Paramount Global

Good morning. My name is Nadia and I'll be the conference operator today. At this time, I would like to welcome everyone to the Paramount Global's Q4 2022 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speeches and marks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. In order to get as many questions as possible, we ask that you please limit yourself to one question. At this time, I would like to turn the call over to Anthony DeClemente, Paramount Global's EVP, Investor Relations. You may now begin your conference call.

Good morning, everyone. Thank you for taking the time to join us for our fourth quarter 2022 earnings call. Joining me for today's discussion are Bob Backish, our president and CEO, and Naveen Chopra, our CFO. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. Before we start this morning, I want to remind you that 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 training schedules, which contain supplemental information, and in each case can be found in the investor relations section of our website. And now I will turn the call over to Bob.

Good morning, everyone, and thank you for joining us. Today, I'm excited to provide our perspective on Paramount's performance as we closed out 2022. and I'll give you a preview of where we're driving in 2023 and beyond. Let me begin by noting that almost one year ago, we announced that ViacomCBS would become Paramount, reflecting our determination to streamline operations and become a single, integrated company. We've increasingly worked together as one Paramount with one vision, to make popular content, to make that content popular, and to drive long-term value for our shareholders. And our one Paramount has had one approach, a multi-platform strategy that leverages our existing business, our distinct content strategy, and our expansive relationships to evolve successfully through an industry-wide transformation. That approach is delivering, and as we'll describe, made 2022 a milestone year for Paramount, with incredible momentum across our content and platforms. As planned, 2022 was also an investment year in our streaming business. Those investments, coupled with a challenging economic environment, including softness in the ad market, impacted earnings and cash flow. But it only sharpened our focus on delivering bottom line growth once we passed peak streaming investment this year. I'm incredibly proud of our progress, hitting and in most cases exceeding the key streaming metrics we set out to achieve. The differentiated strategy we committed to is working and we're going to continue to execute on our plan. As we move into 2023, we see a year of continued content and platform momentum ahead of us. A year of further scaling streaming as we hit the peak investment point. A year where we further harness the power of one Paramount, including, importantly, with our Paramount Plus Showtime integration. And a year where we look to the ad market to turn as we get to the back half. Importantly, the execution of our 2023 plan will set the stage for a return to significant earnings growth in 2024 and a return to positive free cash flow. Let me get into this a bit more, first looking back at 2022 and then looking ahead to 2023. In 2022, our content engine definitively proved itself at the highest level. Think the year's biggest domestic film, Top Gun Maverick, and five other number ones in the theaters. the number one show on television, Yellowstone, and its expanding universe. Mass-market broadcast hits like FBI, NCIS, and Fire Country, and popular Paramount Plus originals like Tulsa King, 1923, and Criminal Minds Evolution. We know our audiences, which enables us to efficiently manage content spend across platforms. To that end, we focused on developing, expanding, and exploiting the premium content franchises fans love. An approach we'll lean into more and more. The results are powerful. Our world-class content engine has driven the biggest subscriber additions in paid streaming since launch, including an industry-leading 9.9 million new Paramount Plus subscribers in Q4. It led to continued leadership in free ad-supported streaming television. with 6.5 million new monthly active users of Pluto TV in Q4, as Pluto TV grew not just in the U.S., but globally. In 2022, our content engine also drove huge success at the U.S. box office, with six Paramount Pictures films opening at number one, and the strongest performance in broadcast, fueling CBS's 14-year streak as the number one network. When you combine that with our capable performance, It's why Paramount regained the crown as the most watched media family on linear TV in Q4. And important to note that our content engine, combined with our disciplined execution and tight expense management, also enabled continued stability of TV media earnings in Q4, despite ongoing ad revenue headwinds. 2022 was also an important year of expansion. where we gained important streaming footholds in international markets, including launches in the UK, Ireland, Italy, France, Germany, the Nordics, Canada, and South Korea, and where we created new and expanded partnerships with the likes of Walmart, Delta, Sky, Canal Plus, Chorus, Amazon, Roku, and others to rapidly become a streaming partner of choice in the transforming media landscape globally. Looking back at 2022, our differentiated strategy is clearly working and our execution is strong. So let's talk about 2023. 2023 will be another year of content momentum. Our 23 film straight is strong and driven by some of our most popular franchises, including Scream, Mission Impossible, Transformers, and Paw Patrol. And CBS's momentum is only getting stronger. The network is on the verge of achieving number one status for the 15th straight broadcast year. And we see great stability in the schedule with very few slots to fill and thus limited and very focused pilot activity, which is also good for our economics. On Paramount+, you will see all this plus more great Paramount Plus originals. Sure, Criminal Minds, Tulsa King, 1923, and all your other favorites will return. Add to that great new series like Fatal Attraction with Lizzie Kaplan and Joshua Jackson, Rabbit Hole with Kiefer Sutherland, and Lioness with Nicole Kidman and Morgan Freeman. 2023 will also be an important year with respect to advertising, where we are looking forward to an improvement in the market in the back half of the year. The ad market, as we know, has been sickly tough. And like our peers, we felt its impact in 2022. But our portfolio puts us in an excellent position to build on the early stabilization we're seeing. And we are seeing early signs of stabilization in advertising. The sports marketplace continues to be active across the NFL, PGA, and NCAA. We like what we're seeing in travel and pharma. And recent activity in auto is encouraging. More importantly, because we bring together broadcast, free, and pay ad-supported streaming on a turnkey basis, Paramount is positioned to strongly benefit as the market improves. 2023 will also be an important year in the multi-year evolution of streaming as a business. We are now at the point where we are getting to scale, with streaming generating over $5.5 billion in annual revenue on a run rate basis as we exit Q4. Since day one, we have executed against a plan to build a profitable streaming business, one that achieves TV media-like margins. To get there necessitates an investment phase. And now, in 2023, entering the third year of Paramount Plus in the marketplace, we are at peak investment. And I'd note again that the recent macro headwinds have only sharpened our execution and the discipline with which we are managing this investment. As in 2022, the combination of streaming investment and the current state of the ad market will impact earnings and cash flow in 23. But we have the scale and flexibility to support it. And importantly, we see losses narrowing significantly in 2024, resulting in meaningful total company earnings growth and a return to positive free cash flow. As you think about our streaming path to profitability, it's important to understand three distinct drivers, D2C revenue growth, content spending, and operational efficiencies. Let me tackle each in turn. First, we'll continue to drive D2C revenue growth. Subscriptions are important, and the number of subscribers will continue to grow in 23. But the real focus is revenue. Revenue at scale is critical to building a profitable streaming business. Across the globe, we will pursue this first and foremost by leveraging our compelling content. We'll also drive revenue growth with price increases. We all know streaming represents incredible value for consumers, and the Paramount Plus offering is far from the industry price leader. We are on the value end of the pricing spectrum. And so, in 2023, we will raise price, both for Paramount Plus Premium and Essential, both in the U.S. and select international markets. Naveen will get into this a bit more. Growth in advertising will also benefit D2C ARPU. And finally, we see partnerships as another level for revenue growth, including new relationships with Delta, 3, and Orange, among others. Second, we will drive towards profitability by continuing to efficiently manage our content spend. By far, our biggest lever to manage spending is to focus on franchises. The higher levels of consumer awareness and built-in fan bases associated with this IP drive strong subscriber acquisition volume, lower acquisition costs, lower churn, and extend LTVs. Put simply, franchises give the people what they want. We see this with Paramount Films. with CBS Series, with the Taylor Sheridan Universe, with Nick's Kids product, and more. And while we will, of course, continue to take selective swings on new IP, there's no question that franchises are a powerful advantage. We'll also manage spending by continuing to lean into our multi-platform advantage. This increases the size of our total addressable market, gives us access to broader revenue streams, and maximizes our return on content investments. You see us doing this with Paramount Films crossing theatrical and streaming, which are among the most efficient on a cost-per-start basis. You see us doing this with the CBS slate, where we expose product to a wider audience, including, importantly, a streaming audience that is nearly 20 years younger than our broadcast audience. As an aside, I point out that CBS original cross-platform content is performing at a level comparable to Netflix, In Q4, U.S. viewers spent 370 billion minutes consuming CBS content alone on both linear and digital. That's virtually the same amount of time as viewers spent with Netflix's substantially larger entire slate of originals. You also see us doing this more broadly across our multi-platform ecosystem, as we have done with the Taylor Sheridan universe. To give you a sense of the power of this approach at the consumer level, in just a three-month span, From early November to late January, more than 58 million Taylor Sheridan fans around the world watched over 32 billion minutes of the Taylorverse on both streaming and linear on-hour platforms. The third way we drive to profitability is through a continued focus on operational efficiencies and portfolio optimization. As I've mentioned, our transformation as one paramount is ongoing, with recent initiatives around studios, global operations, and ad sales. In the journey to become one Paramount, our next step is to integrate Paramount Plus with Showtime. As you know, later this year, both our premium streaming tier on Paramount Plus and the Showtime linear network will become Paramount Plus with Showtime in the United States. This move makes Paramount Plus the definitive multi-platform service in the streaming space, where Showtime will contribute its distinctive content with more from the franchises you love. As Naveen will discuss in more detail, economically, the benefits include both revenue and cost. On the revenue side, the integrated product will be more engaging for consumers, supporting price increases and associated ARPU gains. We also expect that the integrated product will lower churn, something we've already seen with our bundles. On the cost side, there are multiple benefits, which include tech, organization, marketing, and, of course, content. put it all together, and it is accretive to the streaming path to profitability, and it also helps ensure a stable transition of our TV media business, which remains a big revenue and earnings driver. Stepping back from the particulars, let me just say how incredibly proud I am of what our team has worked together to accomplish in 2022, and I'm even more excited about what's to come in 2023. With that, let me turn it to Naveen to break down the financials in more detail. Naveen?

Thank you, Bob, and good morning, everyone. Q4 demonstrated earnings resiliency in our traditional business, along with robust revenue growth in our D2C business, the combination of which puts us on a path toward meaningful earnings and free cash flow growth in 2024 as we transition out of peak streaming investment in 23. Today, I'm going to cover three things. First, I'll provide additional color on a few elements of our Q4 results. Second, I'm going to address specifics of our Showtime Paramount Plus integration plan, including its contribution to future expense savings, so you can better understand how it affects our financial model in 23 and beyond. And third, I will explain how continued execution of our strategy delivers meaningful bottom-line growth in 2024. In Q4, Paramount delivered total company revenue and adjusted OIBDA growth despite increased investment in streaming and a difficult macroeconomic backdrop. Today's earnings press release includes a comprehensive review of key financial and operational results for the quarter. I'm going to focus my comments here on three items which deserve specific attention, affiliate and subscription revenue, advertising trends, and free cash flow. Affiliate and subscription revenue was a highlight in the quarter, growing 8% year-on-year, continued evidence that the ecosystem shift from pay TV to streaming yields net growth for our business. We benefited from record Paramount Plus subscriber additions combined with ARPU growth, continued robust engagement, and improvements in churn, resulting in 85% growth in Paramount Plus subscription revenue and 48% growth in total D2C subscription revenue. In Q1, we expect similar levels of D2C subscription revenue growth, reflecting ongoing net subscriber additions and improvement in ARPU. At TV Media, we also expect the year-over-year trend in affiliate and subscription revenue to improve relative to Q4. Now let's turn to advertising trends. The ad market continued to experience weakness in Q4, resulting in a 5% decline in Paramount's quarterly advertising revenue. the majority of the decline came from international markets and FX impacts, while domestic advertising declined 2%. D2C advertising grew 4% despite the soft demand environment as a result of robust consumption growth on both Paramount Plus and Pluto TV. As the marketplace improves, we expect this growth to accelerate. We're encouraged by the engagement trends in D2C and early signs of broader ad market stabilization. As a whole, we look to market recovery in the back half of the year. Shorter term, we expect Q1 to yield improved growth rates in the domestic national advertising business. The underlying local ad business is also improving, but lower political spend will be a headwind in Q1 relative to Q4. International ad markets remain relatively weak, and we expect a slower recovery there. One final note related to advertising. We've now reached the point where our digital go-to-market strategy combines Pluto and Paramount Plus in a fully integrated advertising product. As such, going forward, we plan to simplify our reporting to focus on total D2C advertising growth. This metric provides the best indication of progress against one of our key growth initiatives. And so, starting in Q1 of 2023, we will no longer report standalone Pluto revenue. Moving on to cash flow. Free cash flow was a use of $500 million for the full year, reflecting streaming investment and weakness in the advertising market. This figure also includes $289 million in payments for restructuring, merger-related costs, and transformation initiatives. Consistent with our plans for peak streaming investment in 2023, we expect cash flow to continue to be impacted in advance of meaningful year-over-year improvement in 2024 when we return to positive cash flow. We will continue to manage our balance sheet with an eye to navigating this short-term cash flow dynamic. Importantly, our focus on working capital optimization meant the year-over-year change in free cash flow in 2022 was better than the year-over-year change in OIBDA, a trend we expect will continue in 2023 as the gap between cash content spend and P&L content expense continues to narrow. I'd also like to share some information to help you better model earnings in 2023. In terms of the quarterly cadence of earnings, We expect Q1 adjusted OIBDA to be similar to Q4 2022, and we expect the year-over-year growth rate to improve in the back half of the year, reflecting the timing of several drivers Bob and I have discussed today. In terms of some below-the-line items, our equity in investee companies line, which primarily represents our investment in Sky Showtime, will result in a Q1 loss similar to what we experienced in Q4. Additionally, we're forecasting an adjusted tax rate of approximately 25% on a full year basis. Now let's discuss the integration of Showtime and Paramount+. We're highly enthusiastic about this combination because it provides a better experience for consumers while simultaneously unlocking material financial benefits for both our TV media and D2C businesses. The most sizable of these benefits will be realized as a reduction in content expense and related marketing. Simply put, a single service requires less content to acquire and retain customers than two independent services. Additionally, our analysis revealed that an overwhelming majority of Showtime engagement is driven by key franchises which comprise less than half of the service's content amortization expense. By extending and evolving these powerful Showtime franchises and supplementing them with the breadth of content on Paramount+, we're able to deliver a powerful consumer proposition in both linear and streaming formats, thereby preserving revenue while meaningfully reducing total content expense. This strategic shift will give rise to an impairment charge in Q1 of 23 as we realign the content portfolio. We estimate this charge will be in the range of $1.3 to $1.5 billion. When we launch the integrated service in Q3, subscribers to the premium tier of Paramount Plus will enjoy a greatly expanded selection of content reflecting the full suite of Showtime and Paramount Plus originals, library content, movies, live sports, and events. At that time, pricing for Paramount Plus will also evolve. with our premium tier, which will then include Showtime, moving from $9.99 to $11.99, and our essential tier, which will not include Showtime content, moving from $4.99 to $5.99. These price changes will apply to new and existing customers upon launch of the integrated service. A couple other important notes on this integration. Our current Showtime OTT base includes subscribers who use the Paramount Plus Showtime OTT bundle or subscribe to both services independently. This means there will be some reduction in total subscribers when the services combine. Importantly, we don't expect the subscriber dynamic to negatively impact our D2C revenue expectations. On average, subscribers to the premium tier of Paramount Plus have higher ARPU and lower churn than Showtime OTT customers. And our planned price increase for Paramount Plus will further magnify the benefit of migrating customers to a single service. Also, with the consolidation of Showtime and Paramount Plus taking place later this year, we plan to remove total D2C subscribers from our external reporting starting in Q1 of 23. as this metric will no longer be meaningful in tracking our subscriber growth trajectory. We will continue to provide subscriber and revenue metrics for Paramount+, which will comprise the vast majority of our D2C subscriptions and revenue. The Showtime-Paramount Plus combination also represents an opportunity to reduce operating expenses in marketing, technology, and operations. Over time and in combination with reductions in content expense, we expect to realize approximately $700 million of future annual expense savings. As Bob noted, the net financial result of the combination of Paramount Plus and Showtime is a key component of our plan to return the company to earnings growth in 2024. Let me address that plan more holistically. While D2C losses will increase this year relative to 2022, we're approaching an important inflection point where the revenue scale, multi-platform content strategy, and distribution footprint we've established, together with the integration of Showtime and Paramount+, allow us to turn the corner towards streaming profitability. In combination with continued cost optimization in our traditional business and recovery in the advertising marketplace, we're poised to deliver meaningful total company earnings and free cash flow growth in 2024. As Bob outlined, on the streaming side of our business, there are three key levers for earnings improvement. Continued robust revenue growth, slowing growth in content expense, and other operating efficiencies. I'll touch briefly on each of these. As you now know, in 2023, we will implement a price increase at Paramount+. which we expect to be a key driver of revenue growth, with 2024 incorporating a full year of this benefit. In addition to the domestic price changes, this year we will also start to evolve pricing in core international markets from a single-tier to a multi-tier offering, resulting in higher blended ARPU for P-plus international. Our international distribution strategy will also contribute, where hard bundle launches have successfully catalyzed direct channel higher ARPU growth. And we expect growth in advertising ARPU at Pluto and Paramount+, as engagement trends drive inventory growth and expanded monetization opportunities. And of course, we expect continued improvement in churn as our content slate expands and user behavior evolves. Beyond 2023, our D2C P&L also benefits from improved leverage on content expense. You heard Bob speak about the benefits of a content strategy that is inherently multi-platform and franchise-oriented. It means we can generate more revenue for each dollar of incremental content and marketing expense. By 2024, the benefits of these strategies will become apparent in the P&L. as our expected D2C revenue growth rate exceeds a slowing growth rate in the content amortization expense. 2024 should also see operating leverage in other components of the D2C business. At that time, our plan includes reductions in the growth rate of headcount, product, and technology expenses as we capture the full-year benefits of integrating Showtime and Paramount+, and we lap a full year of costs associated with international expansion. On the traditional side of the business, we continue to expect rate increases to partially offset ecosystem declines. We're also intensely focused on operating more efficiently through execution of previously announced transformation initiatives, like the reorganization of our ad sales team, the realignment of our international operations, and improved marketing efficiency. I'll close by reiterating that the combination of what we built in 2022 and the financial impact of what we have planned for 2023 gives us confidence we can continue to deliver compelling content to consumers and distributors, grow earnings and free cash flow in 2024, and create long-term value for shareholders. With that, operator, can we open the line for questions?

Thank you. If you would like to ask a question today, please press star, fill it by one on your telephone keypad. We ask that you please limit yourself to one question. If you choose to withdraw your question, please press star, fill it by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today goes to Brian and Kraft of Deutsche Bank. Brian, please go ahead, your line is open.

Hi, good morning. Some of your peers are revisiting elements of their streaming strategies, whether it's the amount and types of content they're making, backing off from exclusivity and doing more licensing, or resetting their approach in international markets. Are there any adjustments that you're looking to make to Paramount's streaming strategy, or is the current course the one that you plan to stay on from here? Thank you.

Yeah, sure, Brian. So look, I'd say two main things here. First, I'd note that our streaming investment and differentiated approach is clearly producing returns at the consumer level. I mean, Paramount Plus has grown at the top end of the industry. It's clearly taking share. Our content on Paramount Plus is on the rankers. People are talking about it. And really, in less than two years, Paramount Plus has become a service to be reckoned with. And that's because it's a compelling product for the whole household across the country and really around the world. And remember, we've always approached this space with a plan that was based on building a profitable streaming business. One with TV media-like margins over time. And that gets me to my second point. Because we didn't have unlimited resources, we went at this differently. And in doing so, I note that many of these things, things we've been doing all along, are now being embraced by others. So what does that include? Multi-platform. You know, the power of films crossing theatrical and streaming. of shows being what I call dual illuminated networks and streaming, clear advantage. Franchises, the power of IP that people know, and IP that you can grow on a multiyear basis. That gets you superior content ROI, including in streaming. Advertising. both fast, i.e. Pluto, and lower priced ad-supported tier, i.e. Paramount Plus Essential. It unquestionably grows with TAM, and you've seen other people start to move in that direction. Partnership. We believe in the power of partnership. It's a powerful element in leveraging their consumer connection. You see that in the performance of our hard bundles, channel stores, and then add in D2C. It's a powerful combination. International discipline. We never believed in a one-size-fits-all model. We believe in country-specific execution, including at the limit joint ventures, as we're doing with Sky Showtime. And finally, content licensing. We never took all our content and put it in a walled garden. We continue to strategically monetize content outside our owned and operated ecosystem, and that drives incremental return and, frankly, drives incremental awareness. Those elements are all important because they drive a mix of cost and revenue advantages that we've long pursued on the path to profitability because those advantages translate into lower aggregate investment levels and superior long-term streaming margins. So, you know, we continue to execute. We're very happy with our momentum to date. We see the light at the end of the tunnel. And sure, others are seeing some of the things we saw early, but we're continuing to execute because we are going to be a profitable scale player in the streaming game, and it's exactly what's beginning to happen.

Thanks, Brian. Operator, we'll take our next question, please.

Thank you. The next question goes to Michael Morris of Guggenheim. Michael, please go ahead. Your line is open.

Thank you, guys. Good morning. I wanted to follow up a little bit on the subscriber component on this path to profitability. You guys are at about a 56 million Paramount plus subscribers. As of your end, you had a number of market launches in 22. How many subscribers does the Paramount plus product need to get to scale? And how does the growth trajectory for, for Paramount plus compared to the, you know, the prior outlook you had for a hundred million plus combined subscribers by the end of 24, And if I could also just on free cash flow, as you think about 23 in the investment year, can you give a little more color around how much cash investment you expect in 23 before you inflect into 24 and whether that has any impact on how you think about your dividend payout? Thank you, guys.

Hey, Mike, it's Naveen. There's a lot in there, so I'll try to take those in order, starting with the questions on subscriber growth. So, you know, as you pointed out, 22 was a very, very successful year for Paramount Plus in terms of subscriber growth, and we're enthusiastic about what's coming in 23 as well. I would point out that the dynamics around subscriber growth in 23 will be a little bit different. On the P-plus side, that growth is going to come from two main buckets. First is organic sub-growth, both in the domestic markets and internationally. The domestic piece will be driven by a lot of the same drivers that we saw in 22, content, partnerships, churn improvement. Internationally, this year we're going to focus on growing within the flagship markets that we launched in 22. And then the second big bucket of growth for Paramount Plus will be the migration of Showtime subs later this year. And as I mentioned in prepared remarks, that's not a one-for-one. There's a little bit of overlap there. We can take you through the details of that in the future. So, you know, there are definitely a lot of moving pieces on the subfront in terms of, you know, where we see that going long term. We're increasingly focused on D2C revenue. And so, you know, when you look at the goals that we've outlined there in the past, you know, we, our goal was to hit $9 billion of D2C revenue by the end of 2024. There's some puts and takes there. The advertising marketplace has obviously been a little soft, but on the other hand, when we look at the trajectory on Paramount Plus growth, we're extremely happy with that and I think have exceeded our expectations on that front. So that's kind of the story on subs. I think the second part of your question was around free cash flow in 23. And there's some important things to note there. Most importantly, we expect the year-over-year change in free cash flow to be less than the year-over-year change in OIBDA. And there's kind of a strategic explanation for that and a financial explanation. The strategic explanation is really that it reflects the evolution of our streaming content investment. We obviously ramped that up quite a bit over the last couple of years. Now it's starting to stabilize as we build scale and you start to see our multi-platform franchise focus rolling in, as well as the savings that we're unlocking by integrating Showtime and Paramount+. Now, the financial answer to that is really that it reflects a reduction in content working capital, meaning that over the last couple of years, cash content spend increased quite a bit faster than content expense because of the nature of amortization. But as we're reaching more stable levels of content investment, that dynamic flips. So for the next couple of years, you will see content expense on the P&L will grow faster than cash content spend. And in fact, as we move from 23 to 24, and this is important, we expect to see growth in free cash flow that is measurably larger than the growth in OIBDA. And then I think the last part of your question related to the dividend and what I'd say there is that our capital allocation strategy is well aligned with our operating plan. Yes, you know, cash flow will be negative in 2023. That's sort of the nature of some of the context we're operating in. including the fact that we're going to be at peak losses for DTC in 2023, and there are some ad headwinds. But both of those things are short-term in nature. We're going to start to grow DTC earnings next year, and we do expect the ad market to recover starting in the back half of 2023, which means that we're going to see significant improvement in OIBDA and free cash flow in 2024. And in the interim, we've got a very strong balance sheet that includes over $3 billion of cash on the balance sheet. That's prior to incorporating any future asset sales. We finished last year with net leverage around four times. We don't have any near-term debt maturities. And we have a $3.5 billion revolver that remains undrawn. We feel good about that plan, both from a growth perspective and from a financial perspective.

Great. Thanks, Mike. Operator, we'll take our next question.

Thank you. The next question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead. Your line is open.

Thanks. Good morning. Maybe two. Bob, could you talk a little bit about the outlook on film with Paramount? You have a big slate for 23. And obviously, you had a lot of success last year. Just talk a little bit about the film strategy at Paramount and how you see that feeding Paramount Plus growth over time. And then, Naveen, maybe just to try to finish the sort of 23 conversation, you guys gave us some helpful guidance for Q1 EBITDA. Any help for the year on overall EBITDA versus 22, just so we can think about the right free cash flow comparison as well? Thank you both.

yeah sure ben so the first part of your question obviously 2022 extremely successful year for paramount pictures six number ones at the box office in the u.s on an eight picture slate which gave us really a better hit rate certainly than the industry average um no question our film investment is paying real dividends as you know we both monetize it in the theater and on Paramount+, and so we were early to that strategy, and others are sort of moving that direction. And you look at Paramount+, movies are a top performer on the service, extremely efficient, particularly on a cost-per-start basis. So we feel great about that. As we look forward to 23 and 24, we're very excited about what's going on at Paramount Pictures. You look at the slate, it's increasingly franchise-oriented, We believe in franchises, as you know. Talk about titles. Scream, which is coming this month. It's New York located. A lot of buzz on that. We got our first Dungeons & Dragons movie. We're excited about that. Next Transformer movie. When we released the trailer, that blew up the Internet. The next Mission Impossible movie, which is totally out of control and a throw ride. Probably be the biggest Mission Impossible yet. The next Turtles movie. And the next Paw Patrol movie, which I don't know if you hang out with any preschoolers, but they love Paw Patrol. And then there's more to come. So we're very, very excited about what's going on at Paramount Pictures. And again, leveraging it both in the theatrical side and on the streaming side to great effect. Naveen, the second part?

Yeah, so Ben, with respect to... We're not providing any sort of specific numerical guidance today, but I can give you a few additional notes to help you model the year. If you think first about the D2C segment, as we've made clear, this is the year of peak losses. So you should think about it as really reflecting the full year impact of investments that we made in 2022. most of those related to content and market expansion. On the TV media side of the business, we are looking to add recovery in the back half of the year. I think TV media will also reflect the impact of a number of the cost savings initiatives that we started talking about on our last call, as well as some of the benefits that we'll unlock from Showtime and Paramount+. in the back part of the year. And then on the film entertainment segment, we do expect slightly lower oibida on a year-over-year basis there, just given the timing of our film slate, which is a little more back-end loaded in 23 relative to 22. And then, of course, you know, we're comping against 22, which included Top Gun, which... was obviously a very large contributor.

Great. Thanks, Ben. Operator, we'll take our next question.

Thank you. Our next question goes to Rich Greenfield of Light Shed Partners. Rich, please go ahead. Your line is open.

Hey, thanks for taking the question. I've got a couple of sort of big-picture questions for Bob and then a quick financial one. So I've heard that there was credible multibillion-dollar offers for Showtime. Curious sort of how you thought about the value accretion of collapsing it into Paramount Plus versus just selling it for cash. Disney then, you know, I think Iger, if you listen to him on my earnings call and certainly on CNBC, he's backing pretty far away from general entertainment content. Hulu's clearly for sale. Wondering, one, do you have interest in buying Hulu? Could that be an interesting asset for Paramount? And related to that, how do you react to sort of the what I guess he called undifferentiated general entertainment programming, not being a great place to be. And then the financial housekeeping is just on the free cashflow. Are you committing to positive free cashflow in 2024 or just an improvement in losses in 2024?

I wasn't sure how to take what you said. Thanks. I know that's a lot.

Sure. Rich, a three-parter. Um, so, um, On Showtime, look, we think there is enormous value to unlock with the integration of Showtime and Paramount+. Both Naveen and I talked about that some today. So relative to that, if we were to divest the asset, it would have to create more value than our own operating plan. And as stewards of shareholder value, we will always listen. But frankly, that bar is pretty high. So beyond that, I don't think anything to say. Moving to Mr. Iger and undifferentiated, et cetera, look, differentiation matters. And the general entertainment space may not make sense for everyone. But general entertainment clearly makes sense for us when you look at our asset composition and really the nuances of our content engine. And when we went to market with Paramount+, well, actually before we went to market, we thought a lot about this question. because we knew we needed to be differentiated, because we weren't first to market. For us, news, sports, and amount of entertainment was a clear route to differentiated position. And one that we knew, or at least strongly believed, would resonate with consumers and appeal to the whole household. And that's across this country and really around the world. And when you look at Paramount Plus's consumer traction including having the most ads of any SVOD service in the U.S. since launch and the most ads in Q4 combined with 81% revenue growth, look, that positioning is clearly working. You look under the covers at what's driving it. It's the combination of Paramount Films, CBS Hits, Nickelodeon franchises, and our P-plus originals, things like 23 and Tulsa King, Criminal Minds, Wolfpack, Star Trek, Strange New Worlds, I could go on. Plus, sports and news. So there's no question that our content engine is delivering against our position. And with respect to the cost of general entertainment, which you didn't specifically ask, but certainly was built into that conversation that you're referring to, look, our multi-platform strategy and franchise focus ensure we can build a differentiated content slate and simultaneously create a compelling content ROI. So again, general entertainment, it totally works for us in general and streaming. And maybe we're different because of our asset composition strategy. But we're leaning into it.

And rich with respect to your financial question, thank you for giving us a chance to clarify that our plan is to deliver positive cash flow in 2024.

Thanks, Rich operator. Next question, please.

Thank you. The next question goes to Jessica Reif-Elrich of Bank of America. Jessica, please go ahead. Your line is open.

Thank you. I just want to make a clarification on some of the things you said about pricing. Can you give some color on the economics of the partnerships and how you would account for Delta in your sub numbers? But, you know, more specifically on the pricing, like how much, what's the amount that you're thinking of raising prices and the timing? And on the impairment charge, what's included in that $1.3 billion plus?

Yeah, sure, Jessica. I'll take the first piece of that. Look, we're super excited about the Delta partnership we did. It was a competitive process, and obviously we won. It provides Sky members access to Paramount Plus in the air. and for a limited period on the ground. So you can think of it as a promotional in nature. Importantly, the subscriber numbers will not be in our subcount. So they will only, what they do is they put in their frequent flyer mile and that gives them temporary access, but it's only if they actually become a real subscriber that it'll start to go to our subcount and drive revenue and all that. But we think it's an awesome promotional platform And I know the Delta folks are really excited about it today because it really showcases what they've done in broadband in their planes in the air. And we think it's going to be a nice plus for Paramount+.

And I'll jump in on the questions related to how we're thinking about pricing. This is something obviously we have put a lot of thought into since the launch of Paramount+. That includes conducting a variety of conjoint analyses and also really studying some of the historical price increases that you've seen in the industry more broadly. What we learned from that was that Paramount Plus remains an incredible value proposition for consumers, particularly given the upward trajectory that you're seeing with pricing across the industry. And of course, that value proposition will get even stronger with the addition of Showtime content into the premium tier of Paramount+. We also learned that the headwind from price increases tends to fall more on new subscriber acquisition and less so on churn. And that's something that has certainly guided our thinking around the price increases. So just as a reminder, the price on the premium tier of Paramount+, which will now include Showtime, will go up by $2, so from $9.99 to $11.99. We'll have a $1 increase on the essential tier from $4.99 to $5.99. And we think that makes sense because effectively what we're doing is tying a bigger price increase on the premium tier to a significant expansion of content. while keeping an easily accessible entry point on the essential tier. And we'll continue to take advantage of promotional pricing, annual plans, and bundles as a way of both maintaining the funnel for new customer acquisition while optimizing churn and growing ARPU. So we're excited about the contribution from pricing and from a timing perspective that will kick in when the new service launches in early Q3. And then I think the last part of the question was on impairment. The impairment charge, which will come in Q1, is really all about content, and it's driven by the fact, as I said, that When we combine Showtime and Paramount+, we don't need the kind of content that you would need if they were operating on an independent basis. So that will provide a benefit in terms of reduced AMORT on a go-forward basis.

Thanks a lot, Jessica. Operator, next question, please.

Thank you. The next question goes to Doug Mitchelson of Credit Suisse. Doug, please go ahead. Your line is open.

Thanks so much. Just a few cleanup questions. One on the price increases. How does that function with the partnerships? I'm just trying to figure out what percentage of subscribers I apply that price increase to or how I think about the magnitude of the benefit to ARPU. The second piece is on that impairment charge. Can you share how that impacts 2023 EBITDA or how that feathers in over time in terms of improving the content amortization And I guess these are all for Naveen. Sorry, Bob. I think the last, you know, sort of big one is can you help us understand when does the cash content spend and the content amortization equalize? So I understand it's going to improve in 2024 in particular, but can we look out, you know, pick a number of three years and say, okay, we don't have a working capital burn related to, you know, content cash costs versus amortization. Thank you very much.

Thanks, Mike. And I say that on behalf of Bob. Doug, excuse me, Doug. But thanks for letting Bob off easy. I'll take those in order. With respect to how the price increases apply to partnerships, a couple things. The price increases will take effect across both our direct channels and all of our third-party platforms. So that includes channel partners like Amazon, Roku, Apple, et cetera. With respect to the bundles that we have with commercial partners, the timing of price increases in those relationships will be determined on a case-by-case basis, and obviously we're not going to comment publicly on each of those deals. Your question on the impairment charge and its impact in 23, I think the way you should think about that is that, in general, content on our streaming services has an amortization period of roughly four years, plus or minus. It depends a little bit on the type of content. And so you're going to get the benefit over that period of time. It's going to be a little greater in 23, and then you know, start to decrease a bit because, you know, there's more AMORT to roll off in the first year than in subsequent years. And then I think your last question was about when we start to see sort of neutralization of the working capital drag on between cash and OIBDA. You know, I think the answer there is we're going to move for the next you know, a couple years into this mode where the growth rate in cash content spend is going to be much lower than the growth rate that you'll see on the P&L. And then, you know, beyond that point in time, you'll start to see them move much more in line with each other.

Thanks, Doug. Operator, next question, please.

Thank you. The next question goes to Phil Cusick of JP Morgan. Phil, please go ahead. Your line is open.

hi thank you for squeezing me in um bob first can you expand on your comment about stabilization and advertising how should we think about indications for the current quarter and how you think about uh deeper in the year comping versus the fourth quarter and then second can you expand on the contribution from international from uh for pluto thanks very much yeah uh sure phil so uh in terms of the ad market um you look at q1 which is

probably the most timely read on the market. And as we said, we believe our domestic national ad sales growth will improve in Q1 relative to Q4. You look at what's going on, the categories, there are some bright spots for sure. Categories that are really working at the moment are food and beverage, pharma, travel, and increasingly auto. So we like that. The strength really is much more so on the direct side of the business. And that's a place where Paramount has a real advantage. And in fact, we've recently reorganized our ad sales force around specific teams aligned with holding companies to kind of streamline access for them, make it more turnkey. And that's been very well received. So direct side of the business is a place where we're advantaged. The indirect, really the programmatic side, is still soft, and we're looking for that to turn as the market improves. I'd also say in Q1, related to it, the local, underlying local ad business is improving as well. It's not just a national thing, although when you look at local, obviously you don't have the same political in Q1 that you had in Q4, so that's a bit of a headwind. But net-net, relative to Q4, we like what we're seeing kind of right at the moment in Q1. And that does make us optimistic on this second half recovery. And by the way, the second half recovery, when we said it's all about the growth rate, we believe there will be improvement in growth rate as the year goes on. And it is worth noting that the comps ease a bit moving forward, and so mathematically that helps. But it's really the underlying tone that we think has stabilized, and we think that we know that's the first step before you get the real improvement, which again we're looking to back half of the year for. There's a question about Pluto International.

Yeah, I can take that if you like. Pluto in the international markets is certainly at an earlier stage of development and monetization than where we are in the United States, but it's growing at a nice rate, so we're enthusiastic about that. We saw a decent chunk of the MAU growth in Q4 was international, including in Canada, where we launched an exciting partnership with Chorus, um and uh you know from a monetization perspective as i said it's still relatively small scale internationally but um uh very compelling growth rate so we're looking forward to it being a bigger contributor over time okay thanks a lot phil we have time for one last question thanks thank you the final question goes to cut down the morale of rbc capital markets cut gun please go ahead your line is open

Great. Good morning and thanks for taking the question. I wanted to follow up on the international DTC outlook more broadly. Paramount has had a differentiated rollout strategy abroad whether you've gone at it alone, lean on third-party distributors, or have partnered with the likes of Comcast or Reliance in a fairly unique way. Some of your peers are exiting certain markets and others have talked about plans to take a harder look at where they operate as they reassess the economics. How do you see the opportunity abroad evolving? And are there any changes Paramount is looking to make in the strategy to best capitalize on the future of international streaming? Thank you.

Yeah, sure. Kaikon, let me take that. And, you know, suffice to say, I was schooled in international, you know, spent the better, well, really spent a decade running our businesses. And so that certainly informed what we're doing here. Start with the fact that streaming is definitely a global opportunity, and thus the international markets are an important piece of the equation. And just to level set, as we come out of 22, we're obviously active in all Latin America, Western Europe, as well as Canada, South Korea, and Australia. And then we've got our SkyJV, which is in Eastern Europe and the Nordics and the Netherlands, but not consolidated in our numbers. So we're pretty well penetrated. And we're going to really focus 23 on deepening our participation in those markets. But to your point, you know, I believe in a global strategy but local market execution, and you have to look at the nuances of the market as you go forward. I also believe in the power of partnership. That led us early on and really first to this hard bundle concept where we used existing relationships with what you could think of as MVPDs to kind of turbocharge our market entry. We did that in the UK. We did that in Germany. We did that in Italy. We've done that a bit in Latin America. And that's all about getting a large chunk of subscribers out of the gate at zero acquisition costs. And then now, as Naveen said, it really also was intended and, in fact, has catalyzed demand for the channel stores and the more direct business, D2C, O&O. which we really like what we're seeing in the trend lines there, and that will certainly continue to play out in 23. So we are very much looking at this market by market. And, you know, part of the peak operating losses, by the way, in 23 is driven by the fact that we launched all of Western Europe in the back half of 22. So, you know, that had some spillover effect to our financials, but as we get past that, you know, that helps as well. So really excited about the international market opportunity. We are going at it differently. And yes, you're right, I've talked to some folks who are thinking about scaling back their presence, but they basically launched as D to C, O and O in all these independent markets around the world themselves, and arguably are subscale too. So I'm not surprised they're unwinding it, but we didn't go into it like that. We were very thoughtful in how we went into it, again, leveraging existing relationships and assets to both accelerate the growth of the business and really ensure it's an attractive longer-term business. And with that, I just want to wrap the call and leave you with a few key points to keep in mind. We believe in our differentiated strategy, our unique portfolio of assets, and our ability to make popular content efficiently. And I think you saw that in 22, and you will see it in 23. We are focused on the turn towards streaming profitability. Our plan always contemplated that and we are very much executing against that. We look at our approach as already creating value for shareholders given the strong Paramount Plus revenue and subscriber growth. Yes, you gotta break it out separately, look at it in some of the parts, but there's no question we've already created a very material asset and it's got a long, attractive runway ahead of it. And as we continue to execute our 23 plan, It really sets the stage, as Naveen said, for a return of significant earnings growth and a return of positive freeze cash flow, thanks Rich, in 24. So thank you everyone for your support and be well.

Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines. Thank you. Hello. Thank you. Thank you. Thank you. Good morning. My name is Nadia and I'll be the conference operator today. At this time, I would like to welcome everyone to the Paramount Global's Q4 2022 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speakers and marks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. In order to get as many questions as possible, we ask that you please limit yourself to one question. At this time, I would like to turn the call over to Anthony DeClemente, Paramount Global's EVP, Investor Relations. You may now begin your conference call.

Good morning, everyone. Thank you for taking the time to join us for our fourth quarter 2022 earnings call. Joining me for today's discussion are Bob Backish, our president and CEO, and Naveen Chopra, our CFO. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. Before we start this morning, I want to remind you that 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 training schedules, which contain supplemental information, and in each case can be found in the investor relations section of our website. And now I will turn the call over to Bob.

Good morning, everyone, and thank you for joining us. Today, I'm excited to provide our perspective on Paramount's performance as we closed out 2022. And I'll give you a preview of where we're driving in 2023 and beyond. Let me begin by noting that almost one year ago, we announced that ViacomCBS would become Paramount, reflecting our determination to streamline operations and become a single integrated company. We've increasingly worked together as one Paramount with one vision to make popular content, to make that content popular and to drive long-term value for our shareholders. And our one Paramount has had one approach, a multi-platform strategy that leverages our existing business, our distinct content strategy, and our expansive relationships to evolve successfully through an industry-wide transformation. That approach is delivering, and as we'll describe, made 2022 a milestone year for Paramount, with incredible momentum across our content and platforms. As planned, 2022 was also an investment year in our streaming business. Those investments, coupled with a challenging economic environment, including softness in the ad market, impacted earnings and cash flow. But it only sharpened our focus on delivering bottom line growth once we passed peak streaming investment this year. I'm incredibly proud of our progress, hitting and in most cases exceeding the key streaming metrics we set out to achieve. The differentiated strategy we committed to is working and we're going to continue to execute on our plan. As we move into 2023, we see a year of continued content and platform momentum ahead of us, a year of further scaling streaming as we hit the peak investment point, a year where we further harness the power of one Paramount, including, importantly, with our Paramount Plus Showtime integration, and a year where we look to the ad market to turn as we get to the back half. Importantly, the execution of our 2023 plan will set the stage for a return to significant earnings growth in 2024 and a return to positive free cash flow. Let me get into this a bit more, first looking back at 2022 and then looking ahead to 2023. In 2022, our content engine definitively proved itself at the highest level. Think the year's biggest domestic film, Top Gun Maverick, and five other number ones in the theaters. the number one show on television, Yellowstone, and its expanding universe. Mass-market broadcast hits like FBI, NCIS, and Fire Country, and popular Paramount Plus originals like Tulsa King, 1923, and Criminal Minds Evolution. We know our audiences, which enables us to efficiently manage content spend across platforms. To that end, we focused on developing, expanding, and exploiting the premium content franchises fans love. An approach we'll lean into more and more. The results are powerful. Our world-class content engine has driven the biggest subscriber additions in paid streaming since launch, including an industry-leading 9.9 million new Paramount Plus subscribers in Q4. It led to continued leadership in free ad-supported streaming televisions. with 6.5 million new monthly active users of Pluto TV in Q4, as Pluto TV grew not just in the U.S., but globally. In 2022, our content engine also drove huge success at the U.S. box office, with six Paramount Pictures films opening at number one, and the strongest performance in broadcast, fueling CBS's 14-year streak as the number one network. When you combine that with our capable performance, It's why Paramount regained the crown as the most watched media family on linear TV in Q4. And important to note that our content engine, combined with our disciplined execution and tight expense management, also enabled continued stability of TV media earnings in Q4, despite ongoing ad revenue headwinds. 2022 was also an important year of expansions. where we gained important streaming footholds in international markets, including launches in the UK, Ireland, Italy, France, Germany, the Nordics, Canada, and South Korea, and where we created new and expanded partnerships with the likes of Walmart, Delta, Sky, Canal Plus, Chorus, Amazon, Roku, and others to rapidly become a streaming partner of choice in the transforming media landscape globally. Looking back at 2022, our differentiated strategy is clearly working and our execution is strong. So let's talk about 2023. 2023 will be another year of content momentum. Our 23 film straight is strong and driven by some of our most popular franchises, including Scream, Mission Impossible, Transformers, and Paw Patrol. And CBS's momentum is only getting stronger. The network is on the verge of achieving number one status for the 15th straight broadcast year. And we see great stability in the schedule with very few slots to fill and thus limited and very focused pilot activity, which is also good for our economics. On Paramount+, you will see all this plus more great Paramount Plus originals. Sure, Criminal Minds, Tulsa King, 1923, and all your other favorites will return. Add to that great new series like Fatal Attraction with Lizzie Kaplan and Joshua Jackson, Rabbit Hole with Kiefer Sutherland, and Lioness with Nicole Kidman and Morgan Freeman. 2023 will also be an important year with respect to advertising, where we are looking forward to an improvement in the market in the back half of the year. The ad market, as we know, has been sickly tough. And like our peers, we felt its impact in 2022. But our portfolio puts us in an excellent position to build on the early stabilization we're seeing. And we are seeing early signs of stabilization in advertising. The sports marketplace continues to be active across the NFL, PGA, and NCAA. We like what we're seeing in travel and pharma. And recent activity in auto is encouraging. More importantly, because we bring together broadcast, free, and pay ad-supported streaming on a turnkey basis, Paramount is positioned to strongly benefit as the market improves. 2023 will also be an important year in the multi-year evolution of streaming as a business. We are now at the point where we are getting to scale, with streaming generating over $5.5 billion in annual revenue on a run rate basis as we execute four. Since day one, we have executed against a plan to build a profitable streaming business, one that achieves TV media-like margins. To get there necessitates an investment phase. And now, in 2023, entering the third year of Paramount Plus in the marketplace, we are at peak investment. And I'd note again that the recent macro headwinds have only sharpened our execution and the discipline with which we are managing this investment. As in 2022, the combination of streaming investment and the current state of the ad market will impact earnings and cash flow in 23. But we have the scale and flexibility to support it. And importantly, we see losses narrowing significantly in 2024, resulting in meaningful total company earnings growth and a return to positive free cash flow. As you think about our streaming path to profitability, it's important to understand three distinct drivers, D2C revenue growth, content spending, and operational efficiency. Let me tackle each in turn. First, we'll continue to drive D2C revenue growth. Subscriptions are important, and the number of subscribers will continue to grow in 23. But the real focus is revenue. Revenue at scale is critical to building a profitable streaming business. Across the globe, we will pursue this first and foremost by leveraging our compelling content. We'll also drive revenue growth with price increases. We all know streaming represents incredible value for consumers, and the Paramount Plus offering is far from the industry price leader. we are on the value end of the pricing spectrum. And so, in 2023, we will raise price, both for Paramount Plus Premium and Essential, both in the U.S. and select international markets. Naveen will get into this a bit more. Growth in advertising will also benefit D2C ARPU. And finally, we see partnerships as another level for revenue growth, including new relationships with Delta, 3, and Orange, among others. Second, we will drive towards profitability by continuing to efficiently manage our content spend. By far, our biggest lever to manage spending is to focus on franchises. The higher levels of consumer awareness and built-in fan bases associated with this IP drive strong subscriber acquisition volume, lower acquisition costs, lower churn, and extend LTVs. Put simply, franchises give the people what they want. We see this with Paramount Films. with CBS Series, with the Taylor Sheridan Universe, with Nick's Kids product, and more. And while we will, of course, continue to take selective swings on new IP, there's no question that franchises are a powerful advantage. We'll also manage spending by continuing to lean into our multi-platform advantage. This increases the size of our total addressable market, gives us access to broader revenue streams, and maximizes our return on content investments. You see us doing this with Paramount Films crossing theatrical and streaming, which are among the most efficient on a cost-per-start basis. You see us doing this with the CBS slate, where we expose product to a wider audience, including, importantly, a streaming audience that is nearly 20 years younger than our broadcast audience. As an aside, I point out that CBS original cross-platform content is performing at a level comparable to Netflix. In Q4, U.S. viewers spent 370 billion minutes consuming CBS content alone on both linear and digital. That's virtually the same amount of time as viewers spent with Netflix's substantially larger entire slate of originals. You also see us doing this more broadly across our multi-platform ecosystem, as we have done with the Taylor Sheridan universe. To give you a sense of the power of this approach at the consumer level, in just a three-month span, From early November to late January, more than 58 million Taylor Sheridan fans around the world watched over 32 billion minutes of the Taylorverse on both streaming and linear on our platforms. The third way we drive to profitability is through a continued focus on operational efficiencies and portfolio optimization. As I've mentioned, our transformation as one paramount is ongoing, with recent initiatives around studios, global operations, and ad sales. In the journey to become one Paramount, our next step is to integrate Paramount Plus with Showtime. As you know, later this year, both our premium streaming tier on Paramount Plus and the Showtime linear network will become Paramount Plus with Showtime in the United States. This move makes Paramount Plus the definitive multi-platform service in the streaming space, where Showtime will contribute its distinctive content with more from the franchises you love. As Naveen will discuss in more detail, economically, the benefits include both revenue and cost. On the revenue side, the integrated product will be more engaging for consumers, supporting price increases and associated ARPU gains. We also expect that the integrated product will lower churn, something we've already seen with our bundles. On the cost side, there are multiple benefits, which include tech, organization, marketing, and, of course, content. put it all together and it is creative to the streaming path to profitability. And it also helps ensure a stable transition of our TV media business, which remains a big revenue and earnings driver. Stepping back from the particulars, let me just say how incredibly proud I am of what our team has worked together to accomplish in 2022. And I'm even more excited about what's to come in 2023. With that, let me turn it to Naveen to break down the financials in more detail. Naveen.

Thank you, Bob, and good morning, everyone. Q4 demonstrated earnings resiliency in our traditional business, along with robust revenue growth in our D2C business, the combination of which puts us on a path toward meaningful earnings and free cash flow growth in 2024 as we transition out of peak streaming investment in 23. Today, I'm going to cover three things. First, I'll provide additional color on a few elements of our Q4 results. Second, I'm going to address specifics of our Showtime Paramount Plus integration plan, including its contribution to future expense savings, so you can better understand how it affects our financial model in 23 and beyond. And third, I will explain how continued execution of our strategy delivers meaningful bottom-line growth in 2024. In Q4, Paramount delivered total company revenue and adjusted OIBDA growth despite increased investment in streaming and a difficult macroeconomic backdrop. Today's earnings press release includes a comprehensive review of key financial and operational results for the quarter. I'm going to focus my comments here on three items which deserve specific attention, affiliate and subscription revenue, advertising trends, and free cash flow. Affiliate and subscription revenue was a highlight in the quarter, growing 8% year-on-year. Continued evidence that the ecosystem shift from pay TV to streaming yields net growth for our business. We benefited from record Paramount Plus subscriber additions combined with ARPU growth, continued robust engagement, and improvements in churn, resulting in 85% growth in Paramount Plus subscription revenue and 48% growth in total D2C subscription revenue. In Q1, we expect similar levels of D2C subscription revenue growth, reflecting ongoing net subscriber additions and improvement in ARPU. At TV Media, we also expect the year-over-year trend in affiliate and subscription revenue to improve relative to Q4. Now let's turn to advertising trends. The ad market continued to experience weakness in Q4, resulting in a 5% decline in Paramount's quarterly advertising revenue. the majority of the decline came from international markets and FX impacts, while domestic advertising declined 2%. D2C advertising grew 4% despite the soft demand environment as a result of robust consumption growth on both Paramount Plus and Pluto TV. As the marketplace improves, we expect this growth to accelerate. We're encouraged by the engagement trends in D2C and early signs of broader ad market stabilization. As a whole, we look to market recovery in the back half of the year. Shorter term, we expect Q1 to yield improved growth rates in the domestic national advertising business. The underlying local ad business is also improving, but lower political spend will be a headwind in Q1 relative to Q4. International ad markets remain relatively weak, and we expect a slower recovery there. One final note related to advertising. We've now reached the point where our digital go-to-market strategy combines Pluto and Paramount Plus in a fully integrated advertising product. As such, going forward, we plan to simplify our reporting to focus on total D2C advertising growth. This metric provides the best indication of progress against one of our key growth initiatives. And so, starting in Q1 of 2023, we will no longer report standalone Pluto revenue. Moving on to cash flow. Free cash flow was a use of $500 million for the full year, reflecting streaming investment and weakness in the advertising market. This figure also includes $289 million in payments for restructuring, merger-related costs, and transformation initiatives. Consistent with our plans for peak streaming investment in 2023, we expect cash flow to continue to be impacted in advance of meaningful year-over-year improvement in 2024 when we return to positive cash flow. We will continue to manage our balance sheet with an eye to navigating this short-term cash flow dynamic. Importantly, our focus on working capital optimization meant the year-over-year change in free cash flow in 2022 was better than the year-over-year change in OIBDA, a trend we expect will continue in 2023 as the gap between cash content spend and P&L content expense continues to narrow. I'd also like to share some information to help you better model earnings in 2023. In terms of the quarterly cadence of earnings, We expect Q1 adjusted EBITDA to be similar to Q4 2022, and we expect the year-over-year growth rate to improve in the back half of the year, reflecting the timing of several drivers Bob and I have discussed today. In terms of some below-the-line items, our equity in investee companies line, which primarily represents our investment in Sky Showtime, will result in a Q1 loss similar to what we experienced in Q4. Additionally, we're forecasting an adjusted tax rate of approximately 25% on a full year basis. Now let's discuss the integration of Showtime and Paramount+. We're highly enthusiastic about this combination because it provides a better experience for consumers while simultaneously unlocking material financial benefits for both our TV media and D2C businesses. The most sizable of these benefits will be realized as a reduction in content expense and related marketing. Simply put, a single service requires less content to acquire and retain customers than two independent services. Additionally, our analysis revealed that an overwhelming majority of Showtime engagement is driven by key franchises which comprise less than half of the service's content amortization expense. By extending and evolving these powerful Showtime franchises and supplementing them with the breadth of content on Paramount+, we're able to deliver a powerful consumer proposition in both linear and streaming formats, thereby preserving revenue while meaningfully reducing total content expense. This strategic shift will give rise to an impairment charge in Q1 of 23 as we realign the content portfolio. We estimate this charge will be in the range of $1.3 to $1.5 billion. When we launch the integrated service in Q3, subscribers to the premium tier of Paramount Plus will enjoy a greatly expanded selection of content reflecting the full suite of Showtime and Paramount Plus originals, library content, movies, live sports, and events. At that time, pricing for Paramount Plus will also evolve. with our premium tier, which will then include Showtime, moving from $9.99 to $11.99, and our essential tier, which will not include Showtime content, moving from $4.99 to $5.99. These price changes will apply to new and existing customers upon launch of the integrated service. A couple other important notes on this integration. Our current Showtime OTT base includes subscribers who use the Paramount Plus Showtime OTT bundle or subscribe to both services independently. This means there will be some reduction in total subscribers when the services combine. Importantly, we don't expect the subscriber dynamic to negatively impact our D2C revenue expectations. On average, subscribers to the premium tier of Paramount Plus have higher ARPU and lower churn than Showtime OTT customers. And our planned price increase for Paramount Plus will further magnify the benefit of migrating customers to a single service. Also, with the consolidation of Showtime and Paramount Plus taking place later this year, we plan to remove total D2C subscribers from our external reporting starting in Q1 of 23. as this metric will no longer be meaningful in tracking our subscriber growth trajectory. We will continue to provide subscriber and revenue metrics for Paramount+, which will comprise the vast majority of our D2C subscriptions and revenue. The Showtime-Paramount Plus combination also represents an opportunity to reduce operating expenses in marketing, technology, and operations. Over time and in combination with reductions in content expense, we expect to realize approximately $700 million of future annual expense savings. As Bob noted, the net financial result of the combination of Paramount Plus and Showtime is a key component of our plan to return the company to earnings growth in 2024. Let me address that plan more holistically. While D2C losses will increase this year relative to 2022, we're approaching an important inflection point where the revenue scale, multi-platform content strategy, and distribution footprint we've established, together with the integration of Showtime and Paramount+, allow us to turn the corner towards streaming profitability. In combination with continued cost optimization in our traditional business and recovery in the advertising marketplace, we're poised to deliver meaningful total company earnings and free cash flow growth in 2024. As Bob outlined, on the streaming side of our business, there are three key levers for earnings improvement. Continued robust revenue growth, slowing growth in content expense, and other operating efficiencies. I'll touch briefly on each of these. As you now know, in 2023, we will implement a price increase at Paramount+. which we expect to be a key driver of revenue growth, with 2024 incorporating a full year of this benefit. In addition to the domestic price changes, this year we will also start to evolve pricing in core international markets from a single-tier to a multi-tier offering, resulting in higher blended ARPU for P-plus International. Our international distribution strategy will also contribute, where hard bundle launches have successfully catalyzed direct channel higher ARPU growth. And we expect growth in advertising ARPU at Pluto and Paramount+, as engagement trends drive inventory growth and expanded monetization opportunities. And of course, we expect continued improvement in churn as our content slate expands and user behavior evolves. Beyond 2023, our D2C P&L also benefits from improved leverage on content expense. You heard Bob speak about the benefits of a content strategy that is inherently multi-platform and franchise-oriented. It means we can generate more revenue for each dollar of incremental content and marketing expense. By 2024, the benefits of these strategies will become apparent in the P&L. as our expected D2C revenue growth rate exceeds a slowing growth rate in the content amortization expense. 2024 should also see operating leverage in other components of the D2C business. At that time, our plan includes reductions in the growth rate of headcount, product, and technology expenses as we capture the full-year benefits of integrating Showtime and Paramount+, and we lap a full year of costs associated with international expansion. On the traditional side of the business, we continue to expect rate increases to partially offset ecosystem declines. We're also intensely focused on operating more efficiently through execution of previously announced transformation initiatives, like the reorganization of our ad sales team, the realignment of our international operations, and improved marketing efficiencies. I'll close by reiterating that the combination of what we built in 2022 and the financial impact of what we have planned for 2023 gives us confidence we can continue to deliver compelling content to consumers and distributors, grow earnings and free cash flow in 2024, and create long-term value for shareholders. With that, operator, can we open the line for questions?

Thank you. If you would like to ask a question today, please press star, fill it by one on your telephone keypad. We ask that you please limit yourself to one question. If you choose to withdraw your question, please press star, fill it by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today goes to Brian in Kraft of Deutsche Bank. Brian, please go ahead, your line is open.

Hi, good morning. Some of your peers are revisiting elements of their streaming strategies, whether it's the amount and types of content they're making, backing off from exclusivity and doing more licensing, or resetting their approach in international markets. Are there any adjustments that you're looking to make to Paramount's streaming strategy, or is the current course the one that you plan to stay on from here? Thank you.

Yeah, sure, Brian. So, look, I'd say two main things here. First, I'd note that our streaming investment and differentiated approach is clearly producing returns at the consumer level. I mean, Paramount Plus has grown at the top end of the industry. It's clearly taking share. Our content on Paramount Plus is on the rankers. People are talking about it. And really, in less than two years, Paramount Plus has become a service to be reckoned with. And that's because it's a compelling product for the whole household across the country and really around the world. And remember, we've always approached this space with a plan that was based on building a profitable streaming business. One with TV media-like margins over time. And that gets me to my second point. Because we didn't have unlimited resources, we went at this differently. And in doing so, I note that many of these things, things we've been doing all along, are now being embraced by others. So what does that include? Multi-platform. You know, the power of films crossing theatrical and streaming. of shows being what I call dual illuminated networks and streaming, clear advantage. Franchises, the power of IP that people know, and IP that you can grow on a multiyear basis. That gets you superior content ROI, including in streaming. Advertising. both fast, i.e. Pluto, and lower priced ad-supported tier, i.e. Paramount Plus Essential. It unquestionably grows with TAM, and you've seen other people start to move in that direction. Partnership. We believe in the power of partnership. It's a powerful element in leveraging their consumer connection. You see that in the performance of our hard bundles, channel stores, and then add in D2C. It's a powerful combination. International discipline. We never believed in a one-size-fits-all model. We believe in country-specific execution, including at the limit joint ventures, as we're doing with Sky Showtime. And finally, content licensing. We never took all our content and put it in a walled garden. We continue to strategically monetize content outside our owned and operated ecosystem, and that drives incremental return and, frankly, drives incremental awareness. Those elements are all important because they drive a mix of cost and revenue advantages that we've long pursued on the path to profitability because those advantages translate into lower aggregate investment levels and superior long-term streaming margins. So, you know, we continue to execute. We're very happy with our momentum to date. We see the light at the end of the tunnel. And sure, others are seeing some of the things we saw early, but we're continuing to execute because we are going to be a profitable scale player in the streaming game, and it's exactly what's beginning to happen.

Thanks, Brian. Operator, we'll take our next question, please.

Thank you. The next question goes to Michael Morris of Guggenheim. Michael, please go ahead. Your line is open.

Thank you, guys. Good morning. I wanted to follow up a little bit on the subscriber component on this path to profitability. You guys are at about a 56 million Paramount plus subscribers. As of your end, you had a number of market launches in 22. How many subscribers does the Paramount plus product need to get to scale? And how does the growth trajectory for, for Paramount plus compared to the, you know, the prior outlook you had for a hundred million plus combined subscribers by the end of 24, And if I could also just on free cash flow, as you think about 23 in the investment year, can you give a little more color around how much cash investment you expect in 23 before you inflect into 24 and whether that has any impact on how you think about your dividend payout? Thank you, guys.

Hey, Mike, it's Naveen. There's a lot in there, so I'll try to take those in order, starting with the questions on subscriber growth. So, you know, as you pointed out, 22 was a very, very successful year for Paramount Plus in terms of subscriber growth, and we're enthusiastic about what's coming in 23 as well. I would point out that the dynamics around subscriber growth in 23 will be a little bit different. On the P-plus side, that growth is going to come from two main buckets. First is organic sub-growth, both in the domestic markets and internationally. The domestic piece will be driven by a lot of the same drivers that we saw in 22, content, partnerships, churn improvement. Internationally, this year we're going to focus on growing within the flagship markets that we launched in 22. And then the second big bucket of growth for Paramount Plus will be the migration of Showtime subs later this year. And as I mentioned in prepared remarks, that's not a one-for-one. There's a little bit of overlap there. We can take you through the details of that in the future. So, you know, there are definitely a lot of moving pieces on the subfront in terms of, you know, where we see that going long term. We're increasingly focused on D2C revenue. And so, you know, when you look at the goals that we've outlined there in the past, you know, we, our goal was to hit $9 billion of D2C revenue by the end of 2024. There's some puts and takes there. The advertising marketplace has obviously been a little soft, but on the other hand, when we look at the trajectory on Paramount Plus growth, we're extremely happy with that and I think have exceeded our expectations on that front. So that's kind of the story on subs. I think the second part of your question was around free cash flow in 23. And there's some important things to note there. Most importantly, we expect the year-over-year change in free cash flow to be less than the year-over-year change in OIBDA. And there's kind of a strategic explanation for that and a financial explanation. The strategic explanation is really that it reflects the evolution of our streaming content investment. We obviously ramped that up quite a bit over the last couple of years. Now it's starting to stabilize as we build scale and you start to see our multi-platform franchise focus rolling in, as well as the savings that we're unlocking by integrating Showtime and Paramount+. Now, the financial answer to that is really that it reflects a reduction in content working capital, meaning that over the last couple of years, cash content spend increased quite a bit faster than content expense because of the nature of amortization. But as we're reaching more stable levels of content investment, that dynamic flips. So for the next couple of years, you will see content expense on the P&L will grow faster than cash content spend. And in fact, as we move from 23 to 24, and this is important, we expect to see growth in free cash flow that is measurably larger than the growth in OIBDA. And then I think the last part of your question related to the dividend, and what I'd say there is that our capital allocation strategy is well aligned with our operating plan. Yes, you know, cash flow will be negative in 2023. That's sort of the nature of some of the context we're operating in. including the fact that we're going to be at peak losses for DTC in 2023, and there are some ad headwinds. But both of those things are short-term in nature. We're going to start to grow DTC earnings next year, and we do expect the ad market to recover starting in the back half of 23, which means that we're going to see significant improvement in OIBDA and free cash flow in 24. And in the interim, we've got a very strong balance sheet that includes over $3 billion of cash on the balance sheet. That's prior to incorporating any future asset sales. We finished last year with net leverage around four times. We don't have any near-term debt maturities. And we have a $3.5 billion revolver that remains undrawn. We feel good about that plan, both from a growth perspective and from a financial perspective.

Great. Thanks, Mike. Operator, we'll take our next question.

Thank you. The next question goes to Ben Swinburne of Morgan Stanley. Ben, please go ahead. Your line is open.

Thanks. Good morning. Maybe two. Bob, could you talk a little bit about the outlook on film with Paramount? You have a big slate for 23. And obviously, you had a lot of success last year. Just talk a little bit about the film strategy at Paramount and how you see that feeding Paramount Plus growth over time. And then, Naveen, maybe just to try to finish the sort of 23 conversation, you guys gave us some helpful guidance for Q1 EBITDA. Any help for the year on overall EBITDA versus 22, just so we can think about the right free cash flow comparison as well? Thank you both.

Yeah, sure, Ben. So the first part of your question, obviously, 2022, extremely successful year for Paramount Pictures. Six number ones at the box office in the U.S. on an eight-picture slate, which gave us really a better hit rate, certainly than the industry average. No question, our film investment is paying real dividends. As you know, we both monetize it in the theater. and on Paramount+, and so we were early to that strategy, and others are sort of moving that direction. And you look at Paramount+, movies are a top performer on the service, extremely efficient, particularly on a cost-per-start basis. So we feel great about that. As we look forward to 23 and 24, we're very excited about what's going on at Paramount Pictures. You look at the slate, it's increasingly franchise-oriented. We believe in franchises, as you know. Talk about titles. Scream, which is coming this month. It's New York located. A lot of buzz on that. We got our first Dungeons & Dragons movie. We're excited about that. Next Transformer movie. When we released the trailer, that blew up the Internet. The next Mission Impossible movie, which is totally out of control and a throw ride. Probably be the biggest Mission Impossible yet. The next Turtles movie. And the next Paw Patrol movie, which I don't know if you hang out with any preschoolers, but they love Paw Patrol. And then there's more to come. So we're very, very excited about what's going on at Paramount Pictures. And again, leveraging it both in the theatrical side and on the streaming side to great effect. Naveen, the second part?

Yeah, so Ben, with respect to... We're not providing any sort of specific numerical guidance today, but I can give you a few additional notes to help you model the year. If you think first about the D2C segment, as we've made clear, this is the year of peak losses. So you should think about it as really reflecting the full year impact of investments that we made in 2022. most of those related to content and market expansion. On the TV media side of the business, we are looking to add recovery in the back half of the year. I think TV media will also reflect the impact of a number of the cost savings initiatives that we started talking about on our last call, as well as some of the benefits that we'll unlock from Showtime and Paramount+. um, in the back part of the year. Um, and then on the film entertainment segment, um, uh, we do expect slightly lower oibida on a year over year basis there, just given the timing of our film slate, which is a little more backend loaded in 23 relative to 22. And then of course, um, you know, we're comping against, uh, 22, which included, uh, Top Gun, which, um, was obviously a very large contributor.

Great. Thanks, Ben. Operator, we'll take our next question.

Thank you. Our next question goes to Rich Greenfield of Light Shed Partners. Rich, please go ahead. Your line is open.

Hey, thanks for taking the question. I got a couple of sort of big-picture questions for Bob and then a quick financial one. So I've heard that there was credible multibillion-dollar offers for Showtime. Curious sort of how you thought about the value accretion of collapsing it into Paramount Plus versus just selling it for cash. Disney then, you know, I think Iger, if you listen to him on my earnings call and certainly on CNBC, he's backing pretty far away from general entertainment content. Hulu's clearly for sale. Wondering, one, do you have interest in buying Hulu? Could that be an interesting asset for Paramount? And related to that, how do you react to sort of the what I guess he called undifferentiated general entertainment programming, not being a great place to be. And then the financial housekeeping is just on the free cashflow. Are you committing to positive free cashflow in 2024 or just an improvement in losses in 2024? I wasn't sure how to take what you said.

Thanks. I know that's a lot.

Sure. Rich, a three-parter. Um, so, um, On Showtime, look, we think there is enormous value to unlock with the integration of Showtime and Paramount+. Both Naveen and I talked about that some today. So relative to that, if we were to divest the asset, it would have to create more value than our own operating plan. And as stewards of shareholder value, we will always listen. But frankly, that bar is pretty high. So beyond that, I don't think anything to say. Moving to Mr. Iger and undifferentiated, et cetera. Look, differentiation matters. And the general entertainment space may not make sense for everyone. But general entertainment clearly makes sense for us when you look at our asset composition and really the nuances of our content engine. And when we went to market with Paramount+, well, actually before we went to market, we thought a lot about this question. because we knew we needed to be differentiated because we weren't first to market. For us, news, sports, and amount of entertainment was a clear route to differentiated position. And one that we knew, or at least strongly believed, would resonate with consumers and appeal to the whole household. And that's across this country and really around the world. And when you look at Paramount Plus's consumer traction including having the most ads of any SVOD service in the U.S. since launch and the most ads in Q4 combined with 81% revenue growth, look, that positioning is clearly working. You look under the covers at what's driving it. It's the combination of Paramount Films, CBS Hits, Nickelodeon franchises, and our P-plus originals, things like 23 and Tulsa King, Criminal Minds, Wolfpack, Star Trek, Strange New Worlds, I could go on. Plus, sports and news. So there's no question that our content engine is delivering against our position. And with respect to the cost of general entertainment, which you didn't specifically ask, but certainly was built into that conversation that you're referring to, look, our multi-platform strategy and franchise focus ensure we can build a differentiated content slate and simultaneously create a compelling content ROI. So again, general entertainment, it totally works for us in general and streaming. And maybe we're different because of our asset composition strategy. But we're leaning into it.

And rich with respect to your financial question, thank you for giving us a chance to clarify that our plan is to deliver positive cash flow in 2024.

Thanks, Rich operator. Next question, please.

Thank you. The next question goes to Jessica Reif-Elrich of Bank of America. Jessica, please go ahead. Your line is open.

Thank you. I just want to make a clarification on some of the things you said about pricing. Can you give some color on the economics of the partnerships and how you would account for Delta in your sub numbers? But, you know, more specifically on the pricing, like how much, what's the amount that you're thinking of raising prices and the timing? And on the impairment charge, what's included in that $1.3 billion plus?

Yeah, sure, Jessica. I'll take the first piece of that. Look, we're super excited about the Delta partnership we did. It was a competitive process, and obviously we won. It provides Sky members access to Paramount Plus in the air. and for a limited period on the ground. So you can think of it as a promotional in nature. Importantly, the subscriber numbers will not be in our subcount. So they will only, what they do is they put in their frequent flyer mile and that gives them temporary access, but it's only if they actually become a real subscriber that it'll start to go to our subcount and drive revenue and all that. But we think it's an awesome promotional platform And I know the Delta folks are really excited about it today because it really showcases what they've done in broadband and their planes in the air. And we think it's going to be a nice plus for Paramount+.

And I'll jump in on the questions related to how we're thinking about pricing. This is something, obviously, we have put a lot of thought into since the launch of Paramount+. That includes conducting a variety of conjoint analyses and also really studying some of the historical price increases that you've seen in the industry more broadly. What we learned from that was that Paramount Plus remains an incredible value proposition for consumers, particularly given the upward trajectory that you're seeing with pricing across the industry. And of course, that value proposition will get even stronger with the addition of Showtime content into the premium tier of Paramount+. We also learned that the headwind from price increases tends to fall more on new subscriber acquisition and less so on churn. And that's something that has certainly guided our thinking around the price increases. So just as a reminder, the price on the premium tier of Paramount+, which will now include Showtime, will go up by $2, so from $9.99 to $11.99. We'll have a $1 increase on the essential tier from $4.99 to $5.99. And we think that makes sense because effectively what we're doing is tying a bigger price increase on the premium tier to a significant expansion of content. while keeping an easily accessible entry point on the essential tier. And we'll continue to take advantage of promotional pricing, annual plans, and bundles as a way of both maintaining the funnel for new customer acquisition while optimizing churn and growing ARPU. So we're excited about the contribution from pricing and from a timing perspective that will kick in when the new service launches in early Q3. And then I think the last part of the question was on impairment. The impairment charge, which will come in Q1, is really all about content, and it's driven by the fact, as I said, that When we combine Showtime and Paramount+, we don't need the kind of content that you would need if they were operating on an independent basis. So that will provide a benefit in terms of reduced AMORT on a go-forward basis. Thanks a lot, Jessica. Operator, next question, please.

Thank you. The next question goes to Doug Mitchelson of Credit Suisse. Doug, please go ahead. Your line is open.

Thanks so much. Just a few cleanup questions. One on the price increases. How does that function with the partnerships? I'm just trying to figure out what percentage of subscribers I apply that price increase to or how I think about the magnitude of the benefit to ARPU. The second piece is on that impairment charge. Can you share how that impacts 2023 EBITDA or how that feathers in over time in terms of improving the content amortization And, and, and I guess these are all for Naveen. Sorry, Bob. I think the last, you know, sort of big one is, can you help us understand when does the cash content spend and the content amortization equalize? So I understand it's going to improve in 2024 in particular, but can we look out, you know, pick a number of three years and say, okay, we don't have a working capital burn related to, you know, content cash costs versus amortization. Thank you very much.

Thanks, Mike. And I say that on behalf of Bob. Doug, excuse me, Doug. But thanks for letting Bob off easy. I'll take those in order. With respect to how the price increases apply to partnerships, a couple things. The price increases will take effect across both our direct channels and all of our third-party platforms. So that includes channel partners like Amazon, Roku, Apple, etc. With respect to the bundles that we have with commercial partners, the timing of price increases in those relationships will be determined on a case-by-case basis, and obviously we're not going to comment publicly on each of those deals. Your question on the impairment charge and its impact in 23, I think the way you should think about that is that in general, content on our streaming services has an amortization period of roughly four years, plus or minus. Depends a little bit on the type of content. And so you're gonna get the benefit over that period of time. It's gonna be a little greater in 23 and then you know, start to decrease a bit because, you know, there's more AMORT to roll off in the first year than in subsequent years. And then I think your last question was about when we start to see sort of neutralization of the working capital drag on between cash and OIBDA. You know, I think the answer there is we're going to move for the next – you know, a couple years into this mode where the growth rate in cash content spend is going to be much lower than the growth rate that you'll see on the P&L. And then, you know, beyond that point in time, you'll start to see them move much more in line with each other.

Thanks, Doug. Operator, next question, please.

Thank you. The next question goes to Phil Cusick of J.P. Morgan. Phil, please go ahead. Your line is open.

Hi, thank you for squeezing me in. Bob, first, can you expand on your comment about stabilization and advertising? How should we think about indications for the current quarter and how you think about deeper in the year comping versus the fourth quarter? And then second, can you expand on the contribution from international for Pluto? Thanks very much.

Yeah, sure, Phil. So in terms of the ad market, you look at Q1, which is probably the most timely read on the market. And as we said, we believe our domestic national ad sales growth will improve in Q1 relative to Q4. You look at what's going on, the categories, there are some bright spots for sure. Categories that are really working at the moment are food and beverage, pharma, travel, and increasingly auto. So we like that. The strength really is much more so on the direct side of the business. And that's a place where Paramount has a real advantage. And in fact, we've recently reorganized our ad sales force around specific teams aligned with holding companies to kind of streamline access for them, make it more turnkey. And that's been very well received. So direct side of the business is a place where we're advantaged. The indirect, really the programmatic side, is still soft, and we're looking for that to turn as the market improves. I'd also say in Q1, related to it, the local, underlying local ad business is improving as well. It's not just a national thing, although when you look at local, obviously you don't have the same political in Q1 that you had in Q4, so that's a bit of a headwind. But net-net, relative to Q4, we like what we're seeing kind of right at the moment in Q1, and that does make us optimistic on this second-half recovery. And by the way, the second-half recovery, when we said it's all about the growth rate, we believe there will be improvement in growth rate as the year goes on. And it is worth noting that the comps ease a bit moving forward, and so mathematically that helps. But it's really the underlying tone that we think has stabilized, and we think that we know that's the first step before you get the real improvement, which again we're looking to back half of the year for. There's a question about Pluto International.

Yeah, I can take that if you like. Pluto in the international markets is certainly at an earlier stage of development and monetization than where we are in the United States, but it's growing at a nice rate, so we're enthusiastic about that. We saw a decent chunk of the MAU growth in Q4 was international, including in Canada, where we launched an exciting partnership with Chorus, And, you know, from a monetization perspective, as I said, it's still relatively small scale internationally, but very compelling growth rate. So, we're looking forward to it being a bigger contributor over time.

Okay. Thanks a lot, Phil. We have time for one last question. Thanks.

Thank you. The final question goes to Cutgun Murau of RBC Capital Markets. Cutgun, please go ahead. Your line is open.

Great. Good morning and thanks for taking the question. I wanted to follow up on the international DTC outlook more broadly. Paramount has had a differentiated rollout strategy abroad whether we've gone at it alone, lean on third party distributors or have partnered with the likes of Comcast or Reliance in a fairly unique way. Some of your peers are exiting certain markets and others have talked about plans to take a harder look at where they operate as they reassess the economics. How do you see the opportunity abroad evolving? And are there any changes Paramount is looking to make in the strategy to best capitalize on the future of international streaming? Thank you.

Yeah, sure. Kaikon, let me take that. And, you know, suffice to say I was schooled in international, you know, spent the better, well, really spent a decade running our businesses. And so that certainly informed what we're doing here. Start with the fact that streaming is definitely a global opportunity, and thus the international markets are an important piece of the equation. And just to level set, as we come out of 22, we're obviously active in all Latin America, Western Europe, as well as Canada, South Korea, and Australia. And then we've got our SkyJV, which is in Eastern Europe and the Nordics and the Netherlands, but not consolidated in our numbers. So we're pretty well penetrated. And we're going to really focus 23 on deepening our participation in those markets. But to your point, you know, I believe in a global strategy, but local market execution. And you have to look at the nuances of the market as you go forward. I also believe in the power of partnership. That led us early on and really first to this hard bundle concept where we used existing relationships with what you could think of as MVPDs to kind of turbocharge our market entry. We did that in the UK. We did that in Germany. We did that in Italy. We've done that a bit in Latin America. And that's all about getting a large chunk of subscribers out of the gate at zero acquisition costs. And then now, as Naveen said, it really also was intended and, in fact, has catalyzed demand for the channel stores and the more direct business, D2C, O&O. which we really like what we're seeing in the trend lines there, and that will certainly continue to play out in 23. So we are very much looking at this market by market. And, you know, part of the peak operating losses, by the way, in 23 is driven by the fact that we launched all of Western Europe in the back half of 22. So, you know, that had some spillover effect to our financials, but as we get past that, you know, that helps as well. So really excited about the international market opportunity. We are going at it differently. And yes, you're right. I've talked to some folks who are thinking about scaling back their presence. But they basically launched as D2C, O&O in all these independent markets around the world themselves, and arguably are subscale too. So I'm not surprised they're unwinding it. But we didn't go into it like that. We were very thoughtful in how we went into it, again, leveraging existing relationships and and assets to both accelerate the growth of the business and really ensure it's an attractive longer-term business. And with that, I just want to wrap the call and leave you with a few key points to keep in mind. We believe in our differentiated strategy, our unique portfolio of assets, and our ability to make popular content efficiently. And I think you saw that in 22, and you will see it in 23. We are focused on the turn towards streaming profitability. Our plan always contemplated that and we are very much executing against that. We look at our approach as already creating value for shareholders given the strong Paramount Plus revenue and subscriber growth. Yes, you gotta break it out separately, look at it in some of the parts, but there's no question we've already created a very material asset and it's got a long, attractive runway ahead of it. And as we continue to execute our 23 plan, It really sets the stage, as Naveen said, for a return of significant earnings growth and a return of positive freeze cash flow, thanks, Rich, in 24. So thank you, everyone, for your support, and be well.

Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.