Paramount reported mixed second-quarter earnings Tuesday as its takeover of Warner Bros. Discovery remains in limbo.
Still, CEO David Ellison sought to reassure shareholders in the letter saying, “We continue to prepare for our proposed combination with Warner Bros. Discovery, while staying focused on executing our standalone strategy and delivering strong results.”
The company reported revenues of $6.9 billion, up 1 percent from its predecessor company a year ago, while net earnings fell to $41 million, or four cents per share after $57 million, or eight cents a share, a year ago.
Paramount’s TV media segment, which includes CBS and its cable networks, continued to fall, dropping 9 percent year-over-year to $3.1 billion, while direct-to-consumer revenue rose 9 percent to $2.5 billion. Studio revenue rose 16 percent to $1.3 billion, thanks to content licensing deals and TV production arm as well as the success of Scary Movie.
Revenue at Paramount+ rose 16 percent to $2.1 billion, as the company said Q2 was its best quarter for retention ever on Paramount+ thanks to Dutton Ranch, UFC and the FIFA World Cup. The streaming services added 2 million new subscribers to hit 81.6 million worldwide, up 6 percent year over year.
Paramount is raising its full-year outlook range to $3.8 billion to $3.9 billion in adjusted EBITDA and now expects free cash flow conversion of at least 10 percent. The company added that it had seen “double-digit growth in commitments” across the company after its Upfronts presentation, but did release further specifics.
“We continue to make progress on our transformation at Paramount, and we now expect to deliver over $2.7 billion of run-rate efficiencies by the end of 2026 versus $2.5 billion previously, and continue to expect $3 billion-plus in efficiencies from the Skydance-Paramount combination,” the letter continues.
Paramount won the bidding war for Warner Bros. Discovery in February with its $111 billion offer, after Netflix declined to raise its offer. But the merger is currently on pause, as Paramount has since been hit with several lawsuits, including from 12 state attorneys general who claim the acquisition will kill competition in the film and television industries. The company has agreed to delay the billion takeover of Warner Bros. Discovery until June 1, 2027, or until the antitrust lawsuits brought by state attorneys general are resolved. Ellison has told staff he remains “highly confident” in the completion of the merger.
But just after earnings were released Tuesday, the judge overseeing the states’ lawsuit scheduled the trial to start in March, rather than November as the studio had requested. Starting Oct. 1, Paramount will have to pay a ticking fee of roughly $7 million per day to Warners shareholders until the deal closes.
“As it relates to the ongoing litigation, we’re absolutely open to finding a solution out of court, but we also really believe that we’ll win at trial. We believe that the facts and the law are on our side, and the trial date was just set for for March of next year. And as it relates to the financing, all that is in place, there’s nothing at risk, and so we’re confident we’ll close the transaction, and we’re working towards that as fast as we possibly can,” Ellison said on the earnings call.
As for how much this will cost, CFO Dennis K. Cinelli said the company incurs costs beyond Sept. 30, with monthly bridge fees of $8 million to $9 million a month, in addition to an additional bridge commitment fee due in June 2027. In total, this adds up to about $190 million dollars if the merger doesn’t close until June. This is in addition to the ticking fee, which is 25 cents per share per quarter or about $650 million dollars per quarter, and would be funded at close through additional equity.
“We ended the quarter at $1.6 billion in cash, $3.2 billion of undrawn revolver capacity. This is sufficient to fund the business, our dividend, transaction-related costs through the extended timeline,” Cinelli said.
The earnings also come the same day that an op-ed from Ellison appeared in The New York Times, in which the executive argued that his political leanings and proposed takeover of CNN are the root cause of the lawsuits filed by a dozen state attorneys general and the Writers Guild of America.
“I believe this fight is not really about market share … I believe a plainer worry sits beneath the briefs and the news releases: the news. The issue is whether I can be trusted as a steward of Warner’s CNN. There has been speculation about my politics, my loyalties, my intentions,” Ellison wrote. “Unfortunately, I can’t give anyone a view into my heart and mind, but I can share this: I have regularly voted for candidates of both parties; I hold some views that would be called conservative and others that would be called liberal, just like most Americans; and when it comes to our news operations, I do not aspire to lead these companies to bend their newsrooms to my views. I believe that news should be based on facts and truth.”
