PSKY — Q2 2026 Financial Report Analysis

Paramount+ and cost cuts raised profit while revenue barely grew

In the second quarter of 2026 (April 1 to June 30, 2026, reported on Form 10-Q on August 4, 2026), Paramount Skydance grew revenue 1% to $6.91 billion. Operating income rose 19% to $475 million. Adjusted EBITDA rose 27% to $1.10 billion. Paramount+ was the main source of growth: it added about 2 million subscribers in the quarter, reaching 81.6 million, and its revenue rose 16%. The CBS and cable networks brought in 9% less revenue but earned more, because costs fell faster. On the bottom line, however, net earnings fell 28% to $41 million, and diluted EPS halved to $0.04. Higher amortization, a 55.8% tax rate and about 65% more shares outstanding after the Skydance merger all weighed on it.

First, why this year and last year don't line up exactly

Paramount Skydance became the owner of Paramount Global on August 7, 2025, when the Ellison family took control and Skydance was merged in. Because of that change of control, the company re-valued Paramount Global's assets and debts at fair value as of that date. This is called "pushdown" accounting. The filing labels the periods "Predecessor" (Paramount Global alone, before August 7, 2025) and "Successor" (Paramount Skydance, after that date). It says the two "are not comparable." That matters for this quarter's figures in three ways:

1. Q2 2025 does not include Skydance. Some of this year's growth, especially in licensing revenue, comes from adding Skydance's business, not from growth in the existing one.
2. The re-valuation moves costs in both directions. The value of TV and film programming on the books was reduced, so content amortization expense (the gradual write-off of what shows and films cost) is lower. That raises reported profit and Adjusted EBITDA. Newly recognized intangible assets, on the other hand, have to be amortized: depreciation and amortization rose to $364 million from $87 million, which lowers operating income and EPS. The filing does not say how much of the Adjusted EBITDA growth comes from the lower content amortization.
3. The segments were redrawn in 2026. The segments are now Studios, Direct-to-Consumer and TV Media, with the TV studios moved into Studios and Paramount+ with Showtime moved into DTC. The prior-year segment figures below are the company's own restated, non-GAAP versions of Q2 2025.

The consolidated figures below are still directly comparable in the sense that they are the real reported totals for each quarter. They just rest on different accounting starting points.

Key figures

Operating margin is the share of revenue left after the costs of running the business, before interest and tax. Adjusted EBITDA is the company's own profit measure. It excludes depreciation and amortization, stock-based pay, restructuring, deal costs and impairments. ARPU is average monthly revenue per Paramount+ subscriber. Free cash flow is operating cash flow minus capital spending.

Why EPS halved while operating profit rose

The gain in operating income did not reach shareholders, for three reasons:

• Tax: the provision was $120 million on $215 million of pre-tax earnings, an effective rate of 55.8%, against 28.1% a year earlier. On the company's adjusted basis, the rate was 35.7%.
• Interest: interest expense rose to $255 million from $214 million. The filing says part of this comes from re-valuing the company's debt at fair value.
• Share count: diluted shares averaged 1,120 million, against 680 million. The Skydance deal issued about 314 million shares to Skydance's owners and 400 million to the Ellison-led investor group ($6.0 billion at $15.00 per share). Profit is now divided among about 65% more shares.

The reported figures also include one-off items. This quarter had $153 million of transaction costs, mainly legal and advisory fees for the planned Warner Bros. Discovery acquisition, plus $35 million of severance. Q2 2025 had $177 million of restructuring charges and a $157 million write-down of FCC broadcast licenses. Excluding those items, adjusted EPS was $0.18, against $0.46.

Segment by segment

Direct-to-Consumer (Paramount+, Pluto TV). Paramount+ revenue rose 16% to $2,061 million. That came from about 6% more subscribers and about 12% higher ARPU, driven by price increases. The subscriber total would have been higher without the loss of 1.8 million subscribers when an international distribution deal in Japan was not renewed. Management calls these "strategic" exits, meaning bundles it chose to leave because they earned too little. The new UFC rights deal, Dutton Ranch and FIFA World Cup coverage in six Latin American countries drove sign-ups. Management says Q2 had the lowest churn (the rate of subscribers cancelling) in Paramount+'s history. Segment Adjusted EBITDA rose 44% to $366 million, a 14.8% margin. The company says part of that gain came from the accounting change described above, which offset higher sports costs, mainly for UFC.

Studios. Revenue rose 16% on the recast basis, to $1,314 million. Licensing grew 34%, helped by Skydance's revenue and by more shows sold to other networks and streamers. Theatrical revenue fell 46% to $138 million: this quarter's main release was Scary Movie, while Q2 2025 had Mission: Impossible – The Final Reckoning. Adjusted EBITDA turned positive at $36 million. The main reason is that the company did not have to pay last year's large Mission: Impossible marketing and distribution costs again.

TV Media (CBS, cable networks, local stations). Revenue fell 9% to $3,128 million. Advertising fell 14%. About 8 points of that decline came from CBS not having the NCAA Final Four this year (it alternates years), and about 3 points from the sale of the Telefe and Chilevisión networks in South America. Political advertising added about 2 points. Affiliate fees, which cable and satellite providers pay to carry the channels, fell 6% as pay-TV subscribers kept declining. Costs fell 19%, as content costs dropped 25% on cost-saving programs, lower NCAA costs and the lower content amortization from the re-valuation. As a result, Adjusted EBITDA rose 17% to $1,063 million, a 34.0% margin, up from 26.4%.

Takeaway: Most of the profit growth came from cutting costs rather than from growing revenue. Revenue rose just $64 million while Adjusted EBITDA rose $236 million, and TV Media made more profit on 9% less revenue. Paramount+ is the one business growing on both price and volume. But the unquantified accounting boost to content costs and the much larger share count mean the 27% EBITDA growth does not fully reach per-share earnings.

Cash and balance sheet

Operating cash flow was $319 million and free cash flow $258 million, up from $114 million. Paramount ended the quarter with $1.6 billion of cash and $15.2 billion of debt as carried on the balance sheet, including $1.8 billion drawn on its revolving credit line. In Q1, it borrowed $2.15 billion on that line to help pay the $2.8 billion fee owed to Netflix when WBD ended its Netflix deal and signed with Paramount. The company says that amount will ultimately be covered by the Ellison-backed equity investment tied to the WBD deal.

Outlook

Management raised its 2026 Adjusted EBITDA forecast to $3.8–$3.9 billion, from $3.8 billion, a 12.8% margin at the midpoint. It kept its revenue forecast at about $30 billion, up 4%, counting both Predecessor and Successor periods. It now expects free cash flow of at least 10% of Adjusted EBITDA before about $800 million of transformation costs. For Q3 2026, it guides to $6.95–$7.15 billion of revenue (up 4% to 7%) and $875–$975 million of Adjusted EBITDA. It expects Paramount+ subscribers to be "flattish" from the previous quarter and the DTC margin to fall to the mid-to-high single digits, as content costs for the fall schedule arrive. About $200 million of transformation costs will reduce Q3 free cash flow.

Our view: The Q3 forecast implies Adjusted EBITDA below Q2's $1,099 million, and streaming margins will dip in the second half. Paramount+ pricing and the TV Media cost cuts look durable. How much of the profit gain is accounting will become clearer with the Q4 2026 results. That will be the first quarter compared against a full post-merger quarter, since Q4 2025 was entirely on the new basis. The larger issue is the planned $31.00-per-share cash acquisition of Warner Bros. Discovery, whose equity value was $80.9 billion when it was signed, with Paramount also taking on WBD's debt. It is funded by up to $46.7 billion of new equity and $54 billion of committed debt financing, and it is on hold until a court rules on the antitrust suit brought by state attorneys general and the Writers Guilds, or June 1, 2027 at the latest. If it closes, the standalone results above become a small part of a much larger and far more indebted company. If regulators block it, Paramount owes WBD a $7.0 billion fee, which the Ellison investors have agreed to fund in exchange for new shares.