Paramount’s New Dawn

It’s a new day at Paramount. Just 96 days into the newly-formed Paramount Skydance Corporation (PSKY), Chairman and CEO David Ellison hosted his first earnings call, and the message was crystal clear: the transformation is here, it’s going to be massive, and it’s not going to be cheap.

The Q3 2025 results give us the first factual glimpse into this new media giant, a company grappling with a messy tech stack and a weak film slate while simultaneously signing blockbuster deals for the UFC and the creators of Stranger Things.

Ellison has a North Star strategy, but it comes with a hefty price tag. The company is guiding for a strong $3.5 billion in adjusted OIBDA on $30 billion in revenue for 2026. However, the path to get there involves a massive $800 million in one-time transformation costs next year alone, which will push reported free cash flow negative and limit financial flexibility until 2027.

That is the costly reality of building the new Paramount but for now, the market seems to be liking what its hearing.

🚀 The Good: UFC, South Park, and a Profitable Streaming Biz

The new management team is moving fast on its top priorities: investing in creative content and scaling its direct-to-consumer (DTC) business globally.

The DTC Engine is Firing

DTC is their top priority, and the Q3 numbers show momentum. Paramount+ added 1.4 million subscribers, bringing its total to 79.1 million. DTC revenue jumped 17% year-over-year, driven by a 24% surge in Paramount+ revenue and that growth is likely to continue next year with a new price increase going into effect pretty soon. 

Most importantly, the company announced that its DTC segment is expected to be profitable for the full year of 2025 and will see growth in profitability in 2026. This is a huge win, buoyed by hits like Tulsa King and South Park—the latter being the top acquisition driver on Paramount+ in Q3.

The Unicorn UFC Deal

The biggest cannon shot from the new team is the landmark seven-year exclusive media rights deal with the UFC. Management is ecstatic about this, calling it a “unicorn sports property”.

Here’s why they think its a game-changer for them:

• It Solves the “Summer Desert”: Management noted Paramount+ had a “real desert of sports” between The Masters and the NFL, leading to high churn. The UFC is a year-round sport with marquee events every month.
• It Kills the “Double Paywall”: The deal moves all UFC-numbered events from a secondary pay-per-view (PPV) model to being included in the standard Paramount+ subscription. The company boasts that an annual subscription will now cost less than a single PPV event used to. If you’re a UFC fan, that’s a good deal. If you’re not then you’re just paying for something you don’t care about(see another price increase coming up).
• It’s the Perfect Demographic Fit: Management openly admitted their core CBS and DTC audience skews older and female. The UFC delivers a massive, young male audience, creating a perfect demographic complement .

CBS Remains an OK Asset

Even as cable dies, management drew a sharp line between cable and broadcast. They called CBS a cornerstone asset that is performing well, with the NFL on CBS having its best October in a decade. This strength is used as a barbell to drive viewers to the streaming platform and an easy way to get content that is already being produced for television. I’m not sure I fully agree with their grandiose verbiage around how great CBS is but it’s certainly an OK asset in my mind. 

📉 The Bad: A Broken Film Slate and Lagging Tech

It’s not all good news. Ellison and his team inherited some significant problems that they are now scrambling to fix.

The 2025 Film Slate is a Big Fat Dud

Ellison, a film producer by trade, is realistic about the state of the movie studio. The company’s 2025 film slate has underperformed, with most titles expected to miss their lifetime profit targets.

This is a major negative that requires a complete change. The new plan is to aggressively ramp up production, moving from the current ~8 movies a year to at least 15 films annually, beginning in 2026. This is part of a newly announced $1.5+ billion incremental programming investment for 2026, spread across film and DTC. This is potentially why they’re lookin at WBD and their recent success as a potential boon to the company via acquisition.

A Three-Headed Tech Monster

Perhaps the most shocking revelation was the state of the company’s streaming technology. Management revealed that Paramount is currently operating three completely independent streaming services (Paramount+, Pluto TV, and BET+) on three separate tech stacks, spread across multiple clouds with no connectivity.

This inefficiency is crippling. As one executive noted, the company can’t even upgrade somebody from Pluto to Paramount+. This tech mess is a primary target for the transformation, with a goal to converge all three into one unified platform by mid-2026.

Digital Ad Business is Lagging

The tech problem bleeds into revenue. The shareholder letter admits the digital advertising business “has not yet reached the growth potential we know it can achieve”. Specifically, Pluto TV engagement is lagging other FAST services, a problem they hope to fix with new partnerships with ad giants IPG and Publicis.

💸 The $800 Million Elephant: Why Free Cash Flow is on Hold

This is the central conflict of the Paramount story. To fix the cons and improve the pros, the Skydance merger has kicked off a massive, and costly, corporate transformation.

Management has increased its run-rate efficiency target from $2 billion to at least $3 billion. This is being achieved through painful but necessary steps.

The company has already implemented a significant workforce reduction impacting approximately 1,000 employees. It is also divesting non-core assets, including Telefe in Argentina and Chilevision, which will shed an additional 1,600 employees. Furthermore, a full five-day-a-week return-to-office policy led to 600 employees taking voluntary severance.

These deep, structural changes—combining tech stacks, integrating corporate functions, and streamlining the workforce—cost a lot of money upfront.

The company stated that achieving these efficiencies will require one-time investments (transformation costs) of approximately $800 million in 2026 and another $400 to $500 million in 2027.

This is the number one reason why reported free cash flow in 2026 is expected to be negative. While adjusted free cash flow (backing out these one-time costs) will be positive, the cash burn illustrates that this is a long-term turnaround, not an overnight fix and likely won’t see actual free cash flow until 2027.

🗺️ The Map to 2027: Guidance, Debt, and WBD Rumors

So, where does this all lead? Management laid out a clear multi-year financial plan.

The Debt and M&A Philosophy

The top capital allocation priority, before returning excess cash to shareholders, is managing the balance sheet. The company is laser-focused on deleveraging and has set a firm goal to regain investment-grade debt metrics by the end of 2027. That will be done through a combination of some debt paydowns once this is a free cash flow generative company but also through increase EBITDA. 

This disciplined focus on debt played directly into how Ellison answered a question about the rampant speculation of a merger with Warner Bros. Discovery (WBD).

While he couldn’t comment on rumors and speculation, his philosophy was clear. “There’s no must-haves for us,” Ellison stated. He stressed that the company can achieve its goals by building, not buying. Any M&A would be viewed through a disciplined lens and would only be considered if it accelerates the three North Star priorities(investing in growth + storytelling, growing DTC globally and driving efficiency). For now, the focus is 100% on fixing their own house. Still, it seems like WBD could certainly help 1&2 and would be another opportunity to become more efficient as a larger company.

Hot Mic: More from the Analyst Q&A

The earnings call Q&A provided other key insights into the new team’s thinking.

• On Separating Cable: One analyst asked about the plan for the declining linear TV assets. Management was adamant: they will not spin off the cable assets. They’ve seen that movie play out with other companies and it hasn’t gone very well. The plan is to stop investing heavily in them and instead use the valuable brands (Nickelodeon, MTV, Comedy Central) as content funnels to support the core business of global streaming. A.K.A. Get as much cash out of those businesses as possible to pay down debt and invest in DTC then spin it off when it’s worthless.
• On Price Hikes: With all this new content (especially the UFC), a price hike is inevitable. Management confirmed they plan to implement price increases in the US in early Q1 2026. That won’t make customers happy but it is needed if the new paradigm is to grow DTC as much as possible especially with the increased costs on content.

The Final Takeaway

Ellison’s first call as CEO did a good job in setting expectations. The new Paramount has a clear, aggressive, and improved content strategy. But it’s also undertaking a deep, expensive, and painful operational merger. The vision of a $30 billion-plus revenue company with $3.5 billion in OIBDA is the light at the end of the tunnel. But the tunnel itself is long, and in 2026, it’s going to cost $800 million to get through with more costs impacting 2027.

Still, investors seem to like this with the stock being up over 30% in the past year. Naturally, this investment requires a patient investor as you likely won’t see significant free cash flow until 2027. Still, if they can get past that bump and get back to pre pandemic margins, it’s possible this is a company that’s generating $2.5B in free cash flow by 2029 and one that’s currently trading at a $16.5B market cap and a $29.7B EV. That’s not too bad a deal if you trust management to pull it off.

However, being one of the smaller players in the streaming and TV space will make it hard to compete with the monsters like Netflix or Amazon who are bigger and still growing. There’s only so many streaming dollars to go around and all these price bumps will eventually lead consumers to choose one or two services and dump the rest. It’s quite possible that Paramount will need a dance partner like WBD to survive and become a bigger more competitive player in the space so watch out for that decision coming sometime in December.

Disclosure : I am long WBD and may be long other stocks discussed in this article. This is not investment advice so please discuss with a qualified financial professional before making any investment decisions.