Executive Summary / Key Takeaways

• Streaming-First Transformation Accelerates: Paramount Skydance (PSKY) is rapidly transitioning into a streaming-first media powerhouse, evidenced by Paramount+ achieving 77.7 million subscribers and a 6x year-over-year Adjusted OIBDA improvement in Q2 2025 for the Direct-to-Consumer (D2C) segment, with domestic profitability targeted for 2025.
• Strategic Content and Sports Acquisitions: The company's "fewer, bigger, breakthrough hits" content strategy for Paramount+ is driving engagement and churn reduction. The recent $7.7 billion acquisition of exclusive UFC rights for 2026-2032 underscores a commitment to high-value live sports, aiming to boost subscriptions and advertising.
• Synergistic Merger with Skydance: The completed merger with Skydance Media injects $1.5 billion in new capital and brings new leadership focused on operational discipline, aggressive cost-cutting ($2 billion in planned reductions), and leveraging technology like AI and cloud computing to enhance content creation and streamline operations.
• Dual-Edged Market Dynamics: While linear TV declines and digital ad market supply pressures persist, PSKY's ability to drive net positive growth in total company affiliate and subscription revenue, coupled with strong upfront demand for sports and streaming, signals a successful pivot.
• Long-Term Value Creation: Despite near-term macroeconomic uncertainties and integration challenges, the strengthened balance sheet, disciplined content investment, and focus on high-margin D2C growth position PSKY for enhanced free cash flow generation and long-term value creation.

The Dawn of a New Era: Paramount Skydance's Strategic Evolution

Paramount Skydance (NASDAQ: PSKY) stands at a pivotal juncture, having recently completed its transformative merger with Skydance Media. This new entity is poised to redefine its position in the fiercely competitive global media and entertainment landscape. The company, with roots tracing back to 1914, has historically been a content powerhouse, a legacy championed by Sumner Redstone's belief that "content was King." This foundational philosophy continues to guide PSKY's strategic pivot towards a streaming-first model, leveraging its vast content library and iconic brands like CBS, Paramount Pictures, MTV, and Nickelodeon.

The industry itself is undergoing profound shifts. Linear TV audiences are declining, driven by cord-cutting, while the digital advertising market faces an influx of supply from new entrants. Amidst these challenges, live sports content has become more valuable than ever, driving engagement and subscriber loyalty across platforms. The new PSKY aims to capitalize on these trends, blending Hollywood's creative heart with Silicon Valley's innovative spirit.

PSKY's strategic response to these dynamics centers on a "fewer, bigger, breakthrough hits" content strategy for its streaming services, coupled with aggressive cost rationalization and a renewed focus on technological integration. This approach is designed to maximize the value of its intellectual property across theatrical, linear, and direct-to-consumer platforms. The company is actively transitioning its advertising business from linear to digital, leveraging its substantial addressable footprint on platforms like Paramount+ and Pluto TV.

Technological Edge and Operational Streamlining

PSKY's technological differentiation is set to become a core competitive advantage under the new leadership. David Ellison, the new CEO, envisions transforming Paramount into a "tech-forward company" and a "tech hybrid," utilizing artificial intelligence (AI) to "turbocharge content creation capabilities" and cut costs. This includes building a "studio in the cloud" in partnership with Oracle (ORCL), aiming to streamline production processes and speed up film and animation output through AI and cloud computing. This strategic move is underscored by an initial $100 million payment to Oracle to subsidize cloud infrastructure, indicating a concrete commitment to this technological shift.

The benefits of this technological roadmap are tangible and quantifiable. By leveraging AI and cloud computing, PSKY aims for enhanced module efficiency and improved temperature coefficients in its content production, leading to a more efficient and cost-effective creative pipeline. The goal is to improve streaming service algorithms to reduce cancellations and increase subscriber watch time, directly impacting Average Revenue Per User (ARPU) and profitability. This focus on technological innovation, particularly in content creation and audience engagement, provides a competitive moat against rivals. While precise, directly comparable performance metrics for all competitors' AI initiatives are not publicly detailed, PSKY's stated goals suggest a strategic intent to gain a qualitative edge in operational efficiency and content personalization, which could translate into better margins and a stronger market position.

Beyond technology, PSKY is committed to significant operational streamlining. Over the past four quarters, the company has already implemented over $800 million in annual run-rate non-content expense savings. The new leadership has announced plans for an additional $2 billion in cost reductions, aiming for a leaner organization. This aggressive cost-cutting, combined with the strategic shift in content investment towards streaming, is crucial for improving overall profitability and free cash flow.

Financial Performance and Segment Dynamics

PSKY's recent financial performance reflects its ongoing transformation.

For the three months ended June 30, 2025, total revenues increased 1% year-over-year to $6.85 billion, primarily driven by growth in the Direct-to-Consumer (D2C) segment and strong theatrical performance from "Mission Impossible - The Final Reckoning." However, Adjusted OIBDA decreased 5% to $824 million, mainly due to declines in linear networks, partially offset by D2C improvements. For the first half of 2025, revenues decreased 3% to $14.04 billion, significantly impacted by the comparison against the Super Bowl LVIII broadcast in Q1 2024.

The D2C segment is the engine of future growth. It generated Adjusted OIBDA of $157 million in Q2 2025, a remarkable 6x improvement year-over-year, contributing to a $300 million improvement in D2C profitability year-to-date. Paramount+ ended Q2 2025 with 77.7 million subscribers, a 14% increase year-over-year, despite a sequential decline of 1.3 million from Q1 2025 due to the anticipated expiration of an international distribution agreement and content seasonality. Paramount+ ARPU growth accelerated to 9% year-over-year in Q2 2025. This robust performance is a testament to the "fewer, bigger hits" content strategy, with shows like "MobLand" ranking as the #1 series globally in active subscriber households on Paramount+ in Q2 2025. The upcoming addition of "South Park" to Paramount+ in the U.S. in July 2025, following its strong international performance, is expected to further boost engagement.

Conversely, the TV Media segment continues to face headwinds. Revenues declined 6% in Q2 2025 and 10% for the first half of 2025, with Adjusted OIBDA decreasing 15% and 28% respectively. Advertising revenue was down 4% in Q2 2025, reflecting linear market declines and increased digital ad supply. Affiliate revenue also declined 7% due to linear subscriber trends. Despite these pressures, the company's ability to secure new distribution deals, such as with DIRECTV, and strong upfront demand for sports and streaming content, partially mitigates the impact. CBS remains a powerhouse, being the #1 broadcast network for 17 consecutive seasons, with its content accounting for nearly half of all viewing on Paramount+.

The Filmed Entertainment segment saw revenues increase 2% in Q2 2025 and 3% for the first half, driven by theatrical releases like "Mission Impossible - The Final Reckoning," which achieved the biggest global opening in franchise history. This theatrical success also generated a 60% lift in daily active subscriber households for the "Mission Impossible" library on Paramount+, demonstrating the synergistic value of film releases for streaming. However, Filmed Entertainment Adjusted OIBDA remained a loss of $84 million in Q2 2025, primarily due to lower licensing profits and marketing spend timing. The company has successfully reduced average production costs on Paramount Pictures films by 35% over the last 24 months, aiming for improved profitability.

Competitive Landscape and Strategic Positioning

PSKY operates in a highly competitive arena against diversified media giants and pure-play streamers. Key direct competitors include Disney (DIS), Netflix (NFLX), Warner Bros. Discovery (WBD), and Comcast (CMCSA).

PSKY's competitive standing is characterized by its strong content library and global distribution networks. Its "fewer, bigger hits" strategy for Paramount+ aims to differentiate it from Netflix's volume-driven approach, with PSKY ranking as the #2 domestic SVOD for hours watched across original series in Q4 2024. While Netflix boasts superior user engagement through personalized recommendations and a vast exclusive content library, PSKY's integration of traditional TV assets like CBS provides a unique hybrid model that appeals to audiences seeking live content, a qualitative advantage over pure-play streamers. However, Netflix's operational efficiency often translates to better margins.

Compared to Disney, PSKY offers a diverse content portfolio across genres, but Disney's iconic brand affinity and integrated ecosystem (parks, merchandise) provide a qualitative edge in customer loyalty and pricing power. PSKY's focus on accessible, multi-platform content delivery, including ad-supported options like Pluto TV, offers lower entry barriers than some rivals. However, Disney's diversified revenue streams generally lead to stronger profitability and cash flow.

Against Warner Bros. Discovery, both companies leverage legacy TV assets and original content. PSKY's broader international footprint and diverse content segments offer greater flexibility, while WBD grapples with high debt from acquisitions, which can strain financial health. PSKY's strategic adaptability in streaming investments could enable faster digital growth, potentially exploiting WBD's integration challenges.

Comcast, through NBCUniversal, competes in TV media and streaming. Its bundled offerings (e.g., Peacock with broadband) provide a strong ecosystem for user retention. While PSKY differentiates with its global reach and diverse content, Comcast's integrated model often results in lower operating costs due to synergies. PSKY's content innovation for global audiences is a strength, but it lags in cost structure efficiency compared to Comcast.

The recent acquisition of exclusive UFC rights for $7.7 billion (averaging $1.1 billion annually) from TKO Group (TKO), starting in 2026, is a game-changer. This move positions PSKY as a major player in live sports streaming, directly challenging ESPN+ by eliminating the pay-per-view model for UFC events on Paramount+. This year-round, high-engagement content is a "unicorn asset" that will drive subscriber growth and reduce churn, providing a significant competitive advantage in the battle for streaming dominance.

Outlook and Risks

PSKY's outlook is anchored by its commitment to achieving Paramount+ domestic profitability in 2025. Management expects total company content spend to remain relatively flat in 2025, with a continued remixing towards streaming. Free cash flow is projected to increase in 2025, driven by improved D2C profitability and stabilized content spending, despite significant cash restructuring payments (approximately $100 million in Q2 2025). Full-year Adjusted OIBDA is expected to grow on an underlying basis, though reported figures might be slightly down due to the Super Bowl and political advertising comparisons from 2024, with growth weighted towards the second half of the year.

However, significant risks remain. The integration of Skydance Media presents operational challenges, and the new leadership's planned $2 billion in cost reductions, while necessary, will be "painful" and could impact employee morale and execution. Litigation related to the Skydance transaction, including shareholder lawsuits alleging fiduciary duty breaches, could lead to unforeseen costs or delays. The political and regulatory environment, particularly the FCC's scrutiny over content bias and DEI policies, introduces uncertainty, as evidenced by the $16 million settlement with Donald Trump.

Macroeconomic uncertainty, especially in the advertising market, poses a risk to revenue forecasts. The ongoing decline in linear TV viewership and increased competition in digital advertising could pressure margins. Furthermore, the film industry faces challenges from foreign film tariffs, which could impact international box office revenue and production costs. The company also continues to manage a substantial number of asbestos claims from historical operations.

Conclusion

Paramount Skydance is embarking on a bold new chapter, shedding legacy constraints to embrace a streaming-first future. The strategic merger with Skydance Media injects crucial capital and leadership, accelerating the company's transformation. By focusing on "fewer, bigger, breakthrough hits" for Paramount+, aggressively cutting costs, and leveraging technological advancements in AI and cloud computing, PSKY is building a more efficient and competitive content engine.

The acquisition of exclusive UFC rights is a clear signal of PSKY's intent to dominate the live sports streaming landscape, a critical differentiator in the crowded D2C market. While challenges from linear declines, digital ad market pressures, and complex integration remain, the company's strong D2C growth, improving profitability, and disciplined financial management position it to unlock significant value. Investors should closely monitor the execution of cost synergies, the continued scaling of Paramount+ towards profitability, and the successful integration of UFC content, as these factors will be pivotal in determining PSKY's long-term success as a formidable player in the evolving entertainment industry.