“Paramount’s ‘Junk’ Trunk: How a Media Giant Got Downgraded to the Bargain Bin”

Paramount Global, a prominent media conglomerate, has recently faced a significant downgrade in its debt rating to ‘junk’ status by S&P ...

Paramount Global, a prominent media conglomerate, has recently faced a significant downgrade in its debt rating to ‘junk’ status by S&P Global. This adjustment reflects the agency’s concerns regarding Paramount’s ability to improve streaming losses over the next two years. With a long-term debt of $14.6 billion as of the end of 2023, Paramount Global is under pressure to execute a robust plan to mitigate further downside ratings pressure.

The downgrade from ‘BBB-’ to ‘BB+’ indicates a shift into speculative-grade territory, often referred to as ‘junk’ status. This change underscores the ongoing challenges faced by traditional media companies in an evolving digital landscape, where cord-cutting and the pivot to direct-to-consumer streaming models have become increasingly prevalent. S&P Global’s assessment points to the “ongoing deterioration of the linear television ecosystem” and the substantial investments required to support the burgeoning streaming services. Paramount Global’s free operating cash flow-to-debt ratio is expected to remain below 10% through 2025, with adjusted leverage staying above 3.5 times.

Despite these challenges, S&P Global has issued a ‘stable outlook’ for Paramount, based on the assumption that streaming losses will significantly decline, aided by strong average revenue per user (ARPU) growth from price increases enacted in mid-2023 and continued subscriber growth, albeit at a modest pace.

The situation at Paramount Global serves as a cautionary tale for media companies navigating the complex transition from traditional broadcast models to the competitive streaming arena. It highlights the importance of strategic planning and the need for media entities to adapt swiftly to the changing consumption patterns of audiences worldwide.