Paramount Skydance: Scale, Storytelling, and the Long Game
Q2 2026 shows a DTC acceleration and studios turnaround, but the WBD merger remains the elephant in the room.
PSKY · Earnings Call · 2026-08-04
Transformation, Measured in Milestones
David Ellison opened the Q2 2026 call with a scorecard: "We nearly doubled our theatrical slate, deepened our roster with top-tier creative talent, greenlit 40 new and returning series for Paramount+, expanded our sports portfolio with the UFC, Zuffa Boxing..." (component 9212317660118244912). That list is the operational story—an aggressive push into content and streaming as the legacy linear business erodes. The numbers support the narrative: Paramount+ grew to 81.6 million global subs, revenue up 16%, with ARPU driving two-thirds of that growth. CFO Dennis Cinelli spelled out the momentum: "Revenue up 16% for Paramount+, roughly 1/3 of that was from subscriber growth, 2/3 from our ARPU increase." (component 6951863440328744302) The company also signaled that the much-discussed tech convergence is on track. "We're on track for everything that we've guided towards in terms of convergence," Ellison affirmed (component 146830991790705671). This is a recurring promise—Q1 2026 said "We are on track, as discussed previously, to consolidate our three streaming services into one unified platform by the middle of this year" (component 6532226388002196154). Now the target is end-of-summer, and the benefits—unified data, better recommendation, higher ad monetization—are becoming tangible.DTC: The Engine of Growth
World Cup drove a historic quarter for Paramount+. Ellison highlighted how live sports and premium events are deepening engagement and retention—"best retention quarter in Paramount+ history" and double-digit view-hour growth. The UFC partnership continues to exceed expectations, with the July McGregor fight setting new records. This is not just a content bet; it's a strategic pivot toward sports as a subscriber magnet in a fragmented streaming market.The near-term guidance reinforces this: Q3 revenue expected to accelerate 4–7%, with DTC leading. Dennis Cinelli laid out the back-half drivers—stronger ad trends, subscription strength, and the Pluto relaunch. "Pluto will return to growth in the back half of the year," he said, tying the convergence directly to monetization.We have room to grow subscribers, both domestically and internationally. We have room to deepen engagement. And you're seeing this come through in the quarter we had.
Studios: From Rebuild to Growth Engine
Studios delivered a profitable quarter, with adjusted EBITDA of $36M versus a loss last year. The film slate is nearly doubling, and the company is leaning into marketing efficiency—"each dollar of marketing spend is generating 11% more box office in '26 versus '25" (Cinelli, component 6492530320690603991). Ellison credited the turnaround to a data-driven greenlight process and a pipeline of talent and franchises: Sonic, A Quiet Place, Teenage Mutant Ninja Turtles, and a Taylor Sheridan–led Call of Duty. This is a long-cycle bet. "When you really think about getting our core franchises back online, you don't really see that start to occur until '27," Ellison noted (component 5867267307914482042). The market understands this, which is why the stock remains deeply depressed—down 90% from its 2021 peak.The AI Layer
Ellison devoted a full Q&A to artificial intelligence, framing it as a creative tool, not a replacement: "We really do view artificial intelligence as a tool for storytellers, not a replacement for them" (component 67974320245269541). He sees untapped potential in IP interaction—"if she wants to have a 10-minute conversation with Skye powered by an LLM, she can do that"—and in cost savings, noting AI is making coding "roughly 50% more efficient." This is a narrative the company has consistently pushed—it was a running theme in the November 2025 call as well (component 4014281221471753316). But the emphasis now is on both creative and operational upside, which fits the broader storytelling-first positioning.TV Media and the Affiliate Negotiation Overhang
TV Media profit grew 14% despite revenue decline, buoyed by resilient affiliate relationships and a strong upfront. Andy Gordon noted "cord-cutting is slowing" and that the company is managing the decline efficiently. But the elephant remains the WBD merger: the company is working through regulatory approvals and litigation, with a trial set for March 2027. CFO Dennis Cinelli laid out the financial staying power: $1.6B cash, $3.2B revolver, and positive free cash flow performance for the year, even after $800M in transformation costs. The company guided to at least 10% free cash flow conversion for 2026, a step up from 5% prior, though the latest quarter showed just $16M. That's a function of intentional content investment—"this is an investment year," Cinelli said—but the longer-term target is peer-level conversion.What Changed, and Why It Matters
The story from Q2 is that the transformation is no longer just narrative—it's showing up in operating metrics. Subscriber growth, ARPU expansion, retention, ad momentum, and studio profitability all point in the right direction, even as the company manages the linear decline and the WBD litigation. The market, however, is discounting the story because of the spread on the merger and the capital intensity of content. The risk is real: if the WBD deal fails, the company faces a $190M/month bridge fee and a ticking fee of $650M per quarter. But the standalone momentum is underappreciated. With a 16% DTC revenue growth rate, 11% improvement in studio marketing ROI, and a clear path to free cash flow inflection, the operational turnaround is real. The stock may stay under pressure until the deal resolves, but the underlying business is moving in the right direction.A year ago, we set 3 priorities for the new Paramount: invest in storytelling, scale our direct-to-consumer business globally and drive enterprise-wide efficiency. 12 months in, I'm proud to say we are delivering on all 3.