A market in full transformation 

Disney, HBO and Paramount are all gaining market share from Netflix (which is losing subscribers, while these "old" media groups are growing exponentially on their DTC/streaming businesses thanks to their outstanding catalogs. It is the revenge of the old world on the new world (an old theme in the financial markets). 

These companies that had been losing popularity for years have managed to get the cash machine going again and see their visibility and available resources increase exponentially. Indeed, Paramount is chaining blockbusters with Top Gun: Maverick recently (800 million dollars at the box-office) and many others such as Star Trek, SpongeBob SquarePants, The Godfather, South Park, Mission Impossible, Terminator, Sonic, Patrol, Scream or Kung Fu Panda. At the same time, their Paramount+ streaming platform (the direct-to-consumer/streaming offering) is growing rapidly and gaining more and more subscribers. We can clearly see that the market is changing and that the giants of yesteryear are seeing their dominance slowly fade away in favor of new players: Disney+ (221 million subscribers), Amazon Prime Video (120 million), WarnerBros Discovery (92 million) and Paramount (43 million). 

Paramount Global subscribers by quarter since 2019:

Source: Statista

Investors on the lookout

Usually, when there are good opportunities, the biggest investors and funds are not far away. And as luck would have it, Paramount, formerly ViacomCBS, is a recent Berkshire Hathaway investment, although it's not clear whether it's an investment by Buffett or one of the two managers, Todd Combs and Ted Weschler. On the one hand, it looks like an investment by Weschler, who has a long history with media investing, and on the other hand, Berkshire has become Paramount's second largest shareholder with 12.9% of the capital. Since the merger with CBS in 2017, the group has a turnover between 26 and 29 billion dollars with profits amounting to 5 billion dollars for the last 5 years. These results allow the company to have a market cap of $17 billion, an enterprise value of $31 billion and the ability to "crash cash at a steady pace." So it's easy to see why, on paper, Paramount is a "Berkshire-compliant" investment.

The streaming war motivates observers to believe that the American giant is an acquisition target. Despite an exceptional catalog in terms of diversification, it does not have the financial means or the expertise to make the difference with its competitors and thus become the undisputed leader. In terms of potential buyers, Amazon would be the most credible - to make the difference with Prime Video - and it is not impossible to imagine a takeover with Disney and Netflix, despite possible financing problems. 

And the results in all this

Paramount is attractively valued with a P/E of 10-12x and an EV/EBITDA of 8-9x. This type of asset, known as a "trophy asset", would justify a premium associated with this stock, especially with operating and net margins at 14.2% and 15.9%. Moreover, the company benefits from a Leverage (Debt/EBITDA) at 3.33x and a Capex/Cash flow at 1.16%. 

At the same time, the group's management has largely reduced the targets in terms of capital returns to shareholders (in the past, Viacom bought back its shares en masse) to focus more on investing in new projects and continuing to make progress in the streaming war. This policy of the group allows it to have a competitive advantage over its competitors, and in particular over Warner Bros Discovery, which despite a very nice catalog, has to direct its cash flows towards deleveraging rather than investing in new content. This competitive advantage can also be seen when Paramount is in a logic of developing new content to support their growth, while Warner Bros Discovery is in a logic of optimizing costs to reduce its debt. 

A tough competition

The big media groups involved in streaming war (Paramount, Disney, Netflix, Amazon, etc.) are all, without exception, following a strategy of legacy assets that are always very profitable and serve to finance their loss-making development in streaming. To illustrate this point, one only has to look at the ancillary services offered by these companies. Paramount has CBS, movies, television, etc. Disney has its theme parks (USA, Japan, France, China, Hawaii, Hong Kong) and its plethora of cable catalogs. Warner Bros Discovery has its catalog to roll out HBO+. On the other hand, Netflix has "only" its catalog to keep its customers loyal and thus remains very dependent on capital markets.

Finally

Paramount and Disney seem to be the "safest" opportunities for anyone wishing to invest in streaming with a growing number of subscribers and a very diversified film/series catalog. Conversely, Warner Bros Discovery has a lot of potential, with a higher associated risk of course, but with a major debt problem. Amazon does not really have a catalog, meaning that many of the movies/series available must be rented or purchased, thus increasing the cost of the subscription. And Netflix remains too dependent on capital markets with a catalog that is sometimes still too light despite global successes like Squid Game recently, allowing the company to regain visibility. 

A little anecdote to finish, the CEO of Paramount remains very positive about the potential risk of value destruction in streaming. If he admits that the near future requires aggressive investment in new content to seduce the public and attract them to the streaming offer, in the longer term he sees margins worthy of traditional broadcasting (TV) in streaming.

Evolution of the turnover quarter by quarter over the last twelve years :

Source: Statista