Streaming Winds Aren’t Fazing By Paramount

Whether or not Warren Buffett like "Yellowstone," he certainly seems to enjoy a good drama.

‍

According to a filing earlier this week, one of the few securities Mr. Buffett's Berkshire Hathaway BRK.B -0.32%decrease; red down-pointing triangle purchased more of in the fourth quarter was Paramount Global PARA -0.02%decrease; red down pointing triangle. The 2.4 million extra shares increased Berkshire's investment in the media company by over 3%, far outpacing the 0.4% gain in the corporation's Apple Inc. position. And it wasn't a small sum either. And that happened when the renowned long-term investor made a few unusually rapid exits. Only one quarter after initially investing in the chip manufacturing giant, Berkshire sold out 86% of its holdings in Taiwan Semiconductor Manufacturing.

‍

Neither Mr. Buffett nor his aides have chosen to offer an explanation for their most recent action. Nonetheless, Berkshire's filing supported Paramount in advance of a disappointing fourth-quarter report. Around two million more than Wall Street anticipated, the company increased the number of members to its Paramount+ streaming service by 9.9 million. While total ad revenue decreased for the fourth consecutive quarter, direct-to-consumer revenue was still only roughly in line with projections.

‍

Hence, overall revenue for Paramount fell a bit short of experts' expectations. According to Trade Algo, the company also lost $491 million in cash over the period, which surprised analysts who were anticipating a positive free cash flow of roughly $20 million. Following the results, Paramount's stock fell more than 4% after rising more than 9% the day before in response to Berkshire's filing.

‍

With Paramount's streaming strategy, a lot is going well. More subscribers were added during the December quarter than during the same period for Netflix, Disney+, and the Peacock service, which is owned by Comcast. That speaks well of the caliber of Paramount's content, which includes the box office hit "Top Gun: Maverick" and a "Yellowstone" spinoff series called "1923" starring Harrison Ford, both of which debuted on the platform near the end of the quarter. (HBO Max's parent company, Warner Bros. Discovery, reports results next week.)

‍

Yet, Paramount is paying a high price for switching to streaming, just like other major traditional media companies. The company stated on its earnings call that investments will continue to be significant this year, with earnings growth and positive free cash flow returning the next year. The ability of customers to accept a price rise will be crucial in achieving that goal; Paramount announced Thursday that it plans a 20% increase on its two major streaming tiers in the third quarter. 

‍

That might sound hazardous for a streaming service that entered the market later than its competitors and currently has fewer subscribers than all but Peacock. But, several companies have already increased their costs, and Netflix intends to impose extra fees for those who share accounts with people outside of their families. The extensive library at Paramount is another plus. According to Trade Algo research, of all the big streamers—including Disney—Paramount+ had the highest "content value" in relation to its cost.    

‍

Yet, it is still unknown if Paramount or any of its traditional media competitors will be able to make streaming cost-effective enough to counteract the ongoing erosion of the legacy cable-TV industry. Robert Fishman of MoffettNathanson wrote on Thursday that "Paramount is still far from reaching the other side of its continuing [direct-to-consumer] shift." Disney's streaming division is likewise anticipated to post losses in the current fiscal year, and Warner Bros. The U.S. component of Discovery's streaming division won't break even until next year, according to the company.

‍

As Mr. Buffett now has a front-row ticket to the most dramatic stage of the streaming warfare, one would hope he enjoys popcorn.