Prepared remarks
Good afternoon. My name is Krista, and I'll be your conference operator today. I would like to welcome everyone to Paramount's Second Quarter 2026 Earnings Conference Call. I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Corporate Finance and Investor Relations. Sir, you may begin your conference call.
Good afternoon, and thank you for taking the time to join us for the Paramount Q2 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, 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 address analyst questions.
Thanks, Kevin, and good afternoon, everyone. A year ago, we set three priorities for the new Paramount: invest in storytelling, scale our direct-to-consumer business globally and drive enterprise-wide efficiency. Twelve months in, I'm proud to say we are delivering on all three. We nearly doubled our theatrical slate, deepened our roster with top-tier creative talent, greenlit 40 new and returning series for Paramount+, expanded our sports portfolio with the UFC, TKO Boxing while broadening our partnerships with UEFA, adding to an already strong lineup that includes the NFL, WNBA, PGA TOUR, March Madness and more. At the same time, we've made meaningful progress in technology and product development, including with the convergence of our streaming platforms, which is well underway, helping create a better, more seamless experience for users. And these investments are translating into stronger performance. Paramount+ grew to nearly 82 million subscribers, delivered its best quarter of retention ever and posted double-digit growth in total view hours, all while expanding margins throughout the first half of the year. Among the quarter's many highlights, our Studios business saw continued year-over-year profitability improvement while growing its pipeline with more than 90 series in production across the group this year. The early turnaround reinforces our confidence in the strategy, and we continue to make significant investments in theatrical and premium series to drive future engagement, subscriber growth and long-term value. Across our broader portfolio, TV Media's profit grew 14%, even as revenue declined amid the broader industry shift away from linear. And enterprise-wide, we're tracking to over $2.7 billion in run rate efficiencies by year's end and still expect a total of $3 billion plus from the Skydance-Paramount merger. We're also continuing to advance our proposed combination for Warner Bros. Discovery, a deal that builds on the foundations we've established by creating a stronger, well-capitalized creative-first company with the scale to compete alongside Netflix, Amazon, Apple and others, benefiting consumers, theatrical exhibition and creators alike. The clearances we've received from competition authorities and governments representing 65 jurisdictions worldwide confirm that the facts and the law are on our side, and we remain confident the transaction will be completed. One year in, we're proud of the progress we've made, a testament to the extraordinary talent, hard work and dedication of our people around the world. Our conviction in our strategy is stronger than ever, and we're energized and optimistic about the opportunities ahead. And with that, I'll turn it back over to Kevin for your questions.
Questions and answers
This is a general transaction update. Given that Paramount outbid a larger competitor for Warner, I think investors view it as a must-have rather than an opportunistic transaction. Can you give us an update on the path forward? And what if the WBD transaction doesn't come to fruition?
Yes. I really appreciate the question. We remain highly confident that this transaction will close, and we're preparing for a successful combination once it does. If you take a step back and look at exactly where we are today, we received approvals from 65 regulators representing 65 countries around the world, including the United States federal government, Canada, the European Union, China and many more. And I think if you look at everyone who has published an opinion on the merger, they have all identified the markets the same way and come to the same conclusion, which is that this deal raises no competition concerns. The facts speak for themselves. When you look at the television market share, excluding YouTube, the combined company would represent less than 20% of all television watch time, according to Nielsen. If you include YouTube, which is the industry standard, it represents 13.4% based on the most recent Nielsen data. When you look at the theatrical box office over the past 12 months, the combined company would represent 18% of the domestic box office; if you do a 24-month look back, it's 22%, competing against larger scale global players like Netflix, Amazon, Apple as well as other studios such as Sony, Disney, Lionsgate and A24. We continue to believe very strongly that the combination of these two businesses creates a stronger competitor that is good for Hollywood, good for consumers and good for the creative community. As it relates to the ongoing litigation, we're open to finding a solution out of court, but we also believe we'll win at trial. The facts and the law are on our side, and the trial date was set for March of next year. As it relates to the financing, all that is in place; there's nothing at risk. We're confident we'll close the transaction, and we're working toward that as fast as we possibly can.
If the Warner transaction closes later than expected, what is the average burn rate, including ticking fees, commitments and any other costs for Paramount shareholders?
Sure. On the financing, both the equity and bridge are locked in and committed throughout the remaining time we need to close the deal. In terms of incremental cost, we have two areas. We do incur costs beyond September 30. The first is on the bridge, which carries modest fees. That will run $8 million to $9 million a month plus an additional bridge commitment fee due in June of 2027. In total, this adds up to around $190 million of incremental financing if we don't close until June. Second, the merger agreement does provide an additional ticking fee for WBD shareholders if we close after September 30. This is only payable when and if we close. It's $0.25 per share per quarter, which is about $650 million per quarter and will be funded at close through additional equity. In terms of our current liquidity and balance sheet, we ended the quarter at $1.6 billion in cash and $3.2 billion of undrawn revolver capacity. This is sufficient to fund the business, our dividend and transaction-related costs through the extended timeline. As we noted in the letter, we've seen positive free cash flow performance for the year. We took up our free cash flow guidance to 10% before transformation costs. So we feel good about where we stand in terms of liquidity and managing through this extended time period.
On DTC growth: We've seen revenue growth slow at large streaming peers. Where do you think you are in terms of subscriber penetration and pricing for Paramount+? Do you believe that double-digit top-line growth, which is both Netflix's target and Disney's for their DTC service, is sustainable over the medium term?
Yes. The short answer is yes in terms of double-digit growth. We demonstrated that with 16% revenue growth year-over-year. To level set, our business is in transition from a majority of revenue and EBITDA coming from the linear business to transitioning to Studios and streaming. We're making significant progress toward those goals. Everything we're seeing on the streaming side of our business is accelerating throughout the year. We've got great momentum. We're seeing top-line revenue grow, improved profitability and ARPU continuing to improve. We're not yet at scale today; many competitors are a significant multiple of our size, which means we have a tremendous runway to continue to grow and scale Paramount+. To do that, we believe in art and technology working hand-in-hand to deliver a superior experience for users. We're seeing strong performance in content: Dutton Ranch, the UFC and the World Cup in select territories all performed very well for us. We have a remarkable technology and product team iterating to deliver the best possible experience to users. From that standpoint, we feel well positioned to continue to grow and scale the business.
It's worth reminding everyone of our investment philosophy in this business. We have an owner-operators mindset in streaming. We are investing in the long term to combine content and technology that will drive growth. We still have a lot of room to run: room to grow subscribers domestically and internationally and room to deepen engagement. In the quarter, revenue was up 16% for Paramount+. Roughly one-third of that was from subscriber growth and two-thirds from our ARPU increase. This reflects pricing actions and continued improvement in our mix of subscribers. Overall, we added 2 million subscribers in the quarter, reaching 81.6 million globally, ahead of expectations. We added 4 million underlying subs before exits from hard bundles, nearly double Q1 underlying adds. This was driven by content performance, Dutton Ranch, UFC and the World Cup. Encouragingly, we had the best retention quarter in Paramount+ history and double-digit year-on-year growth in total engagement. We expect DTC revenue to accelerate in the back half, driven by subscription and advertising, both at Paramount+ and the reacceleration of Pluto as we relaunch that platform. It's too early to guide on 2027, but we'll keep investing behind this business. We believe the opportunity will be multiples of where we are in engagement, revenue and profit. Winning here comes down to having the best stories and the best technology to deliver them, and we're going to invest in both.
Netflix is integrating TF1, Peacock is integrating Starz, YouTube Premium and Peacock, and on and on. Do you foresee Paramount+ becoming a platform? Or have you consciously decided to remain a stand-alone service?
Rich, thanks for the question. We're in the middle of a transaction that would not keep us as a stand-alone service. One of the core themes behind the WBD transaction is scaling streaming. We'd be over 200 million gross subscribers at close, putting us around Disney and still below Amazon and Netflix, so it's a pro-competitive transaction that accelerates our goals of scale in DTC and strengthens our content offering across the two services. Today, we're building a world-class experience for Paramount+. We're building an industry-best product and technology team and compelling content across films, series, sports and news. We're on track to converge our tech stacks by the end of summer as guided. That combination positions us well to grow our DTC business. On the platform question, the right way to address it is to look at what consumers want that the market is not delivering. Over the last decade, tech has been in the business of eliminating friction and improving convenience. That hasn't been the trend in media. Consumers would like the convenience of breadth and selection centralized, similar to the cable bundle. You'll see us work to solve those problems and deliver the best possible experience for the consumer. What will differentiate our service is the quality of the content and storytelling, which the combination of WBD and Paramount enhances. We are consumer-focused and will iterate, test and learn on product rollouts. We feel good about where we're going and will work hard to deliver the best possible experience to users.
Any updated views on how you weigh investing behind Paramount+ to accelerate its growth versus partnering with other streaming platforms to leverage their distribution similar to Peacock's deal with YouTube Premium? And can you do both?
Thanks, Robert. This follows David's points about creating the right distribution partnerships to reach consumers. We evaluate each partnership independently against the same criteria: one, does it expand our reach to new audiences; two, does it enhance our ability to own the direct relationship with the consumer; and three, do the economics work for us relative to our owned and operated direct franchise? We also consider technical components: is it a better customer experience; can the partner enhance that experience; will they share data in a way that benefits both parties; and on our ad tiers, will that partnership scale our ad business and provide ad signal that benefits both parties? It's a high bar for large bundles; they must fit this framework. We want to scale our direct-to-consumer businesses. Putting Paramount+ with Warner Bros. assets once we close, it's important that we create a combined, globally scaled stand-alone service where we have the direct relationship with the customer, control of the data and the monetization strategy. That's how we think about growth. We have great relationships with Amazon, Roku, YouTube and Apple and will continue to work with them on opportunities that enhance both parties.
Is the Paramount+, Pluto, BET+ convergence still tracking to launch this summer? What will you watch in early data to know it is working? How do you think about bundle design or any changes at launch and where you might see benefit to advertising as well?
Mike, I appreciate the question. The answer is yes; we're on track for everything we've guided on convergence. The web experience for Pluto has been live since June 30. We're on track to roll out the owned-and-operated completion by the end of the summer. Early signals we'll look for are improvements across personalization and recommendation quality, discovery and engagement lift, a better ad experience and improved monetization as we unify the ad stacks across Paramount+ and Pluto, and improved merchandising that wasn't previously possible because data was siloed. By bringing them together we'll get significant benefits. We view this as getting to the starting line. There was tech debt we inherited, and this integration positions us to iterate quickly and make incremental investments in Pluto in the back half of this year; you'll see select content investments into Pluto in Q4. With a unified stack, we can iterate faster on UI, UX, merchandising and the ad stack. As it relates to pricing and bundle design, convergence is a technology integration that brings together codebases and unifies data previously siloed between the three services. You should expect ad tier ARPU upside over time. The structural goal is to be indifferent to which plan the subscriber chooses from a monetization perspective. We're on track and the team has made incredible progress.
David, how do you envision AI and interactivity across the company? How can you nurture intellectual property and keep it fresh and relevant for younger generations?
It's a fantastic question. We view artificial intelligence as a tool for storytellers, not a replacement for them. We're a content and storytelling company first. We were early to step in and fiercely defend our copyrights and the artists who create them. That said, we think AI will be a big unlock and a positive for our business and the industry. It will be a creative unlock for storytelling, again through the lens of being a tool for artists. Consider how filmmaking costs and economics have changed; technology that makes things more efficient will unlock creativity. AI will drive significant efficiencies in areas like computer programming and production, where iteration speed has improved materially. We also saw with the Skydance launch and the Sora launch that people want to interact with intellectual property and characters they love—access fans didn't previously have—which speaks to the power of IP and new ways to interact with it for younger generations. For example, a child could have a ten-minute conversational interaction with a character powered by a large language model, deepening fandom and engagement. Fans might create short clips in beloved universes. There will be significant unlocking across the business driven by AI, but I continue to believe there will be a premium for handcrafted, filmmaker-driven, high-quality storytelling. You're seeing that in the marketplace with big theatrical openings and record performances. We're bullish on high-quality content crafted by storytellers, and we'll pursue both AI-enabled innovation and handcrafted storytelling across the company.
Could you talk about the progress you've made rebuilding Studios? What have been the most valuable advances and what remains to be done that's controllable?
Peter, we are proud of the work in the Studios business. In Q2 we delivered a profitable quarter for Studios compared to a loss previously. We view Studios as a long-term growth driver and we're just getting started. A year ago, Paramount Pictures released eight films; in 2026 we have 15 films releasing, which we're proud of. Across Television Studios, we're on track to deliver 90 series this year and 800 episodes of television—that's durable and growing. Josh and Dana, and Josh Goldstein, have improved marketing and distribution using data and analytics to make marketing more efficient and targeted; Scary Movie's outperformance reflects that. Looking to 2027 and beyond, our slate is strong: Children of Blood and Bone from Gina Prince-Bythewood; the next Sonic the Hedgehog installment; John Krasinski returning to A Quiet Place with Emily Blunt; a new Teenage Mutant Ninja Turtles movie; Teyana Taylor's Get Lite; a Days of Thunder sequel with Tom Cruise and Jerry Bruckheimer; and Call of Duty with Pete Berg and Taylor Sheridan, among others. We believe in betting on people and talent; we've added the Duffer Brothers, Matt and Trey Parker, Jon Chu, Issa Rae, James Mangold, Taylor Sheridan and many others. Licensing has also improved, with recent success from Skydance Animation; Swap joined the top 10 of Netflix's most-watched original films and will be the #2 most-watched animated film behind K-pop Demon Hunters, and The Adam Project is also performing well. We'll continue to invest in content and grow Studios as a profitability and growth driver.
Studios continued its run of improving adjusted EBITDA year-over-year. Adjusted EBITDA was $36 million in the quarter, up from a loss last year. Revenue was up 16%. The drivers include theatrical performance—Scary Movie delivered a franchise-best opening. This year-on-year improvement was partially offset by the lapping of Mission: Impossible last year. Film slate profitability improved year-on-year and a bit better than our expectations. One metric to look under the hood: we've implemented a more disciplined, data-driven approach to greenlighting, marketing and distribution. Each dollar of marketing spend is doing more for us—each dollar is generating 11% more box office in 2026 versus 2025. Across TV Studios, we saw double-digit licensing growth driven by third-party deliveries at Paramount Television Studios and the consolidation of Skydance licensing. Looking ahead, we expect studio performance to continue as a growth engine. We have eight films remaining in the back half of 2026 including PAW Patrol: The Dino Movie, Street Fighter and Mr. Irrelevant with the NFL. Between higher output volume, improved marketing discipline, licensing momentum and visibility into our 2027 slate, we feel good about Studios sustaining a profitable path and being a durable growth and profitability driver.
Cord-cutting seems to be slowing, driven by the proliferation of skinny bundles. How is Paramount positioned with the linear ecosystem? Is this dynamic a net positive or negative for the company?
John, the relationship with our affiliate partners has never been better. The content we provide through CBS, our cable channels and our Paramount+ credentials is important to their consumer base—whether it's CBS primetime, sports, or programming on our cable channels. Affiliates want us in the ecosystem. We've noticed affiliate revenue declines have slowed somewhat because subscriber declines are slowing in rate—meaning they aren't shrinking as quickly. The rates we're getting are generally resilient on a business-as-usual basis. We're conservative about future declines and managing the business effectively. The team has done a great job improving margin as revenue declines, making the business more efficient. There's a lot of innovation with MVPDs and vMVPDs—YouTube and Charter are large partners. Charter has been thoughtful about packaging our cable channels, CBS and our Paramount+ credentials and has 10 million of those credentials. They're also thoughtful about skinny bundles for customers who may want sports or specific entertainment. We're fine with that as long as it provides a good customer experience and the right economics for us.
Can you provide color on the advertising market for Paramount over the past quarter and how you saw the upfront?
We could not be more excited. We've had a very strong upfront season, with double-digit percentage increases year-over-year. This reflects our content offerings and what we're providing to advertising clients, plus a strong digital-first management team and new leadership in advertising. This has been the strongest upfront season since the CBS-Viacom merger. We're focused on a digital transition—starting on the sales side with new leadership and on the product side by investing in technology to monetize more ad impressions across our digital portfolio, including Paramount+ ad tiers, Pluto and our digital sites. You'll see more product innovation into the end of the year and next year. This is a critical component of where we want to be from an ad perspective.
In Q2, organic ad revenue trends were stable and a little better than typical seasonal patterns. DTC advertising growth nearly offset continued TV Media pressure as we make the digital transition Andy mentioned. In TV Media, Q2 advertising declined 14% year-over-year. This was driven by an eight-percentage-point impact from the NCAA—last year we had the Final Four and this year we did not—and a three-percentage-point headwind from our sale of Telefe and Chilevision, partially offset by a two-percentage-point political benefit. In Paramount+, we delivered double-digit ad growth driven by premium demand including live sports programming—UFC and the World Cup—and sell-through continues to increase year-over-year. Pluto remained a drag, consistent with Q1, but we're relaunching that platform in the summer and expect Pluto to return to growth in the back half of the year. With investments in team, pricing, packaging and the ad technology stack, we expect overall ad revenue for the company to return to growth in the back half.
You've raised your FY '26 adjusted EBITDA and free cash flow guide. You topped Q2 guidance but didn't raise your revenue guidance. Should we imply that synergies are coming through more strongly, or are there additional operating outperformance? On the free cash flow side, is $800 million still a good number for '26 cash restructuring costs? Could you walk through some of the puts and takes on the quarter and the outlook?
Overall, a strong quarter—the company executed well. Revenue and adjusted EBITDA were at or above the high end of prior guidance ranges. Revenue growth was led by DTC at 9% and Studios was up 16%. Adjusted EBITDA grew 27% year-over-year to $1.1 billion, with profitability up across all three segments. Given this outperformance, we're raising full-year adjusted EBITDA outlook to $3.8 billion to $3.9 billion and increasing free cash flow conversion to at least 10% from previously 5%, while keeping the $30 billion revenue outlook in place. On adjusted EBITDA increase, we are making progress on transformation; we raised synergies realized through this year to $2.7 billion, which is flowing through. We're seeing upside from cost management while reinvesting in technology and programming. Revenue remains consistent with prior guidance: accelerating DTC revenue, continuing Studios growth, and managing linear declines. You'll see revenue step up in Q3 guidance. On free cash flow, teams implemented discipline and we're starting to see it come through. We raised free cash flow outlook to 10%, excluding transformation costs. This still reflects elevated content spend tied to programming: expanded film slate and originals ramp. Investments will moderate as we reach a steadier profile. Ten percent conversion is not our end goal; we see a multiyear opportunity to deliver sustainable top-line growth and close the gap in profit margin and free cash flow conversion versus peers. For Q3, we expect revenue of $6.95 billion to $7.15 billion, growth of 4% to 7% year-over-year—an acceleration. Adjusted EBITDA guidance is $875 million to $975 million, driven by accelerating DTC and Studios and moderating TV Media declines. Paramount+ subscribers are expected to be relatively flat quarter-on-quarter. Q3 revenue growth reflects accelerating DTC, improving ad trends and subscription strength, Studios growth from a strong slate and licensing, and double-digit library revenue growth. For Q3 adjusted EBITDA, profitability is more heavily weighted to the first half due to content amortization timing—sports and new originals hit more in Q3 and moderate in Q4. Studios and TV Media profitability will continue to improve. Overall, we feel good about Q2 results and improving adjusted EBITDA and free cash flow guidance.
What are the two to three biggest areas left of cost savings across Paramount-Skydance (PSky)?
Before I answer, a reminder: prior to closing last year we thought we'd save $2 billion by merging Skydance and Paramount. During our first quarter after closing, we raised that to $3 billion plus based on reorganizing the businesses—a 50% increase over what we thought we could do. We reorganized by putting cable and broadcast into the same group to reduce redundancies, centralized shared services and instituted best practices. We did the same in Studios and saw efficiencies. We've improved ROI on content spend: every dollar of production is performing better since close. Big step functions that got us an incremental $200 million in run rate by the end of the year include technology consolidation and ERP spend reductions. Migration to Oracle Fusion will be complete by the end of next year and will save material costs. Integrating Paramount+, BET+ and Pluto to the same tech stacks and economizing third-party cloud spend is roughly $200 million in savings overall. There's another $100 million across consolidating facilities management, procurement efficiencies such as professional services and marketing. These will continue this year and flow into next year as we reach the $3 billion-plus synergy target.
We'll now go ahead and transition to taking any final questions live. Before we do, a quick note: given the pending transaction, we won't be taking any questions on the deal today beyond what we've already discussed. Please keep any final questions focused on the business or the industry, but not the transaction. With that, Krista, can we go ahead and open the line for final questions?
You called out in the letter how premium live sports is improving engagement, strengthening retention and increasing the value to your service. Does that push you to add even more sports rights in the years ahead? There are some bigger ones coming in the next few years, including the success of the World Cup. And how do you think about the broader portfolio when you include Warner Bros.? Would there be a rebalancing or reprioritization of rights in the portfolio?
We'll take the first part. As I mentioned, we will not address transaction specifics. David, do you want to touch on the first piece?
We are believers in live sports and you should expect us to continue expanding the portfolio where appropriate. The UFC's performance on Paramount+ has reaffirmed that position. UFC 324 delivered the largest live exclusive event in Paramount+ history; we then beat that record with UFC 250, which did 17 million viewers across the U.S. and Latin America, and TKO announced 45 million globally. The McGregor fight in July set a new high watermark for Paramount+ in peak concurrent streams. From that standpoint, look for us as a buyer of sports rights; it's a category we believe in strongly.
I'll add that we've had Champions League in the U.S. and secured rights in the U.K. and Germany. There are other territories we expect to announce shortly that are attractive to us as well.
What sort of discussions have you had or have coming up with your affiliate partners and distributors on the linear side over the next 12 to 18 months? What proportion of your portfolio does that include? Are you able to roll out combinations with your streaming services as a bundle with more distributors from here?
Most of our distributors want our streaming credentials; it's critical to our offering. We continue to provide them in the right way; some perform better than others on their platforms. Between now and the next 18 months, many contracts will come up for renewal, often on sequential timelines of 18 to 24 months, and we're progressing through those discussions. So far, discussions have been going very well this year.
All right. Thanks, Krista. I appreciate it. Thank you all for joining us today. If you have any follow-on questions, please feel free to reach out to me or Logan on the Investor Relations team. Thanks.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.