With Paramount Global entering key renewal talks with Charter Communications in the second quarter, Lightshed Partners' Richard Greenfield has become the latest equity analyst to question Paramount's ability to carve out the kind of groundbreaking agreement established between Disney and the No. 1 U.S. pay TV operator back in September.
The landmark Disney deal gave wholesale discounts for Charter to resell Disney Plus and other Disney streaming services. The pact will likely serve as “the paradigm for how [Charter] approaches future distribution agreements,“ Greenfield said in a Lightshed blog post.
Paramount Global chief executive Bob Bakish said back in early November that he also wanted to explore similar "hard bundles" with pay TV operators. At the time, another influential equity analyst, MoffettNathanson's Robert Fishman, threw cold water on the plan.
“How incremental to the linear bundle is Paramount Plus?” Fishman asked. “With simulcasts of CBS stations included within the app, including coveted sports rights such as the NFL, we remain skeptical the company will be able to get true wholesale incremental value."
With Paramount's Charter negotiations now at hand, Greenfield expressed agreement.
A key Charter objective, he notes, is not to pay for the same content twice.
And while Paramount Plus has exclusive content not carried by Paramount's basic cable networks, Greenfield explains, the current availability of CBS and Nickelodeon on both Charter and Paramount’s streaming service robs the conglomerate of some of its most lucrative bundling opportunities. In fact, four of Paramount Plus' eight trending shows last weekend were from Paramount’s linear TV networks: SpongeBob, Paw Patrol, Survivor and The Neighborhood.
But perhaps most critical to Paramount’s distribution strategy is one key property: the NFL on CBS, which carries historically consistent viewership and the potential to protect other networks.
That was one of the justifications for 2019’s CBS/Viacom merger, which Greenfield says was intended to “use the power of the NFL to protect the carriage of Viacom’s increasingly vulnerable networks.”
However, with NFL available to Paramount+’s lowest-tier, $5.99 ad-supported customers, Paramount is seriously undercutting the earning value of their own channel suite.
"Let’s step back and ask: why are any Paramount networks carried by distributors? Only one reason: the NFL on CBS," Greenfield wrote. "In fact, the entire rationale of the CBS/Viacom merger was to use the power of the NFL to protect the carriage of Viacom’s increasingly vulnerable cable networks. However, with NFL on CBS available on Paramount Plus' low-end, $5.99 ad-supported tier, it has to make distributors wonder why they need to carry the Paramount suite of channels."
Paramount Plus is also available at no additional cost to Walmart Plus subscribers as advertised on the corporation’s website, devaluing the power of NFL programming even further.
By enabling such easy access to sports content via streaming, Greenfield claims that “Paramount has destroyed the value of their content by enabling such easy access to sports content at far too low of a price versus what they expect to be paid for their linear networks by MVPDs.”
Paramount elected not to sell Showtime for $3 billion, and instead incorporated it into their service, offering Paramount Plus to all existing Showtime subscribers.
Paramount has scaled back its production quantity of original content, and according to Greenfield, “is trying to leverage the power of the NFL content that is not exclusive to the bundle,” and therefore lacks the bargaining power needed to tow Paramount.
And he claims that Charter won’t stand for it, likely requiring reduction to affiliate fees paid to Paramount, or for the inclusion of a Paramount Plus Essentials subscription in cooperation with Charter’s networks. If Paramount refuses both of those, Greenfield believes Charter may even drop the networks, a loss of distribution that Paramount can certainly not afford.
