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Businessweek | Feature

How Paramount Became a

Cautionary Tale of the
Streaming Wars
Shari Redstone inherited her father’s storied media
empire and tried to take on Netflix. Now it’s looking for
a buyer.
By Lucas Shaw
February 16, 2024 at 6:00 AM EST
Save

Sumner Redstone was a buyer, not a seller. Starting in the mid-

1980s, he built his family’s movie theater chain into one of the
world’s most valuable media companies, Viacom, through high-
profile acquisitions. He outmaneuvered peers to acquire a legendary
broadcast network (CBS), an iconic studio (Paramount Pictures) and
popular cable channels (Nickelodeon and MTV).

Redstone relished his Hollywood lifestyle. He attended premieres,

cycled through young girlfriends and hosted stars at his Los Angeles
mansion. He couldn’t imagine surrendering any part of his
company. In 2016, when then-Chief Executive Officer Philippe
Dauman tried to sell a minority stake of Paramount studio—the
company was struggling, and he was trying to raise money—the 93-
year-old Redstone ousted Dauman, his longtime lawyer and protégé,
from the company. “Viacom is at the center of my life,” Redstone, a
lawyer himself, wrote in his memoir, A Passion to Win. “It is my
world.”

Sumner Redstone Photographer: Michael Tran/Getty Images

Redstone died in 2020. Unfortunately for his heirs, the foundation

on which he built his world—movies and cable TV—is crumbling. The
number of people who pay for live-TV service has dropped about 30
million from its peak of more than 100 million starting in 2010;
meanwhile, domestic moviegoing has plummeted to all-time lows.
Redstone’s TV networks have been hit especially hard because their
primary audience, viewers under the age of 34, have all but
abandoned cable for Netflix, TikTok and YouTube. The company,
now known as Paramount Global, has tried to offset the damage by
cutting costs. But the lack of investment has only accelerated the
loss of viewers and advertisers. Paramount’s TV ad sales are
projected to have fallen $1 billion last year.

Sumner’s daughter, Shari, who took over for her father as chairman,
thought that streaming would save the company. She’s spent billions
of dollars on original series for its flagship service, Paramount+,
producing spinoffs of hit shows such as Yellowstone and expanding
the Star Trek universe. Yet all that spending hasn’t attracted a large
audience. Paramount+ accounted for less than 1% of TV viewing in
November, behind not only Netflix and Hulu but also Peacock, the
Roku Channel and Tubi. Paramount’s streaming business is
projected to have lost about $1.5 billion in 2023, dragging down
earnings for the entire company. (Paramount has said that its losses
likely peaked last year.)

Shari Redstone Photographer: Martina Albertazzi/Bloomberg

Paramount isn’t the only traditional media player that doesn’t

exactly have a success story to tell these days. The collapse of cable
TV and the rise of streaming have wreaked havoc on the
entertainment business, prompting widespread layoffs, two labor
strikes and consolidation. “The whole industry is guilty of
mistakes,” says Rich Greenfield, an analyst with LightShed Partners,
a tech, media and telecommunications research company. Even
Walt Disney Co., the mightiest of the entertainment giants, has had
to fire thousands of employees and slash billions of dollars from its
programming budget.

Although “you can’t singularly penalize” Paramount in such a

tumultuous media moment, Greenfield says, the company has a
smaller margin for error than most of its peers. Disney has lucrative
theme parks, and Warner Bros. Discovery Inc. owns the largest TV
studio, but Paramount made all its profit last year from traditional
TV networks, according to projections—which is why Wall Street has
all but given up hope. The company’s market capitalization has
plunged below $9 billion, less than a third of what it was five years
ago. With more than $16 billion in debt and little cash coming in,
Paramount has had to slash the dividend it pays to National
Amusements Inc., the Redstones’ holding company. Paramount’s
decline has also forced Shari Redstone to contemplate what her
father would never: a sale of the family business.

For the past several months, Redstone has been conducting an

informal auction, according to more than a dozen interviews with
people involved in the process, such as current and former
employees, financial advisers and bidders. She’s held discussions
about selling control of Paramount to suitors including budding
media mogul David Ellison, private equity firm Apollo Global
Management Inc. and Warner Bros. Discovery, home to HBO and
CNN. Former stand-up comedian Byron Allen has made two
separate bids for Paramount, the first of which the company
rejected. There’s still a pretty good chance no deal will happen; high
interest rates and a federal government that’s wary of mergers both
stand in the way, as does Paramount’s sinking share price.

David Ellison Photographer: Angela Weiss/Getty Images

If Redstone can’t find a solution, the company will be in danger of

becoming an industry stalwart whose downfall exposes the
deterioration of an entire sector. Paramount’s decline jeopardizes
the future of its namesake studio, an almost 112-year-old institution
that released The Godfather, Grease and Titanic. It also imperils CBS
News, the home of Edward R. Murrow, Walter Cronkite and 60
Minutes. MTV, Nickelodeon and Comedy Central, which raised
generations of kids, are already afterthoughts to anyone born this
century.

The company’s troubles are also a warning sign for Hollywood,

which looked to avoid the fate of newspapers, magazines and music
—industries ravaged by the internet. But as media companies
struggle to transition from cable to streaming, they’re surrendering
the next generation of TV viewers to short-form video apps and
services that tech giants in Silicon Valley and China own. So far,
Hollywood has relied on restructuring and layoffs rather than
innovation and growth, leading to questions about whether we’re in
the last great age of TV.

.
it would benefit the latter: Cable was booming—investors liked niche
networks—and broadcast was seen as slow-growing and a drag on
the stock. Shari opposed the move, one of several disagreements
that prompted her to strike out on her own. After starting a venture
capital company, among other projects, she returned to the family
fold when she worried that two younger paramours were taking
advantage of her father; she eventually ejected them from the family
home. Redstone then spent years battling Dauman and then-CBS
CEO Leslie Moonves (who didn’t want her meddling in his business)
for control of her family’s two big media companies.

When Shari reunited CBS and Viacom in 2019, most media

executives said it was too little too late. Netflix Inc. and
Amazon.com Inc. were already spending billions of dollars annually
on original programming and had built streaming services with
global audiences. (Dauman had spent more than $15 billion buying
back Viacom stock rather than investing in the company’s future.)
Facing this onslaught from Silicon Valley, some moguls decided to
cash in rather than compete. Rupert Murdoch sold most of Fox’s
entertainment assets to Disney. Jeff Bewkes sold Time Warner Inc. to
AT&T Inc. But Redstone, a lawyer who was as pugnacious as her
father was, was in no mood to surrender.

“There was a window during which she could have pursued a

merger or sale,” says one former executive, who declined to be
identified because of confidentiality clauses in their exit agreement.
Netflix inquired about buying Paramount Pictures in 2019 and again
in more recent years. “Shari was hesitant,” the executive adds. “She
had inherited this legacy.”

Instead, Redstone decided to go all-in on streaming. On their own,

neither CBS nor Viacom had the scale to compete with Netflix.
Viacom had no paid streaming service and had licensed two of its
most popular titles, Yellowstone and South Park, to rival services.
CBS had All Access and Showtime, two niche services. But the
combined company owned more than 140,000 TV episodes and
3,600 movies; it was the home of NCIS, SpongeBob SquarePants and
Star Trek and had rights to the NFL. Surely, Redstone thought, that
would be enough.

Crafting the streaming strate y fell to Bob Bakish, a former

management consultant who joined Viacom in the late 1990s.
Bakish had overseen the company’s international operations and
was relatively unknown in US media. But with the executive ranks of
both her companies hollowed out, Redstone thought Bakish—
strategic, practical and, most important, loyal—was the right fit for
CEO.

Bakish had the mandate to build a streaming service, but he didn’t

have the balance sheet to pay for it. The merger created a company
with $19 billion in debt. To raise money, Bakish sold real estate,
including the famed CBS headquarters in New York, and tried to sell
book publisher Simon & Schuster. (The government blocked the sale
to a competitor but later approved a deal at a lower price to private
equity firm Kohlberg Kravis Roberts & Co.) He also cut costs at the
company’s cable networks, gutting executive teams and
programming budgets.

In 2021, Redstone and Bakish unveiled Paramount+, their answer to

Netflix. The service included original movies from Paramount, a
reboot of MTV’s The Real World and spinoffs of Yellowstone. Bakish
advertised Paramount+ as a “mountain of entertainment,” a play on
the snowy peak in the Paramount logo. The service arrived months
after similar offerings from Disney, Apple Inc. and Comcast Corp.,
companies that dwarfed Paramount in sales and profit.

“What they’ve done to the balance

sheet by competing with Netflix has
created real financial problems”
Paramount+ defied skeptics by growing more quickly than anyone
anticipated. Despite its late start, the service amassed more than 50
million customers—and was adding more people in the US than any
competitor. (This is still true.) Paramount’s other streaming service,
Pluto TV, was growing even more quickly. Bakish had acquired the
free, ad-supported business, which has hundreds of niche live
channels, for only $340 million in 2019, and it was now worth
billions. “The strate y we have is indisputably working,” he told
Bloomberg News in September 2022. That year, Paramount released
the highest-grossing movie in company history, Top Gun: Maverick,
at the same time it had the most-watched drama on cable,
Yellowstone.

But the company’s investment in Paramount+ couldn’t have had

worse timing. It had started adding millions of customers just as
rising inflation and a war in Ukraine changed how Wall Street
evaluated companies. Fast growth and losses were out; profit was
in. Making matters worse, Netflix’s growth stalled at the start of
2022, causing investors to worry that streaming had peaked.
Whereas Netflix had spent years building toward profitability, most
other companies were trying to replicate its success within an
accelerated time frame. Streaming growth across the industry
slowed right when companies were experiencing their worst losses.

As Paramount’s stock languished, David Nevins saw an

opportunity. The former head of Showtime thought he should’ve
been put in charge of programming strate y for Paramount+, given
his role in creating hit shows such as Billions, Dexter and Weeds. But
Bakish didn’t think Nevins’ tastes were broad enough. The
company’s biggest hits were shows such as Blue Bloods and
Yellowstone, not Showtime dramas. Bakish instead split oversight
among multiple executives, including Nevins, who left at the end of
2022. Now on the outside, he put together financing to try to buy
Showtime.

Teaming up with private equity firm General Atlantic, he offered

more than $3 billion for his old network. Given Paramount’s need
for cash, this seemed a no-brainer to Nevins and his financial
advisers. Paramount rebuffed the offer, claiming Showtime was
worth at least $5 billion. Some board members thought Paramount
should take the money, but Bakish convinced them he could make
more by milking Showtime for cash and folding it into Paramount+.
He also had another deal in the works. He wanted to sell BET.

A touchstone of the Black community, Black Entertainment

Television LLC had its own studio and a streaming service partly
owned by filmmaker Tyler Perry. But it was missing out on ad
dollars because it was owned by a White family, according to several
people who spoke to Bloomberg Businessweek; industry experts told
Bakish that advertisers would spend more money on BET if it could
say it’s a Black-owned business. So he got a who’s who of Black
media figures to bid, including Perry, Sean “Diddy” Combs and
Allen. Bids topped $2 billion, but Paramount refused to sell for less
than $3 billion. After rejecting the offer for Showtime and failing to
sell BET, many Paramount employees and even some board
members questioned Bakish’s handling of the sales. “We got an
unsolicited offer for Showtime [from Nevins]. We looked at it. And
the reality is it wasn’t that interesting to us,” Bakish said last year.
(He hasn’t addressed the BET negotiations.) Paramount has been
holding talks of late to sell BET to Scott Mills, its current CEO, along
with outside investors.

Byron Allen Photographer: Kyle Grillot/Bloomberg

Redstone’s doubts ran deeper. Paramount’s woes had forced the

company to slash the dividend it pays to shareholders, thereby
creating financial problems for her family. National Amusements
relied on the cash infusions from Paramount to sustain its chain of
struggling movie theaters and to pay off its debt. Last May, National
Amusements raised $125 million by selling a stake to an investment
firm founded by computer billionaire Michael Dell and investment
banker Byron Trott. “What they’ve done to the balance sheet by
competing with Netflix has created real financial problems,”
LightShed’s Greenfield says. The value of the Redstone family’s stake
in its media companies has dwindled from more than $5 billion in
2015 to about $1 billion today. Trott is now advising Redstone on a
potential sale of National Amusements.

media empire increased after Oct. 7, the day Hamas killed about
1,200 Israelis and foreigners and kidnapped hundreds more,
precipitating an Israeli invasion of Gaza. “Ever since Oct. 7, my life
has been turned upside down,” she said at an event hosted by
entertainment industry publication TheWrap in December. She
expressed fear for her safety, the survival of Israel and the future of
the Jewish people, adding that she’s using her platform to educate
people about these issues. “Now it’s all I think about 24 hours a day,
and it’s what motivates me from the minute I wake up to the second
I go to bed.”

After years of avoiding overtures to buy the company, Redstone

has finally been willing to listen. David Ellison, the CEO of
Skydance Media, has been drawn to Paramount Pictures since he
arrived in Hollywood as a twentysomething with dreams of making
movies. Few titles affected him as much as Paramount’s Top Gun. He
watched the film on VHS tapes, laser discs and DVDs; it motivated
him to become a pilot, and his love of aviation inspired the name of
his company. Skydance has been in business with Paramount for 15
years, co-financing and producing many of its biggest movies.
Ellison worked with Paramount on the Oscar-nominated True Grit
and Brad Pitt’s World War Z, and his studio is now a major
stakeholder in many of Paramount’s most valuable franchises,
including Mission: Impossible and Star Trek. He also produced Top
Gun: Maverick.

Ellison has been expanding his business into animation with former
Pixar Animation Studios boss John Lasseter and sports through
docuseries deals with the NFL. Skydance raised $400 million in
2022 from investors including private equity firms RedBird Capital
Partners and KKR. Recently the 41-year-old recruited his dad, tech
billionaire Larry Ellison, and these investors to make a preliminary
offer for National Amusements. It would give him control of
Paramount, letting him merge it with Skydance—and vaulting him
into the upper echelon of media moguls.

Even though Redstone has spent time with Ellison and his father,
she’s been less welcoming toward Byron Allen, who’s assembled an
unlikely media business combining the Weather Channel with local
TV stations. Allen has tried and failed to buy several big-ticket items
in recent years, including the Denver Broncos, the ABC broadcast
network and BET. Investors have often questioned whether Allen
had financing to seal these deals. He’s said Paramount turned him
down because the company thought it could get more money.
Paramount has declined to comment on Allen’s—or anyone’s—bids.

Those close to Redstone tell Businessweek there are other bidders at

the table, though they declined to name them. Private equity firms
have looked at Paramount but not bid on their own. High interest
rates make it expensive to finance the takeover of a multibillion-
dollar media company. Fellow media companies such as Warner
Bros. Discovery and Comcast have also looked. Warner Bros.
Discovery CEO David Zaslav has spoken with Redstone and Bakish
and hired financial advisers to work on a potential bid. But the
current regulatory climate would likely result in years of litigation
and headaches for Zaslav. He would have to be sure this was the
right deal to position his company for the future.

David Zaslav Photographer: Kevin Dietsch/Getty Images

Executives close to the negotiations say there’s about a 50% chance

a deal happens. Because Redstone is attempting to sell control of
Paramount through her family holding company (among other
scenarios), any deal is also more complicated because she’ll expect
her controlling shares to be valued higher than those of common
shareholders. Warren Buffett, Paramount’s largest shareholder, has
said nothing about the talks. Investor Mario Gabelli, another major
shareholder, has expressed concerns about a deal.

Many buyers say they can wait a year or two for the value of the
company to drop further. Redstone’s cable networks are only going
to decline more and will face financial pressure from pay-TV
operators such as Charter Communications Inc., which has forced
other media companies to drop certain channels from their cable
packages that don’t perform well with subscribers. Her streaming
service is still years away from meaningful profits—there’s a reason
Paramount promoted it so aggressively during the Super Bowl—and
has a limited footprint outside the US. “It is hard to see how a buyer
creates value unless Paramount stock first falls toward the mid-
single digits,” Greenfield wrote in a note on Jan. 25. Shares are
currently trading at about $13.

Some analysts, including Greenfield, have called for Paramount to

shut down its streaming service and become a pure studio, selling
its top shows to other streamers. This move would require
Paramount to fire thousands of employees, a fate Redstone would
rather avoid. She wants to find a new owner who will preserve her
father’s legacy, investing in the business rather than breaking it up
for parts. But Sumner was a buyer at the beginning of the cable
boom, and his daughter is a seller at its end. And if she can’t make a
deal, her alternatives are bleak. This week Paramount said it would
cut about 800 jobs—at least the fourth time in the past 18 months
that the company has downsized. —With Christopher Palmeri and
Thomas Buckley

Read next: Social Media Platforms Are Done With News, But Gen Z Still
Treats Them as a Go-To Source

Follow all new stories by Lucas Shaw

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PARAMOUNT GLOB-B PLUTO TV

12.00 USD Private Company
–4.69%

NETFLIX INC NATIONAL AMUSEME

583.95 USD Private Company
–1.60%

WALT DISNEY CO/T

111.60 USD
–0.76%

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