The story of Paramount and the $3 billion Showtime controversy

Paramount Global reportedly turned down billions for Showtime and put billions more on hold.

As first reported last week The Wall Street Journal, Paramount recently rejected a $3 billion offer for Showtime from David Nevins and former private equity firm General Atlantic executive and backers. That’s a hefty — and generous-looking — price tag for a brand that’s effectively buried inside the Paramount+. IndieWire reached out to representatives for Paramount Global and General Atlantic, but did not immediately hear back.

It wasn’t the first multibillion-dollar deal for the premium cable channel that brought us “Homeland” and “Shameless.” Lionsgate wanted to merge Showtime with Starz, the Journal reported. Starz, which Lionsgate bought in 2016 for $4.4 billion, is now up for sale. The owner would be lucky to sell Starz for half that today, which shows valuation trends for these premium cable brands in the streaming world.

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A spokesperson for Lionsgate did not immediately respond to a request for comment.

So Nevins wasn’t the first. He wasn’t the first former Showtime executive, nor the most generous, to flash his checkbook in front of Paramount Global’s controlling shareholder Shari Redstone. Fellow alum Mark Greenberg, backed by private equity bank Blackstone Inc., offered $6 billion for Showtime just two years ago, according to the WSJ.

These are significant numbers. The company’s current market capitalization is $15 billion; its enterprise value, which takes into account both cash and debt, is just under $30 billion. Shares of Paramount Global ( PARA ) fell following the WSJ story (the stock has since recovered).

On Feb. 16, after Paramount Global reported disappointing Q4 2022 financial results, LightShed Ventures analyst Rich Greenfield asked why Showtime wasn’t being let go — even with deals like these.

“We believe the integration of Showtime and Paramount+ represents tremendous value,” replied Paramount chief Bob Bakish. “If we were to part with the asset, it would have to create more value than our own operating plan. And as stewards of shareholder value, we will always listen. But frankly, that bar is pretty high.”

Seacia Pavao/SHOWTIME

The bar is not that tall, Bob.

“Given the headwinds to linear TV and the multi-channel package, selling Showtime for more than $3 billion would be a big win for Paramount,” Greenfield told Puck. Monday. “If there is still interest, we suspect Paramount’s investors will applaud a transaction.”

Perhaps Bakish gave a standing ovation. In a note to investors a week ago, Wells Fargo analysts wrote that Redstone and Bakish are positioning Paramount Global to be sold as a complete company rather than seeing a piecemeal offload. That may be so, but some pieces may no longer stick to the possible case: Paramount is now is looking at selling BET and VH1.

Bakish previously admitted that he was running Paramount Global to make it attractive for the acquisition. This is a wise backup plan; Potential buyers include NBC owner Comcast — there would likely be an FCC problem if CBS were part of the deal — or Warner Bros. Discovery, which legally can’t do much until next year. With Paramount’s streaming costs peaking this year, the timing is interesting when looking at profits in 2024.

In the meantime, Paramount is taking a page from “Dexter” and bleeding Showtime subscribers — especially those with traditional TV packages. Wells Fargo estimates Showtime has 16 million linear subscribers and 11 million direct-to-consumer subscribers and brings in $2 billion in annual revenue. The bank believes Showtime’s annual earnings (before interest, taxes, depreciation and amortization — also known as EBITDA) are about $400 million. At a $3 billion valuation, that would be a multiple of 7.5x; Compare that to Paramount Global, which is 10x according to Wells Fargo’s year-end 2023 estimates.

In the words of Paramount Pictures’ “Braveheart,” MOON!

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Paramount, which does not break out Showtime’s subscription numbers, ended 2022 with more than 77 million streaming subscribers; nearly 56 million of those came from Paramount+. The standalone Showtime OTT platform will be discontinued in the third quarter of 2023, when “Paramount+ with Showtime” will be official on both cable and streaming channels. It will also be more expensive – the tier will increase by $2 per month.

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