I would just say also there's a unified review of our big content spending across all the verticals and the segments and corporate finance. And there's definitely buying that we're all trying to do is grow the top line, grow value creation for the company, which means share price appreciation and nothing is done in isolation. We're very careful about that with regard to our big content spend across film, television, DTC and broadcast and cable.

All right. Sounds good. David, do you have any closing remarks? That's our last question.

Just one. I want to just thank everybody for -- who took time to dial into the call today. And just want to reiterate, there's tremendous energy and excitement across the company, and we're really excited for what we're going to get to build in the future. So just thank you.

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

We got to start with Paramount.

You chased this company for a couple of years, if not longer. If you look at what they own, they have a bunch of cable networks that have been in decline for almost as long as I've been doing my job. They have a movie studio that is, by most metrics, the last place movie studio over the last few years and a streaming service that in terms of at least engagement is sort of in the third tier. So why were you so interested in it? What do you see in the company that investors and a lot of other potential bidders did not?

Yes. No, absolutely. It's a great question. First, I just want to say we couldn't be more excited about the place that we're starting with the asset that we purchased, right? We have 80 million streaming subscribers. We have one of the best basically content libraries in existence with Paramount and CBS. And I also think you need to distinguish when you talk about the linear business, right?

There's Cable, which yes, has been a decline. But if you look at CBS, it actually is a remarkable asset. That's been #1 in primetime for 17 straight seasons, incredible sports rights, which we're growing and is still highly profitable from a cash flow perspective. And I agree with you, has not been run in the best manner for the last 15 years. And for me, that's all opportunity, an opportunity to really reignite the creative content engines to navigate the transition that's required to really turn Paramount+ into a leader in streaming. And we believe we have the ability to both win in content and also become the most technologically capable media company to effectively navigate this transition. We always looked at -- you can look at the music business 10 years ago. We believe we can navigate that.

We also really looked at where traditional tech companies were, call it, 10, 15 years ago. And there is a period of time where the Microsofts of the world, the Oracles of the world were being disrupted. And those companies that actually disrupted themselves and transitions are now trading at all-time highs. We believe we have the opportunity to do the same thing.

So you've talked about streaming. You mentioned the 80 million subscribers earlier. You look at it, those monthly Nielsen reports that people pay a lot of attention to, right? YouTube is at 13% of TV viewing. Netflix is at between 8% and 9% most months. Paramount, when you combine Paramount+ and Pluto, it sort of sits around 2%. You can correct me if I'm off there, but I think that's about right.

So how do you get that up -- forget about 13% or 8%, like Disney is in the 4% or 5% range. How do you get that up there? And you've talked about content and tech. Can you get specific on those fronts like what you're going to do?

Absolutely. So look, one of the things we really believed and like what I'll say, we're 9 weeks in. And I'm really proud of the momentum the team has been able to build over the last 9 weeks. One of the things we really believe being the first owned and operated studio, to my knowledge, since actually Walt Disney built his own shop was that we would have the opportunity to really think long term. That means long-term partnerships with talent where you can basically say, don't just think about your next movie or your next show, we want to build a relationship with you over a decade and actually say we're going to make your next 4 or 5 movies, your next 4 or 5 series and really think long term and invest for long-term growth.

The great news and when you look at -- we had to win in content, I think we're well on our way to being able to do that. If you look at specifics, right, we're able to get the -- obviously, the UFC deal is one of the first things we announced when we came over. We are incredibly proud that Activision chose to partner with us on Call of Duty, which is the most successful video game franchise of all time with 500 million units sold. We're able to have James Mangold come over and obviously call -- is one of the greatest filmmakers working to call Paramount Home. BoulderLight’, who obviously had incredible hits like Weapons earlier this year.

In addition to that, we've been able to secure high-profile packages for -- with streaming with basically Paramount+. And then we're also really reinvigorating what we're doing in news with CBS News with the acquisition of The Free Press. And then I think when you look at CBS' broadcast lineup, I think we have the strongest lineup maybe arguably in the company's history. And so I think we've really successfully reinvigorated the creative content engines of the company in a really short period of time. And I think we're going to be able to do that at scale. So that's one.

Two, I think when you look at kind of 10,000 feet, Silicon Valley has done an excellent job of really coming into Hollywood. I mean the platform that Netflix has built, the platform that basically Amazon has built, and these are incredible companies.

I'd say the platform that Amazon has built is not very good, but they do have the benefit of Amazon behind -- even people who work at Amazon would acknowledge the product could be better.

I think when you look at the number of subscribers, I think they're doing okay, just -- and from that standpoint. But what we really want to become when we talk about becoming the most technologically capable media company, believe we have the capability to do that. We're bringing in the appropriate leadership.

We just obviously hired our CPO, Dane Glasgow, who was formerly obviously running product at Meta for Facebook, who is obviously a phenomenal leader to come into the business. And we have really deep tech partnerships that are really going to enable, we think, Paramount for the first time to actually build platforms that are competitive with Netflix, that are competitive with Amazon and actually successfully grow and scale. And I think you've said this, you've talked about this a lot. Given this moment in time that we exist in, great art and great technology need to work hand-in-hand together to effectuate the transition the overall business is in.

Is there something like concrete about the Paramount+ platform right now that you think is clearly substandard? And how -- like I've heard you talk about the recommendation algorithm, right, and how you think that could be better. Does having a better recommendation algorithm really going to like bring in 10 million new customers or make people spend an extra 2 hours a day with your service?

So you have to do 2 things. One, like let's just talk about the asset that we acquired when we inherited, right? Paramount as it exists today, operates 3 streaming platforms, 3 separate tech stacks on 2 different clouds, which is both inefficient and wildly expensive. So if you actually said I'm going to -- if I had unlimited resources, this is not how you...

And for those who don't follow the 3 services are Paramount+, Pluto TV and BET Plus.

BET Plus. Correct. So we're in the process right now of basically consolidating all of those onto a single stack, which will both significantly improve the operational capabilities of the product, and we're doing a lot to basically overhaul every single aspect of the stack. But also the more data that you obviously get in there, which is the more users, the better you're going to be able to recommend content. So we are definitely overhauling basically the product right now. But in addition to that, to me, technology is really in service of the content, not the other way around. And we're going to make significantly more shows at Paramount+. We are investing in sports rights.

When you look at the acquisition of the UFC, that is the largest sport that is basically not shared between multiple platforms. And to basically -- and they have 100 million fans. They've grown 25% from 2019 to date. They grew at that level sitting behind the double pay wall. So we think when you eliminate that double pay wall, it's going to open it up and make it much more accessible. Literally one pay-per-view you fight is what a Paramount+ subscription is. And then basically, those 100 million fans are going to be able to get access to everything they love. And in addition to that, when you look at the overall sports strategy, which cannot be more important to us, Paramount had a really strong fall and spring sports calendar, but really light in the summer.

You have football in the fall. You have March Madness in the spring.

You have the masters, which we are incredibly proud to be partners with. And now with UFC, we have a year-long sports strategy. And that, in addition to all the new originals that we're going to be making for P+, there's going to be more content. There's going to be a better tech product that's going to yield additional engagement and scale.

So I want -- I have a follow-up on that, but I'm curious because you mentioned Pluto. You've talked a lot about combining the back end. How likely is it that you just combine all those services into one consumer-facing app, where if you want to watch Pluto, you're just going to Paramount+.

So right now, we're basically combining the back end. It's certainly something we discussed and explore, but not something we're planning to do right now.

Got it. And you're in the like the fun spending money showing people you're here to reinvigorate the company phase. When does the less fun part.

So look, one of the things that I think is actually important is this business can be operated a lot more efficiently than it was operated in the past. And we've obviously announced $2 billion and obviously, run rate synergies. We've said we're going to meaningfully, obviously exceed those targets. And from our perspective, we intend to do that as quickly as possible so that we can basically get that behind us and then have the entire team just building for the future.

So does that -- do cuts start before the end of the year?

You know I can't answer that question.

Let's go to a couple of other questions you probably can't answer.

We're going there already. All right.

Have you made an offer yet for Warner Bros. Discovery?

All right. We're talking about tennis?

We'll get to tennis at the end. I already -- I don't know if you saw it. I asked Greg Peters, who is better at tennis, Him or Bill Gates. You can probably answer that question. He dodged. But...

Honestly -- I actually can't answer that. I've never seen either of them play tennis so I don't feel equipped to be able to do that.

Let's go back to the offer for Warner Bros. Discovery.

So look, we're a publicly traded company, and I think we're not in a position to be able to comment on rumors or speculation of any kind because there's a couple of rumors and speculations, obviously, out there in terms of what we may or may not be doing. But look, what I can't comment on is people that kind of understand our mindset, right?

And I actually think, ironically, it was David Zasloff last year that said consolidation of the media business is important. And the way we approach everything is, first and foremost, what's good for the talent community, what's good for our shareholders and value creation and what's good for basically storytelling at large. And so from our standpoint, whether we were approach any acquisition, I actually do think there's a lot of options out there in terms of what actually might be actionable in the near future, we would approach that through the lens of wanting to make more, not less.

Because the natural conclusion, if you were to merge with Warner Bros. Discovery is you take 2 companies that combines -- I don't remember the content spend between the 2 of them, but spend billions of dollars and much as you're combining Skydance and Paramount, you take money out, you would take money out there. Companies that merge don't tend to spend more money on the other side of it.

So what I would say, and again, I'm not going to comment on Warner Bros. Discovery. But you said it when you talked about Paramount. You actually need more content to yield more engagement. And so we would actually want to be in the business through whatever lens we are looking at of actually producing more, more movies, more television series, more to get to scale because you need that content, you need that great storytelling to yield engagement. And from that standpoint, we're also in the business, first and foremost, of creating long-term value creation. And one of the things I think we -- I hope we've proven, obviously, with our family is we are in the business of building long-term value for shareholders, and I think we've done that successfully.

You mentioned there are a lot of other things out there that could be actionable. What else is on the list?

Same thing. I can't comment on it.

Okay. I'll do one more. So we were told that you actually made an offer for Warner Bros. Discovery that was rejected.

Same answer.

It seems like most people think -- this is -- I promise it's not the same question. It's a bridge to something else. Most people think that you guys are the only ones who can get that deal done. And one of the reasons is because of the relationship between your father and the current administration. How would you characterize the relationship between your family and the President at the moment?

Great question. I think we have a good relationship with the administration. And look, I think if you look to that, I do believe other things that have been rumored about, right, are very large-scale players that would affect -- that could potentially create monopolies, obviously, in the ecosystem.

And again, I think when you look at the lens of consolidation for us, I'll keep going back to it, it's always how do you create long-term value creation? How do you put yourself in a position to produce more content, not less? And how do you ultimately build something that is better for the consumer, not opportunities that will create things like too much pricing power. And I think if you look at our business, the -- I hear it all the time. The notion of going to 7 different apps is not the greatest experience from the consumer's point of view. And I think what we look for is really how do we serve the consumer, how do we serve the talent community who we are so grateful for the fact that they have really embraced us since this acquisition and how do we create long-term value for shareholders. Those are going to be the lens in which we always approach everything. And what I'm -- and I think we have the capital and resources to be opportunistic when those opportunities arrive, and we do have a good relationship.

So one opportunity you took and you mentioned earlier was buying The Free Press. The track record of big media companies like Paramount buying digital media companies like The Free Press is abysmal, at least over the last several years. So why are you buying this company? And what was the thought behind it?

Absolutely. So one, what our goal is in news is we want to become the most trusted destination in news media. That is our goal. And I don't think it's a controversial thing to say right now that the civil discourse that currently exists is not in a great place. And we basically believe in all the things that The Free Press believed in, which is the -- we want to speak to the 70% of the audience that identifies themselves the center left to center right. We believe in the open exchange of ideas and then fundamentally presenting both sides and allowing the audience to ultimately make their determination about how they feel about it, but they're presented with the facts. And we think that The Free Press recognized some of the issues that have been occurring and built a company as part of the solution to...

What issues are you referring to there?

The notion of really just saying we want to get back into the trust business, we want to get back into the truth business. And then in addition to that, when you look at news, right, we have -- I cannot properly express how much respect and admiration I have for the legacy of CBS News in 60 minutes. It's remarkable. And -- but also the company does not have a digital strategy. And one of -- which is why The Free Press was a critical part of that acquisition because you need to be able to meet people where they are...

Isn't it -- I'm just curious, though, isn't it remaining independent-ish?

So basically, the free press will obviously stay in the digital landscape in which they're going towards. But I also think when you talk about meeting people where they are, that's in broadcast news. That's obviously on The Free Press' website. That's in podcast. But that's also eventually going to be in direct-to-consumer. And we do want to actually build a home in the DTC platform, which, to my knowledge, our competitors are not doing, where you can actually go get all of that in a digital environment to direct-to-consumer and The Free Press is an accelerant to be able to accomplish that goal.

Doesn't CBS already have a digital news network?

They do, but we think that this basically accelerates and supercharges it.

Based on what you said, you have a lot of respect to CBS News, but in bringing in someone to completely overhaul it would suggest that you thought that things weren't operating as well as they could have been. How would you -- how would you assess it not just from a business standpoint, but from a content standpoint? Do you feel like the news that they were putting out there was where you want it to be? Do you think there are things they could be doing better or worse?

So as I've kind of said this before, I'm not going to be in the position of ever making political statements like we're an entertainment company first. And we have the viewpoint of if you're breathing, you're audience. And we basically -- and so from that standpoint, we want to entertain our audiences first. What I will say, and I have said this, and I said this in the letter I sent out to the team earlier this week, is that I do believe that this is an opportunity when you look at where things sit that we want to be able to get back to a place where everyone can have dialogue. We believe in civil discourse. We believe in the open exchange and debate of ideas is how you get to the right answer. And we think that there is a responsibility with news to make sure that you are promoting that. But at the end of the day, it's always up to the viewer and the audience to decide, and we're in the business of, first and foremost, earning their trust. And that has done over time, and we hope that we're going to work really hard to earn our audience trust every day.

You can understand, though, why when you're talking about restoring trust and speaking to everyone, you put someone in -- Bari's background is primarily as an opinion columnist, right? She's not a kind of dyed in the wool news reporter. And there are going to be people at CBS News, and there have been a lot of people outside of -- journalists outside of CBS News already who are seem very concerned because opinion and news are typically kept separate. And now you have kind of the editorial leader of this news group whose background is an opinion.

Yes. I mean, look, I'll continue to say the same thing, like I'm not going to make a political statement. I'm really not going to do it.

I'm not asking a political statement, but you can understand maybe why some of the staff is nervous or I'm sure you've got -- you and your team are already ready for there to be a bunch of leaks over the next few weeks of people who don't like whatever direction it's being -- it's going in.

Yes. Lucas, I think I said is like, again, I'll keep going back to it. I think if you look at the value system that basically The Free Press has been operated under really does align with the value system that we believe in, which I also believe is in line with the legacy of CBS News. And if you actually go to that, I do believe there are areas where we collectively can and will do better. but I also have the utmost respect for the team that exists there. And again, I wouldn't judge us based on what I sit here and say today, judge us basically over time as we basically prove to that. I mean, again, like this is going to be one where we're going to need to demonstrate every single day that we're obviously earning people's trust. I obviously deeply believe in the free press. I believe in the team at CBS News, and I believe we're going to accomplish the goal of building that trusted destination news and media.

You and Bari, I don't know if this counts as politics for you, but you have a lot of common ground on the big issue, which is Israel. And you have spoken publicly about it. Your company issued a statement expressing concern about how some artists were speaking about it. Why did you feel the need to speak out on that issue? And how has the blowback been?

Yes. So look, just to go back to the statement that we made, right, was very simply, we made a statement that was effectively discriminating based on where somebody is from is wrong. And I stand by that statement. In addition to that, when you look at what's going on in the world, the fact that we are effectively at a historic piece deal with hostages being returned home as early as this weekend or Monday, I think that is a historic accomplishment and one that we should all be happy so that those hostages can get home with their families.

I believe that there was a piece about sort of some employees of yours who are upset about the statement that you put out. And I'm just curious, have you heard from -- and I know just from kind of day-to-day life that there are a lot of people in the talent community who feel a little bit differently about this subject than you do. Have you heard from any of them? Has there...

So obviously, I saw that piece. And look, we believe in the first amendment. They are 100% entitled to their opinion. We're entitled to ours. And then no, we haven't heard from anybody else directly.

Got it. We haven't talked about your dad at all, who is the biggest shareholder in your company, I believe, or one of.

Absolutely.

The deal that you don't want to talk about that you might do would also be thanks in part to his largest. What advice has he given you about running a big company? And what is the relationship between the 2 of you like?

So look, we -- my father and I couldn't have a better relationship. We talk just about every day or every other day. Look, he's a pretty phenomenal mentor. And I think, especially when you look at it from a shareholder capacity, I think he has about as good of a track record as you can get for actually creating value. If you look at the growth of Oracle this year across everything he's done in our businesses and as well as our stock has obviously also performed since we closed. And so from that standpoint, he is focused on how do we maximize value for our shareholders. I think it's one of the best in the world at doing that. And I think that's a voice that everyone should be really happy about the fact that, that's obviously helping to guide and steer the company.

So from that standpoint -- and look, the other thing I would say is I've had phenomenal mentors that I'm grateful to, including Steve Jobs and David Geffin. And honestly, I'm grateful for everything I've been able to learn from them, and we couldn't have a better relationship.

And when you say guidance, so are you -- like how often is -- you talk to your dad every day. Are you talking about the company every day? Like is he -- I think a lot of people who work there ought to know, right? Like is ultimately -- how involved is Larry Ellison going to be in Paramount?

So look, I run the company day-to-day. Make no mistake about that. He is the largest shareholder in the business. And I think what's important for everybody to know is the way he approaches this is how do we maximize value for our shareholders, and he's exceptional at that.

Given the amount of money that you guys have at your disposal, you mentioned shareholders, like why not just take the company private?

So great question. One, we actually think it's really simple. It goes back to that question of value. We think there is actually more value and more opportunity in being a public company and being a private company.

And given -- so your dad's -- you've got Paramount, your dad seems to be involved in the new ownership consortium for TikTok in the U.S. You maybe have the Warner Bros. Discovery deal. What do you say to people...

You got range of questions I can't actually answer.

No, no, no. But this is -- I think you can answer this one. What do you say to people who seem -- who are concerned that there's just like an Ellison/Ellison Trump plot to just like corner the media business. You've got Elon with Twitter. There...

No, I know where you're going. Look, it's under the headline of doing better, I can only speak to -- look, I think I can speak to my personal state of mind, right? Is that fair? Am I committed to do that?

So what I can tell you is that conversation has never once been discussed or brought up. When we basically approach things, it is going back to always how do we create basically value for shareholders. And look, go back to what I've been doing like the last 15 years of my life, right? I mean, like this is -- it's -- sorry, I kind of look at this and I'm like, can we -- does the last 20-plus years of my life not equate. And what I mean by that is I went to film school at USC, right? I started -- I literally started in this business when I was 18 years old. I fell in love with movies when I was literally a little kid. And my mom and I would go to the movies every single weekend. That's literally what we do without fail. We went 52 weeks a year and just saw anything that was playing. And we had a VHS collection of at home where like me and my sister's idea of like the greatest day on a Sunday was let's go watch all the Rocky movies back to back in one day or let's go watch the Star Wars Trilogy.

So I literally loved this business and love storytelling since I was a kid. I went to school for it. I built Skydance and launched it in 2010, really with the understanding that the disruption between the bridge that has been built between Silicon Valley and Hollywood was going to happen. We saw that over 15 years ago. We built a company that was the tip of the spear for that disruption on the content creation side with one of our guiding thematics always being where entertainment is heading, right? The slate deal we did where we got all of the crown jewels and Paramount franchises without taking things that are normally put into those kind of deals was revolutionary at the time. Our second series, Grace and Frankie, we took to Netflix before House of Cards was released because we believed in anything, anywhere, anytime in any device before it had been proven.

We've taken early bets into interactive and virtual reality, and we took tentpole movies direct-to-consumer during a time period where we thought that, that was the right thing to do. So from that standpoint, I have always loved and believed in this business. I love storytelling. I believe in the value of basically entertainment and media and what these stories mean, and it's a privilege to get to tell them in our culture. And as it relates to news, which is the other part of the question you're asking, we really do want to be in the trust business first and foremost. We really do want to talk to that 70% of the audience, and we want to get back to having that level of civil discourse. So none of those things that have been talked about have ever been discussed inside of my relationship with my dad.

On the tech front, because you talk about that kind of seeing the friction between Hollywood and Silicon Valley, the other sort of big bogeyman in the news right now is AI. What is your perception of Sora? Are you guys opting out of your product being in there? How are you thinking about using AI?

Yes. So look, I'd say 2 things to that, right? Like fundamentally, we are in the business of building, creating and protecting value of intellectual property. So we have been in that business. We always continue to be in that business.

Look, there's a really healthy debate around inputs that I don't really want to get into because we don't have enough time. But I think when you look at the outputs, those need to be protected. Copyright basically needs to be protected on the outputs of those businesses. But what I would also say is, as an industry, we do need to embrace technology. And I think if you look at artificial intelligence, there are several areas to where AI is going to impact our business. And I actually think it's important to do it in a way that is responsible, that is fundamentally a tool for artists. So I'll go back to The Pixar Story and forgive the [ semi long ] answer to this, but I just -- I'll go to this is one that I happen to be able to live through. I remember basically in the -- when Steve and John Laster basically built Pixar, the attack on them at the time was that they didn't like animators and they didn't like the medium of animation, which when you talk to either John or Steve, John, who was a classically trained Walt Disney animator, they love storytelling.

They loved animation. What they said was we are just giving the artist a new pencil to actually enable them to draw and create something they've never been able to create before. And I think the reality is, is much like when James Cameron in 1992, basically started doing digital comps as opposed to optical comps, and that was a controversial thing at the time as well. I do think you're in one of these inflection point moments where the software CPU pipelines are going to start to be augmented or replaced by model-driven GPU pipelines. And there's a responsible way to do that and there's an irresponsible way to do that. We're going to err on the side of basically partnering with that technology to do it in a way that we think is good for artists.

My last question was a short one so that the folks in the back don't kill me. Who's a better pilot. You or Tom Cruise. Plead the fifth on that one?

I'll plead the fifth on it. It's -- no, look, what I will say is Tom is an exceptional pilot, like I actually was -- I started flying when I was 13 years old. By the time I was 20, I was one of the top 10 aerobatic pilots in the country. So literally like flying air shows like 300 miles an hour, 15 feet off the ground. So that was a wonderful chapter in my life. But I think the training that he did to be able to do the sequences in Mission Impossible. The fact that he captured all of that filming in camera on Top Gun: Maverick, for me, he's just the gold standard and nothing but the utmost admiration and respect for him.

Good afternoon. My name is Victoria, and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount Global's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] At this time, I would now 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, and thank you for joining our Q2 2025 earnings call. Before we begin, I would like to remind you that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. In addition, 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 contains supplemental information, and in each case can be found in the Investor Relations section of our website. As we detailed in the 8-K filed last week, we expect the Paramount Skydance transaction to close on August 7, 2025. As a result, this will be our last earnings call with the company in its current configuration. Today, we will share highlights for the quarter, but we will not be taking questions.

On this call, we have Shari Redstone, Non-Executive Chair of our Board of Directors, Chris McCarthy, our Co-CEO; on behalf of his fellow Co-CEOs; and Andy Warren, our Interim CFO. Now let me turn the call over to Shari

Thank you, Jaime. Given this is the final earnings call under our current corporate structure, I wanted to take the opportunity to express my thanks to our shareholders for their investment in our business and to the others across the investment community who have followed us for many years. I believe I can take it on face that many on this call understand the enormous importance of this business to my family and to me. Beginning near 40 years ago, my father, [ Sumner ] Redstone, built via common CBS by bringing together a group of the best assets in media, news and entertainment. While people often debated whether content or distribution rule the day, my father's steadfast belief with their content with King.

Even against the backdrop of enormous change, their core business philosophy remains the reality for our business and industry. That is a reality that Skydance surely understands. I am confident that with their vision for the business and the technology and resources they can bring to bear, they can build on Paramount's legacy and position it for long-term success and value creation. I am proud that when the transaction closes, we will be turning over a healthy business with a strong foundation for success.

One year ago, that was not a foregone conclusion, against the backdrop of tough industry conditions in the linear business in a pending transaction, the progress we have made is a testament to the talent, focus and dedication of the people of Paramount under the leadership of George Cheeks, Chris McCarthy and Brian Robbins. George, Chris and Brian took on a very challenging job. While continuing to lead in their core areas of responsibility, they work together to develop new content and strategic plans for the company, while also making difficult decisions to streamline the company's cost structure and secure the stability and growth potential of the business.

I will forever be grateful for their hard work, dedication and friendship. While Chris will go into more detail about the company's financial results on this call, I would be remiss not to mention a few of the co-CEOs accomplishments in those of the wonderful teams across our business. I will start with streaming because it makes me so proud that while we only launched Paramount Plus 4 years ago, we are already a top 4 global SVOD service and we will be profitable in the U.S. faster than many of our peers. What has driven this performance, others might have more content. But Paramount+ has distinguished itself for delivering big bold, breakthrough original splitted hits that consistently rank in the SVOD top, plus incredible sports, kids and unscripted content from across the company.

And as I am particularly proud, programming that informs and educates audiences about the issues we face as a society and around the world. This is also the reason CBS has been the #1 broadcast network for 17 years in a row, due also to its range of entertainment, sports and news programming. And in cable, the company has delivered the #1 scripted series, #1 reality series, #1 late-night show and #1 kids show. As for Paramount Pictures, it has continued to expand its hip franchises, Sonic the Hedgehog, Mission Impossible, A Quiet Place, SpongeBob, Teenage Mutant Ninja Turtles and more. Taken together, this has driven improved bottom line performance and significantly strengthened free cash flow.

In closing, it has truly been a privilege to work with George Chris and Brian over the past year to achieve the goals that have positioned this company so well for the future. And while it is never easy to step away, please note that he's been an honor for my family and for me to service stewards of these assets over the past several decades. We will always be chairing on Paramount and the talented people who have made it what it is today. Thank you.

Thank you, Shari, and good afternoon, everyone. When George, Brian and I became co-CEOs, our goal was to transform Paramount into a streaming first company. And today, we are substantially better positioned to thrive in the stringing future. You only have to look to this quarter to see the shift, where D2C revenue growth outpaced linear declines. This was powered by an exceptional performance at Paramount+. We delivered industry-leading TV hits across both streaming and linear while at the same time, this quarter, breaking a record with the mission and possible franchise. At Paramount+, we made a content strategy choice to go against conventional wisdom of more originals is better.

Our strategy isn't about the volume of originals, rather, it's about the volume of original hits. We closed 2024 and our first year as co-CEOs, and it was a transformative year. OIBDA grew 30% to $3.1 billion, driven by a nearly $1.2 billion improvement in D2C profitability. Now this was powered by Paramount+, where our content strategy delivered, we led with the most top 10 SVOD originals behind only the market leader, which drove increased engagement, improved churn. We added 10 million new subscribers, which solidified our place as a top 4 global SVOD and resulting in revenue growth of 33%.

Now since then, we have not slowed down in the first half of 2025, we again scored with the most top 10 SVOD originals behind only the market leader. Paramount+ revenue continued to grow, up 19%, driven by strong subscription revenue growth of 22%. Watch time per subscriber increased 14% and churn improved another 100 basis points. Over at CBS, we continued our leadership position as the most broadcast network in prime time for the 17th consecutive season. We have 8 of the top 10 series, 14 of the top 20 series. That's more programs in the top 10 and top 20 than all other networks combined.

And Paramount Pictures continue to drive revenue for the business, successfully monetizing the value of our IP in theaters and downstream. Over this past year, we added new installments of our valuable bank of franchises, including Sonic the Hedgehog, Smile, A Quiet Place and Mission Impossible. We also reshaped the organization to be leaner and more nimble, reducing redundancies, all with the goal to drive productivity. Over the past 4 quarters, we've implemented over $800 million in annual run rate non-content expense savings.

Our progress is reflected in the results for the quarter. Total company revenue grew 1% year-over-year to $6.8 billion. Most notably, D2C revenue growth outpaced linear declines. In fact, strong subscription growth at Paramount+ drove total company affiliate and subscription revenue growth, which accelerated to 5%. D2C generated adjusted OIBDA of $157 million, an improvement of 6x versus a year ago.

To put that in perspective, this year alone, we've improved D2C profitability by $300 million versus the comparable period a year ago. Now let's get into some detail at D2C. Revenue growth accelerated to 15% driven again by Paramount Plus, where total revenue grew 23% year-over-year and records were set. For the third consecutive quarter, watch time per subscriber increased and was up 11% year-over-year. And churn improved again by 70 basis points year-over-year, achieving a record low.

These results were powered by a strong content slate of original hits with landmen, yellow jackets, the shy and Mable, our newest top 10 SVOD series, which ranked as the #1 series globally and active subscriber households on Paramount Plus this quarter. Looking ahead, we're thrilled to welcome South Park to Paramount Plus this month here in the United States. It has consistently been a top acquisition and engagement driver in international, and we have every confidence it will do just as well for us here in the U.S.

We have our biggest hits to come kicking off with Dexter resurrection, followed by the first NCIS franchise extension with Tony and Ziva and continues with the nonstop Taylor Sheridan slate of hits. Starting with Tulsa King in September, [indiscernible] in October, followed by [indiscernible] in December and, of course, an all-new Yellowstone franchise extension, the Dutton Ranch. Now turning to TV media, when we talk about transforming into a streaming first company, nothing says is better than the alignment with CBS and Paramount+. This season, streaming of CBS series on Paramount+ grew 42% over the last year. And year-to-date, CBS content accounts for nearly half of all viewing on Paramount+.

CBS has consistently ranked as the #1 broadcast network in prime time. And moreover, CBS is also ranked #1 in multi-platform viewership. Now turning to sports, live sport is more valuable today than ever before across both platforms. This year's final 4 was the most watched in 8 years. And CBS Sports golf coverage in 2025 is up 13% year-over-year, its best performance in 7 years. The power of this combined content is evident across distribution and advertising.

In June, we signed a new deal with DIRECTV that includes a curated selection of Paramount's most popular networks across entertainment, news and sports and various DIRECTV genre packs and we're nearing the completion of our upfront where we see strong advertiser demand for sports and entertainment program. Turning to Filmed Entertainment. This quarter, a record was achieved with mission impossible the final reckoning, which was the biggest global opening in franchise history.

And when a new film hit theaters, we see an immediate lift in the library content on Paramount+. For example, following the release of Mission Impossible, the final reckoning, for the month, the Mission franchise library saw a 60% lift in daily active subscriber households on Paramount+. Now this is a good example of how franchise drive revenue across every part of our business. We are pleased with the results for the quarter, which represent our strong and continued progress in executing as a streaming-first company.

Now let me turn it over to Andy to provide more detail on the financials.

Thank you, Chris, and good afternoon, everyone. Let's dive right into the second quarter numbers. Paramount generated total company revenue of $6.8 billion and adjusted OIBDA of $824 million reflecting continued year-over-year improvement in our direct-to-consumer segment. Free cash flow improved to $114 million, including approximately $70 million in payments for restructuring and cost reduction initiatives.

Now let's discuss our operating segment results, starting with direct-to-consumer. Paramount+ finished the quarter with 77.7 million subscribers, a year-over-year increase of 9.3 million subscribers but down 1.3 million subs versus 1Q 25, primarily reflecting the anticipated expiration of an international distribution agreement as well as the timing of Paramount+ Premiers. Paramount+ ARPU growth accelerated in the second quarter to a positive 9% increase year-over-year. Importantly, the combination of year-over-year subscriber growth, churn reduction and ARPU improvement drove Paramount+ revenue to increase nearly $330 million versus 2Q '24.

In total, drug-to-consumer generated revenue of $2.2 billion, growing 15% year-over-year despite a 4% decline in DTC advertising, which continues to be impacted by increased supply in the digital ad marketplace. Separately, DTC subscription revenue growth accelerated in this upper robust 22%. Turning to our TV Media segment. Linear TV trends continue to pressure advertising and affiliate revenue. TV media revenue was $4 billion in the second quarter with OIBDA of $853 million.

TV media advertising revenue was down 4% year-over-year as higher CPMs were more than offset by viewership declines. We are nearing completion of our 2026 upfront, which will remain overall volume consistent with last year, driven by increased sports and streaming sales. Streaming accounted for almost 30% of total upfront volume while demand for our sports portfolio was very strong across the board and saw double-digit growth. Our TV media affiliate revenue declined 7% versus the prior year, largely reflecting market subscriber trends. However, and more importantly, the combination of our traditional and streaming businesses again yielded net positive growth, with total company affiliate and subscription revenue up 5% in the second quarter.

A positive acceleration versus the first quarter of this year. Lastly, in the Filmed Entertainment segment, we generated second quarter revenue of $690 million, up 2% year-over-year. Adjusted OIBDA was a loss of $84 million in the quarter, which compares to a loss of $54 million in this year ago quarter. This year-over-year change in OIBDA primarily reflects lower profit from licensing. Regarding forward-looking statements, as you can appreciate with the [indiscernible] transaction closing on August 7, it would be inappropriate for us to outline full year 2025 financial expectations for Paramount stand-alone results.

In summary, our first half results demonstrate that our global teams remain focused on operating execution as we prepare for the deal to close. Now let's turn the call back over to Chris for closing comments.

As this will be our last earnings call before we close the Skydance transaction, allow me to take a moment on behalf of my co-CEO, Brian and George, to thank the people responsible for our successful shift into a streaming first company. to our teams, our partners, the Board and to Shari. Thank you for your support and efforts. We talk a lot about hit TV series and blockbuster films. That doesn't happen in our content teams without the support and hard work and efforts from every person in every department across the entire company. Against enormous headwinds and challenges, this team continued to be resilient and unwavering in your commitment to execute with excellence and more importantly, to support each other with compassion.

It's that combination that truly made the difference. You should be very proud of all of your efforts they have helped to make Paramount substantially stronger today. We'd also like to thank the Redstone family for their stewardship of the company over the last 40 years. Sumner Redstone wasn't visionary, who predicted where the industry was going before anyone else. And under Shari's leadership, Paramount has transitioned from a disconnected collection of TV assets into a streaming first company with a powerful portfolio of hit content and franchises. Now despite the [indiscernible] and against all the odds, Shari, you did what you thought was right. You pushed us forward with the mission to combine these companies and just look at what we've achieved. While we're the last to launch only 4 years later, Paramount+ is a top 4 global SVOD service. Your vision has been realized.

And what made that possible with content being king. Hit TV series and blockbuster films, just as your father had predicted. We thank you, Shari, for your vision to see where it was all going and your leadership of the company. And on a personal level for your friendship to all of us. And to our Board, thank you for your dedication and guidance. Throughout a very eventful year, we appreciate each and every one of you.

Now looking ahead under David [ Ellison's ] leadership, the next chapter of Paramount is sure to be another historic one. We'd like to thank David and the Skydance Redbird teams of [ Jeff Shell, Eni Gordon and Cindy Holland ] for their partnership throughout this transition. We are excited to see what you do, and you have a great team here to help you. With that, thank you for joining us, and have a good night.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.