As economic models have changed, many studios have either grown or fallen behind. According to veteran S&P analyst Naveen Sarma, Paramount Global is in danger of falling into the latter category.
Four S&P analysts, including Sarma, gathered on Tuesday at the UBS Global Media and Communications Conference, where they discussed the challenges facing many studios like Paramount, Dish Network, and Altice USA. Sarma noted that since the beginning of this year, Paramount’s credit rating shrunk down from BBB to BBB-, the “bottom end of what we would call investment grade.” If the rating fell any further, according to Sarma, investors would soon have trouble holding onto their stock.
Additionally, the company is in danger of losing its “commercial papers” due to its increasing losses. Usually, through these arrangements, Paramount can collaborate with other institutions to help their movie or TV budgets. Ideally, the amount earned from the final projects would be enough to pay off these debts, but with the studio’s decreasing credit, it could be night impossible to pay off these debts. “They don’t necessarily have the cash on the balance sheet to be able to make” a $2 billion payment to the NFL.
Many believe this decreasing rating could be correlated to the transition from traditional to streaming. “If you look at all that together, the media companies are going to have weaker cash flows than they have historically had, and that’s going to have a rating implication from our standpoint,” Sarma said. Whether or not streaming proves to be a good business will remain to be seen.
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