That's the message many are starting to convey after $PARA plunged nearly 30% after reporting earnings this week. Those following my memos on this platform know that I've advocated for entertainment companies to embrace a mixture of both streaming and theatrical releases, not a pure focus in one direction or another.

Warner Brothers Discovery $WBD recently reported a profit on streaming after many years of losses and a massive rebranding/merger of content from Discovery+ and HBOMax to Max. Part of achieving this profit was a massive reduction in content spending as well as laying off thousands of employees. Now that the company is profitable on the streaming front, it remains to be seen whether those remains are sustainable or not. For now, the cash burn that Warner Brothers Discovery reported in their Q1 earnings can be attributed to interest and sports media rights payments.

For Paramount, the situation is different. They've already spent $1.7 billion merging Showtime and Paramount+. In terms of market position, they're below Netflix, Disney+, Hulu, and Max. This means that they're currently fighting for fifth place with Apple TV, Prime Video, and Peacock. All three of those competing streaming services are backed by cash-rich companies that can afford to prolong the streaming wars since they've already secured a fortress balance sheet well before Powell decided to accelerate rate hikes.

A Wells Fargo analyst provided two options for Paramount:

Licensing makes sense for Paramount because some of the biggest costs in streaming are both production and distribution. They're not planning to make money on the advertising that comes with distributing the content to a wider audience. Plus, it's the perfect way for Paramount to capitalize on the fact that the streaming space is overcrowded and companies are needing to cut down on content production internally. The industry has seen Sony act as an "arms dealer" during the streaming wars as it has been licensing tons of content to Netflix, Disney, etc. for top dollar and it continues to see profits while its streaming partners continue to see losses. Paramount should do something similar and make Netflix, Disney, and the other streaming services bid for top dollar for their Star Trek content.

Breaking up the company isn't a bad idea. Look at Amazon's acquisition of MGM Entertainment. $AMZN acquired MGM Entertainment for $8.45 billion. The market cap of $MGM is currently $15 billion. Entertainment was a smaller business for the casino giant. According to the analyst, the sum of all the parts of Paramount are worth $30 billion or more, which is nearly triple what its current market cap is.

In conclusion, the streaming wars are far from over, and the recent drop in stock price for Paramount serves as a stark reminder of the challenges facing entertainment companies in this space. While Warner Brothers Discovery has found a path to profitability through a combination of content consolidation, cost reduction, and mass layoffs, Paramount remains in a precarious position, fighting for market share against cash-rich competitors. However, the options provided by the Wells Fargo analyst offer a glimmer of hope. By licensing and even selling content to other streaming platforms, Paramount can capitalize on the overcrowded streaming space and generate additional revenue without incurring the production and distribution costs. Alternatively, breaking up the company could unlock hidden value and attract strategic acquirers like Amazon did with MGM. Whatever path Paramount chooses, it must act fast and decisively to survive and thrive in the streaming wars.