Paramount Skydance (PSKY) Q2 FY26 earnings call: guidance and Q&A

Paramount Skydance remains highly confident in the closing of the Warner Bros. Discovery transaction, having received approvals from 65 jurisdictions globally, including the US, Canada, and EU. Management asserts the deal raises no competition concerns, citing the combined entity's television market share of less than 20% (excluding YouTube) and 13.4% (including YouTube), and domestic box office share of 18-22%. While litigation is ongoing with a trial set for March next year, the company is open to an out-of-court solution and believes the facts and law are on its side. The financing is locked in, though incremental costs of $8M-$9M per month and a potential $650M per quarter ticking fee (if closing after September 30) are noted.

The direct-to-consumer (DTC) business, primarily Paramount+, demonstrated strong momentum with 16% year-over-year revenue growth, driven by both subscriber additions and ARPU improvement. Paramount+ reached nearly 82 million global subscribers, adding 2 million net subscribers in Q2 (4 million underlying before hard bundles), and achieved its best retention quarter ever with double-digit growth in total view hours. The company is on track to converge its tech stacks for Paramount+, BET+, and Pluto by the end of summer, with Pluto's web experience already live. This integration is expected to improve personalization, discovery, ad experience, and monetization, with content investments planned for Pluto in Q4.

The Studios business returned to profitability in Q2, reporting $36 million in adjusted EBITDA, a significant improvement from a loss in the prior year. Revenue for the segment grew 16%. The company has significantly increased its film output, with 15 films slated for 2026 (up from 8 last year) and 90 series/800 episodes in television production. Management highlighted improved marketing efficiency, with each dollar of marketing spend generating 11% more box office in 2026 compared to 2025. Double-digit licensing growth and library revenue growth further contributed to the segment's strong performance, with a focus on investing in top-tier creative talent and a robust slate for future years.

TV Media's profit grew 14% despite a revenue decline, reflecting effective management against the broader industry shift away from linear television. Affiliate revenue declines have slowed, and subscriber churn is moderating. Q2 advertising revenue for TV Media declined 14% year-over-year, primarily due to the absence of NCAA coverage (8 percentage point impact) and the sale of Telefe and Chilevision (3 percentage point headwind), partially offset by a 2 percentage point political benefit. Paramount+ delivered double-digit ad growth, but Pluto remained a drag, though it is expected to return to growth in the second half of the year following its relaunch. Overall company ad revenue is projected to return to growth in H2.

Paramount Skydance views artificial intelligence as a powerful tool for storytellers and a significant unlock for creativity and efficiency across the business, rather than a replacement for human talent. Management anticipates AI will enhance creative processes and drive efficiencies, citing a 50% improvement in computer programming project completion. The company believes AI can deepen fan engagement by enabling interactive experiences with beloved intellectual properties, such as conversational AI with characters or user-generated content within established universes. Despite the rise of AI-generated content, a premium is expected for handcrafted, high-quality, artist-driven storytelling.

The company is making substantial progress on its cost transformation initiatives, tracking to over $2.7 billion in run rate efficiencies by year-end, and still expects to achieve over $3 billion in total efficiencies from the Skydance-Paramount merger. Key areas of savings include technology, with an estimated $200 million from ERP migration to Oracle Fusion (complete by end of next year), tech stack integration for streaming platforms, and economizing cloud provider spend. An additional $100 million in savings is expected from consolidating facilities management and procurement efficiencies in areas like professional services and marketing.