Paramount Studios Possibly Put Under Credit Rating Downgrade Amid Cash Flow Challenges

By Thea Felicity

Feb 25, 2024 01:22 PM EST

(Photo : Photo by Mario Tama/Getty Images)
LOS ANGELES, CALIFORNIA - JANUARY 31: The Paramount Pictures logo is displayed in front of Paramount Studios on January 31, 2024 in Los Angeles, California. Media mogul Byron Allen has made an offer to purchase Paramount Global in a deal valued at $30 billion including debt, according to a spokesperson for Allen Media Group.

S&P Global rating director Jawad Hussain states that they are eyeing Paramount Global for a possible credit rating downgrade due to concerns over weakened cash flow as it transitions from linear TV to streaming, according to The Hollywood Report.

There has been concern for Paramount Studios for their shift towards direct-to-consumer (DTC) streaming businesses, replacing traditional linear TV segments.

S&P anticipates resolving its monitoring of Paramount Global after reviewing fourth-quarter financial results, due out on Feb. 28.

The agency also plans to introduce cash flow metrics when measuring the wider U.S. media sector, highlighting the competitive landscape and higher churn dynamics in the digital platform environment.

Market analysts speculate that potential divestitures, including a combination of Skydance and Paramount's filmed entertainment studios, may occur if a deal for Paramount Global materializes.

This comes amid market speculation regarding takeover bids from David Ellison's Skydance Media and RedBird Capital, as well as a $14.3 billion offer from Byron Allen to acquire all outstanding shares in the studio.

The Challenges of Streaming for Paramount Studios

The reason behind Paramount Global's credit rating downgrade is its commitment to streaming services.

Before their transition, analysts warned that it is expected to yield lower margins and cash flows due to increased content spending, higher technology investments, and elevated marketing and subscriber acquisition costs.

True to their analysis, the studio's stock experienced a downturn during late-morning trading following Berkshire Hathaway's report of a stake cut in the media conglomerate.

VCPost also reported major layoffs of approximately 800 employees, constituting about 3% of its workforce. According to CEO Bob Bakish, this decision is needed to streamline operations amidst challenges posed by the dominance of streaming services over traditional television.

This compounded concerns over Paramount Global's credit status, particularly after last year's credit rating downgrade from BBB to BBB, prompting renewed scrutiny over its debt, which now carries negative implications.

Industry