Good morning. My name is Elliott, and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount Global's Q2 2022 Earnings Conference Call. [Operator Instructions]. At this time, I would now like to turn the call over to Anthony DiClemente, Paramount Global's EVP, Investor Relations. You may begin your conference call.

Good morning, everyone. Thank you taking the time to join us for our second quarter 2022 earnings call. Joining me for today's discussion are Bob Bakish, 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. 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 trending schedules, which contains supplemental information and in each case, can be found in the Investor Relations section of our website. Now I will turn the call over to Bob.

Good morning, everyone, and thank you for joining us. I'll start this morning by talking about Q2 highlights and preview what's next. Then I'll turn it over to Naveen to take you through financial and operating details, and we'll wrap up with a Q&A as usual. Big picture, while we're clearly navigating some near-term headwinds in the macroeconomic environment, Q2 shows we have the assets, strategy and ability to compete and win over the long term. Q2 showed a company that it's taking market share in streaming, in broadcast, in box office and in upfront dollars. It also serves as a company increasing its penetration of the most important growth market in media streaming, as evidenced by our over 5 million D2C subs added in the quarter. And Q2 shows how we leverage investments across multiple platforms, that unlock multiple revenue streams. This, combined with our fiscally disciplined approach, including with respect to cost management, provides a real advantage in these challenging times and beyond. At the center, of course, is our hugely popular content, big, broad and beloved. Just think of the biggest movie in the world, Top Gun: Maverick; the most popular TV show in the country, Yellowstone; perennial global hits like the CBS crime procedurals, NCIS and FBI; or the world's most popular preschool franchise, Nickelodeon's PAW Patrol. Our content consistently attracts and entertains mass audiences. When I say audiences, I don't just mean kids or adults, I mean the whole household, not just the coast, but the entire country, not just the U.S.. but the entire world, not just the streaming audience, but the TV, theatrical and streaming audience. Part of the reason is that we don't just make popular content, we also make content popular by leveraging our powerful platforms. After all, to drive best-in-class…

Thank you, Bob, and good morning, everyone. Second quarter results demonstrate the value of our diversified media business and expansive monetization platforms. We delivered 19% total company revenue growth through continued strong D2C momentum and record performance at the box off. Affiliate and subscription revenue grew 12% in the quarter. Advertising was down 2% year-over-year or flat on a constant currency basis due to macroeconomic headwinds, and licensing revenue grew 27%. Today, I will highlight some of the key financial and operational drivers behind our second quarter results and share some insight on expectations for the second half of the year. Starting with direct-to-consumer. We added 5.2 million global D2C subscribers in Q2. Paramount+ added 4.9 million global subs, while our other streaming services grew modestly. As of June 30, we had a base of 63.7 million global D2C subscribers, including 43.3 million Paramount+ subscribers. Our quarter end totals reflect the removal of 3.9 million D2C subs in Russia, of which 1.2 million were from Paramount+, consistent with our plan to remove these subscribers from our reporting. Q2 subscriber growth benefited from the launch of Paramount+ in the U.K., Ireland and South Korea as well as continued domestic growth as we added new hit content to the service. Paramount+ saw continued engagement improvement as our content offering expanded even further. P Plus customers are watching a greater number of unique titles today than ever before. as evidenced by sequential and year-over-year growth in titles viewed per active domestic subs. We also saw sequential growth in hours per act. And most importantly, deeper engagement resulted in sizable improvement in domestic churn. The combination of subscriber growth and engagement drove Paramount+ revenue growth of 120%, including subscription revenue growth of 126% and advertising growth of 92%. Paramount+ ARPU improved on a sequential…

[Operator Instructions]. Our first question today comes from Michael Morris from Guggenheim Partners.

Bob, maybe you could share your thoughts on your expectation for changes to the competitive landscape for streaming advertising as we move into the back half of the year. I'm particularly interested in how you're thinking about the launches of some of these ad-supported services from Netflix and Disney+, how they could impact the CTV ad market and Paramount+ Pluto, in particular? And then if I could, Naveen, I apologize because I know it's early to discuss '23, but I'd be curious if you could provide any frame of reference for how much greater those peak D2C losses could be in '23 relative to the 2022 outlook? And any thoughts on growth or swing factors and investment drivers top line that would be incremental there.

Yes. Sure, Michael. Let me start. Look, we've been big believers in the dual revenue stream model in streaming, i.e., advertising from the start and the fact that others are following our lead is really a validation of the thesis we've had for years. So yes, there will be incremental options in the market. But really, competition is nothing new. And importantly, our competitive position in the ad market is very strong. Advertisers are focused on being associated with premium content, and we have a really diverse collection here across entertainment, sports and news. And it's highly coveted by advertisers. I'd also point out that our content has been created and formatted with advertising in mind, and that's important. Second, look, we've been in a multi-platform ad business for years, and that gives us very high quality reach and scale of over 1 trillion ad impressions per year across all demographics. And then you add to that industry-leading, integrated advertising and advanced advertising capabilities. and really a long track recordship of partnership and customer services with agencies and their clients. And we know how to transact in upfront. We know how to transact in scatter. We know how to do programmatic. So we had a lot of elements of strength here. And I'd point out that all that's not just conceptual, it translates into performance. If you look at our Q2 growth rate, particularly in digital, I think you'll find that at the top of the industry. And it's quite clear to me that we took share in this most recent upfront, There, we had digital volume up on the order of 30%. So yes, there will be some new entrants, but we feel very good about our position, and we look forward to continuing to benefit from it.

And Mike, with respect to your question on the outlook for 2023, I'd really say 2 things. One, I mean, as you saw in Q2, we continue to see tremendous momentum in the direct-to-consumer business, whether you look at the growth on Paramount+ subs, what we're seeing in terms of churn, nice MAU growth and engagement growth at Pluto and most importantly, D2C revenue growth at very, very strong levels, 50% on a combined basis, well over 100% revenue growth at Paramount+. So what we're really navigating from an OIBDA perspective is the weakness in the macro advertising marketplace. And as you said, it's really too early to know exactly what the market will look like in 2023. But we are still focused on managing the business to peak losses in '23, and then starting to see improvements in earnings, both for the D2C segment and the consolidated business as a whole beyond that as we move toward our long-term D2C revenue and subscriber goals.

Our next question comes from Bryan Kraft from Deutsche Bank.

Just wondering if you could talk in some more detail about the impacts of the macroeconomic environment that you're seeing in the business and particularly what you're seeing in terms of advertising demand across your own platforms. And maybe, along with that, if you could talk about what you're seeing as far as specific advertiser category strength or weakness? And any additional color on the outlook for Pluto in the back half of the year, given what you saw in 2Q?

Sure, Bryan. Well, look, we see both headwinds and tailwinds in advertising. It's true that there are some challenges in the scatter market and in digital, and that really is, as you would guess, driven by the state of the macroeconomic environment. That's showing up in certain categories, things like auto continues to be impacted by the supply chain. Packaged goods is managing through inflation issues, which is really impacting their ad spending as they look to protect margins. But these aren't long-term issues. There are short-term challenges we got to just work through. On the positive side, TV clearly remains resilient on a relative basis, and that's a function of a very tight supply. And so we benefit at Paramount from having a balance across linear and digital clearly. And I note that we are seeing some areas of category strength, including in Q2 and today, travel, technology. Also worth noting that we're taking advantage of the current situation to increase our level of promotion for in-house assets, particularly with respect to Paramount+. That gives us incremental product visibility to the consumer, and it also benefited us in terms of third-party expense reduction. As we look ahead in this ad market, there's 2 things I'd note. First, we're really pleased with how the upfront played out and particularly the volume dynamic in it, which was up nicely. Second, there are 2 important new category tailwinds that we'll see probably late Q3 and certainly Q4. The first is pharmaceuticals. That came back big in the upfront. That's super important to us because it's a big category for us given our demographics and specifically the demos of CBS. And the second is political. We're expecting advertising related to the midterm to be very strong given what's going on there. And I'd note that historically, that's really a stations business and for sure, it will be a stations business this year. But also with targeting, we see IQ and Pluto playing there and therefore benefiting as well. So that's really the ad market. I don't know if you want to comment on...

Yes. I mean in terms of our expectations for Pluto in the back part of the year, I'd take a couple of things. We don't obviously guide to Pluto specifically. It is part of our broader D2C business, as you well know. And we continue to see very healthy levels of growth there, 56% D2C revenue growth in the quarter. And I think we'll probably finish the year with very healthy revenue growth across the segment.

We now turn to Steven Cahall from Wells Fargo.

I just wanted to pick up on some of the Pluto line of questioning. It seems like the MAU growth is strong. I assume the engagement is pretty strong as well. And so with some of the slowdown in revenue, is the right way to think about this business that it is just a price taker in the programmatic market, and that price pressure can kind of arrive unannounced? And if that's the case, I was just wondering if you could talk about some of the pricing changes that you saw late in Q2 and how those have trended as you've gotten into Q3, any improvement or degradation? And then at TV Media, I think investors have been a little bit skeptical about the stable guide in OIBDA. So thanks for that color on the second half growth. Could you maybe just think about what the drivers for stable guidance might be for next year, especially since you're comping political?

Yes, Steven, let me take the Pluto piece and then Naveen will go from there. So I'd start by saying Pluto is the leader in fast in the U.S. And as you know, it's rapidly growing internationally as well. I'd note that the supply side of Pluto continues to track very strongly. We look at impression delivery, and it's in line with our expectations for the beginning of the year. MAUs are now at basically $70 million because we're getting great consumer traction and engagement, time spent, et cetera on Pluto continues to grow. In fact, we saw an acceleration of that from Q1 to Q2. So very good supply side equation. Revenue side has certainly been impacted by the macroeconomic situation. It's really a marketplace dynamic that unfortunately, we're not immune to. But even with that, some very compelling facts to focus on. Related to the streaming ad size, Paramount+ grew advertising over 90% in the quarter. And if you look at our total D2C ad business in the quarter, including Pluto TV, that grew 25%. That's partially because we are gaining share. We have a very strong proposition in the marketplace. And another indicator of that strength is really the 30% digital volume growth -- ad volume growth that we saw in the upfront. So to your question of it being a price taker, sure, we play in the programmatic market. That matters. It's an important part of the equation. But again, we're not just selling Pluto, we're selling a full range of streaming product and multiplatform product and having great traction with advertisers. And we think that is a tremendous positive for the company and will be even more so as the macro situation improves.

And in terms of the question around the stability of TV Media earnings, as we said, we do expect the -- in the near term, there'll be some impact because of the macro advertising environment. But longer term, we do still remain confident that once that advertising market recovers, we can deliver TV Media -- stable TV Media OIBDA, and that's enabled by a combination of a few things. Number one, rate increases in both the affiliate and advertising side of the business, and there's been evidence of that over the last few quarters. We've done -- we have a very successful track record of putting in place new affiliate deals that either have built-in rate escalators or fixed fee components on the station side of the business. And then obviously, on the advertising side, we're very happy with what we've seen in the upfront, both in terms of price increases and what we've been able to do from a volume perspective. So rate is an important part of the equation. We also expect to see continued meaningful contributions from the licensing side of that business, which is enabled by a combination of both an incredible catalog and unique production capabilities. And of course, we will continue to have a lot of innovation and discipline on the cost side of the equation, and that's true across programming, it's true across marketing, and it's true across our broader operations. So the combination of all those things will be key to delivering stable TV Media OIBDA.

We now turn to Ben Swinburne from Morgan Stanley.

I just had a couple of questions on one topic, which is sort of the international opportunity with Paramount+. Bob, could you talk a little bit about how the launch went in the U.K. and South Korea in the quarter, sort of the strategy to drive that business? And did you see the whole benefit of the initial launch in Q2? Or is some of that going to lead into Q3? And as part of that, could you talk a little bit your international programming strategy? I believe you guys have some local productions, 4 language productions in the works? Just could you give us a sense of your appetite to build that out as a part of the offering as you grow the business outside the U.S.?

Yes, sure, Ben. So a couple of things to say. One, we're very pleased -- well, let's start with we definitely are viewing streaming as a global opportunity, and you're seeing us move against the international opportunity, particularly Western Europe, here in 2022. Two is with respect to Western Europe, we obviously launched the U.K. and Ireland in June. By the way, we also launched South Korea the week before. Those launches are performing above our expectations. Both of those have hard bundle elements to them. Obviously, we're in business with Sky in the U.K. and Ireland, and they are very pleased with what we brought to market. And by the way, the response to the launch more broadly has been very strong, including what we showed in London related to the launch event. Same thing is true with South Korea. There, we're working with TVING, which is a local streamer. CJ has a minority stake in it. And there, we're really the global part of the global tier to their local offering. And again, they're very happy with what we brought to market and how it's performing. And so we're off to a very good start. To your question of is this Q2 only boost to subs? Or does it extend past that? It definitely extends past that. Recall that our international distribution strategy is focused on achieving ubiquity. It really has 3 fundamental components: hard bundle, plus channel stores like Roku and Amazon and Apple, and direct D2C on an O&O basis. So we'll be deploying all of that in those markets. And therefore, we see sub growth not only coming from really engagement from the hard bundles where more and more people use it, but we also see those other 2 pillars of the distribution strategy beginning…

I think you covered the -- I think you got it.

We now turn to Rich Greenfield from LightShed Partners.

So when Netflix published its Q2, it showed this chart that had minutes viewed, and I think CBS was actually #2 behind Netflix. It didn't have Paramount+ or Pluto, but I would assume that would close the gap between Netflix and the broader Paramount company. But I think the question that sort of every investor on this call is thinking about is as the business shifts from linear to digital, meaning CBS sort of shrinks in share and Paramount+ and Pluto growing their share, can Paramount maintain sort of aggregate time spend? And what will the margin profile of that business looks like? Because I think if you think about everyone in streaming today, like you're talking about $1.8 billion of losses for the calendar year. Sort of everyone, but Netflix is losing billions a year on streaming. And maybe just the way to think about this is, on a revenue basis, your linear TV business this quarter had $2 billion of advertising plus and Paramount+ was sort of in the $90 million range and Pluto at $265 million or so. So I guess the point is just as this business shifts, can you capture enough time spend to have the similar profit look your business has in legacy as you move to streaming, if that makes sense?

Yes. Sure, Rich. So a couple of points there. I don't know exactly what chart you're looking at. But if you look at Q2, Paramount's combined U.S. linear delivery was bigger than Netflix. And that's even more the case if you combine linear and streaming, but that's really neither here or there. The question on margins is really the core of what you're asking. And as we look at, as streaming becomes bigger for us, as we gain scale, we see operating margins from streaming approaching that of TV Media. Remember, Rich, we've only been in the streaming business for a short time. Others have been there for years. We need to give this a bit of time to play out. But there are real reasons that we see this path to superior margins. And at the core of it, it's our differentiated as we say, playbook. If you look at where we are in content, we're clearly advantaged. We've got a broad offering. Many, many globally renowned franchises, backed up by a deep library, I mean the economic value of going and trying to replace that library, I don't even know what it would be. And we got tremendous engagement, i.e., time spent off the library. So that's one important economic advantage. Two, we have a platform advantage. The combination of streaming and traditional is significant. It helps our content economics. It helps our marketing economics, and it shouldn't be discounted. Third, we're in the free streaming space and the pay streaming space. So what does that do? It gets us a bigger TAM. And we regularly see the value of serving consumers that don't pay for streaming as well as the ones that do, and obviously, the associated ad access. And fourth, we have this global operating footprint. I mean we deployed it in the U.K. The reason we got the CJ deal done in South Korea is we've been there for years, there, in a joint venture. But nonetheless, we have experience, we have assets, we have relationships, and those provide real leverage, including in streaming. So you put all that together, and we do see a superior financial envelope at comparable level of scale to someone else. And we do see this tracking to TV Media-like markets, which is at the core of your question. We just have to let it play out a bit. And yes, we've got to manage through some near-term macroeconomic headwinds, but we will. So we're very excited about this transformation journey that we're on.

Our next question is from Kutgun Maral from RBC Capital Markets.

One on content spend and one on film entertainment, if I could. So on content spend, some of your peers have clearly revisited their content spend budgets for the next few years as there is perhaps a greater focus on getting to profitable growth. I know you're in a unique position of being able to leverage your content investments across a more diverse set of linear and digital platforms. But on the other hand, it sounds like OIBDA losses for DTC this year are shaping up to be closer to $1.8 billion versus expectations for $1.5 million before. So I was curious if you had an updated view on what the appropriate level of content spend is evolving into for Paramount, whether that's for the total company or just for DTC? And just briefly on Filmed Entertainment, Top Gun's success has been pretty remarkable, and it seems like you have a very solid slate for the balance of this year and then, of course, more to come in '23 and '24. I know it might take some time before we get to the more profitable windows for these films to really flow through the financials. So maybe not for this year, but are we approaching a period where you could see more meaningful step function improvements in Filmed Entertainment's profitability?

Yes. It's Naveen, I'll take both of those. First, on content spend. The most important thing to remember is that when we think about our content investment, we're always looking at it in the context of the growth and the return that it unlocks. And so of course, when you think about it through that lens, you have to focus on the fact that we added 5 million Paramount+ subs in the quarter. Paramount+ revenue growth was 120%, and we continue to be very bullish about growth going forward. So our content investment is definitely working. It's producing very real results in the momentum that you've seen. And at the same time, we're very committed to our long-term growth objectives around the D2C business, and we intend to continue to invest to support that growth opportunity. Continuing as we have to make those decisions prudently with a real eye towards the ROI of the investments, what we don't want to do is sacrifice a long-term opportunity by overreacting to some of the short-term headwinds that obviously exist, particularly in the advertising marketplace today. So we're continuing to move forward. We're continuing to fund the growth. We think it's an incredible opportunity. And as you pointed out, our content dollars are used differently than many of our peers. We leverage those assets across many platforms, and it's one of the reasons that we can grow faster, while spending less than others. In terms of your question on the Filmed Entertainment business, obviously, we have not provided any specific long-term guidance there. But I would encourage you to think about that business more broadly, which is to say, increasingly, the value of our movies is not just about what they generated in the box office. Those windows are now expanding in terms of -- it's not just about box office and home entertainment and then going to third parties, we can generate a lot of value out of those assets on our streaming services. We continue to monetize them from a catalog perspective. So it's -- for us, it's really about continuing to build the asset value, and we do that by having a great slate that will continue to be heavy on franchises. And we're looking forward to what that does both for the box office business and also our other channels.

We now turn to Jessica Reif Ehrlich from Bank of America Securities.

I was wondering if you could give us color on IPL? What the dollar commitment -- your commitment is and what your goals are there? And then just to go back to the content spend, could you at least talk about like step function in increasing content spend '23 versus '22 and '24 as well?

Sure, Jessica. So IPL i.e., India cricket, I assume, that's a deal that was done by our joint venture in India, Viacom18, which recently had a transaction where they brought in Bodhi Tree as an investor and Capital Infusion. Their intent, and I don't really leave it to the joint venture, which, by the way, our other partners, Reliance, to speak to that, and they haven't spoke to it much. But what they have said is it's -- we obviously have the streaming rights there. It's going to be part of a streaming offering for the Indian market, that Viacom18 is going to launch in 2023. We've also said that we are going to -- Paramount+ is going to launch with it, essentially as another form of hard bundle, a tier. And therefore, we're really excited about it because we get the very material benefit of cricket, and cricket is at the top of the food chain in India. And so it will be a real engine for streaming, and then Paramount+ will benefit by being part of that, even though we're not directly investing on an O&O basis, we're obviously part of the joint venture. So that's the IPL answer.

And Jessica, with respect to the question on content spend in future years, I'd point you back to what we shared during our Investor Day back in February. As you know, we're -- our goal is to drive the growth on the D2C business to over $9 billion of revenue by the end of 2024. We said at that time that, that would involve D2C content expense of around $6 billion. And we're still operating with that in mind. We haven't provided any kind of specific cadence of exactly what that looks like from year to year, but we're continuing to invest and manage the business with those goals.

Our next question comes from Brett Feldman from Goldman Sachs.

And just sort of two related questions. The first is, to what extent are you seeing any inflationary cost pressures in the business? I'm particularly interested in whether that's creeping into content production costs. And then more broadly, one of the questions we get from investors as they think through the impact of inflation is pricing power. We've seen some price increases at different streaming services. I was wondering if you can give us your latest thoughts on when or whether you believe you'll be in a position to potentially start raising price on your streaming services, most notably Paramount+?

Yes. Sure, Brett. So on your first question, inflation, in our business, we actually saw inflation a while ago, really more in the production side of the house related to talent and competition therein. So we've been managing with that for a while. And thankfully, we are viewed as a good place to work, if you will. And we have many partnerships with important people in front of and behind the screen working with us to make shows. But -- so the current inflation driving things like higher fuel prices and all is not really that much of a factor for us incremental. We're watching it, but I wouldn't think of that as a step function change for us like it is, for example, for a packaged goods company that's buying raw materials at seeing those prices increase, very different dynamic.

And in terms of pricing on streaming services, specifically Paramount+, I think you really have to look at that in the context of ARPU more broadly because remember, we have a dual revenue stream model, which means that we're not entirely dependent on price increases for growth. And we are -- despite some of the short-term headwinds, we continue to be very bullish about the potential for continued ad ARPU growth on our streaming services. In fact, we've seen healthy double-digit growth in ad ARPU on the Essentials tier of Paramount+, despite some of the macro headwinds. That's, of course, driven by meaningful growth in engagement and continued innovation around the ad products that we make available. Pricing will be a part of the equation. And though we don't have any imminent price changes, they will happen in the future, and we'll do it while also taking into account the evolution of our content offering, looking at what sort of bundles and other promotional opportunities are available to our customers. and of course, thinking about our value proposition relative to competing services, where I point out, I think we offer a very strong value position today. So we're continuing to look at pricing. We continue to look at how we optimize the tiering along with that, but it's part of a broader overall ARPU story.

Our last question comes from Philip Cusick from JPMorgan.

I'll try not to abuse it. A couple of clarifications and a question, if I can. It sounds like you're no longer targeting 60%-plus growth in D2C revenue this year. Is that right? And is there a better level we should look at? And how is the composition of ad-supported versus premium Paramount+ subs and gross add trends sort of changed since the release in June? What does that ad load look like in revenue from here? And does that grow over time in terms of ad load?

Yes, I'll take those. It's Naveen. So first, in terms of D2C revenue growth for the year, we continue to expect very healthy levels of D2C growth. But obviously, given the macro advertising headwinds and the fact that there's a little bit less visibility in the back half of the year, it's possible we may not get all the way to that 60%. But I think it'll probably be relatively close. And either way, it's a very healthy number. With respect to composition of subscribers at Paramount+, it's still balanced between the premium tier and the ad-supported essentials tier that can bounce around a little bit from quarter-to-quarter based on promotions and bundles and things that we may be doing with partners. But I think it continues to be evidence that they are both very compelling products, and they both serve unique and large markets. So we like that strategy. And in terms of the ad load specifically, it's more a function of continuing to build out the ad products on Paramount+. We've launched advertising very recently within that service. And so for instance, there are certain parts of the product where advertising is not yet enabled and that will continue to evolve over time.

Yes, let me just jump in here. I really want to thank everyone for their time today. In closing, I hope you heard how we're deploying a very unique asset portfolio with a differentiated strategy to not only successfully compete in this challenging macroeconomic environment, but importantly, take share and continue to have real momentum, particularly in the streaming space. So we're very excited about the future. We're going to continue to manage through it, and we look forward to keeping you updated as we do. In the interim, thanks again for your time, and be well, everyone. Bye-bye.

Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.