The Zhitong Finance App learned that the core content of the Hollywood supergiant Skydance (SKYD.US) 2026 third quarter results conference call showed that Paramount and Warner have a clear timeline for streaming integration. Skydance plans to launch Paramount+ and HBO Max bundles in early 2027, and aims to use back-office technology to unify the two services for about a year.
Previously, it took about 18 months to move Pluto TV to the Paramount+ platform and integrate Bet+. Management expects AI tools to speed up progress this time. The two paid services currently reach a total of 203 million subscribers, and Pluto TV also has about 75 million monthly active users. The company tends to focus on direct sales while retaining third party distribution channels that can expand coverage. The new pricing plan will be rolled out in stages based on consumer feedback, and it is yet to be determined when the price will increase for individual subscriptions and package discounts.
The $6 billion annualized collaborative target has a specific cost split and implementation pace. Of at least $6 billion saved over three years, headquarters management expenses, real estate and facilities contributed at least $2.2 billion, technology and supplier and procurement management each contributed at least $1.4 billion, and marketing contributed at least $1 billion.
The company's management expects to reach 30% of the target annualization level by the end of 2027 and 70% by the end of 2028. Implementing various measures one after another means that the actual savings recorded in profit and loss for that year will be lower than the annualized level at the end of the year. Achieving the collaboration is estimated to require $4 billion in cash expenses, of which $1.5 billion to $2 billion will occur in 2027. Potential revenue growth comes from library licensing, cross-platform sports ads, streaming media retention, and average revenue per user increase. These revenue collaborations have not yet been incorporated into business plans or transaction calculation benchmark scenarios.
The short-term variable is the Warner movie list, and the mid-term test is whether cash flow can cover consolidated expenses. The weak performance of Warner Films is expected to drag the fourth quarter's adjusted profit before interest, tax, depreciation and amortization by $200 million. Management will instead provide annual guidance, announce the full 2027 outlook at the next conference call, and release financial data for the exam before that. The initial judgment is that streaming revenue will continue to grow strongly in 2027, and production revenue and profit before amortization after adjustments to the Group will rise. After taking into account the expenses required to achieve collaboration, cash flow is still expected to reach break-even or better.
The company's management expects to rely on operating cash flow and profit growth to reduce net leverage to less than 3 times by the end of 2029 and maintain the mid-term goal of free cash flow of at least $10 billion in 2030. Until the leverage target is reached, the remaining cash beyond business reinvestment and current dividends will be used to repay the debt.
The focus is on content and distribution integration, and the company is to allow the same asset to generate returns on more channels. The company unified the TV and consumer-facing business leadership structures, coordinated distribution, advertising, and content sales, while separately negotiating Paramount and Warner's cable TV business portfolios in accordance with consent orders. Management said that regulatory commitments such as theatrical distribution and an additional investment of 300 million US dollars in US production each year have been included in the plan. CBS Sports and TNT Sports are managed by the same team. Future copyright procurement will comprehensively measure ratings, advertising value, streaming customer acquisition, and cost return. Artificial intelligence will be used in content production, search recommendations, programming, and purchase payments. Management uses return on investment as the basis for deciding to develop or introduce partners, and believes that declining production budgets are expected to allow more original projects to be invested.
Previously, at the beginning of October, Paramount Sky Dance completed a huge $110 billion acquisition of Warner Bros. Discovery (WBD). After the merger, the new company was officially named “Skydance,” which also meant the birth of a new Hollywood giant.
The following is the full text of the Skydance performance conference call (artificial intelligence tool assisted translation):
Sarah, Tianwu Media Conference Operator: Good afternoon everyone. My name is Sarah and I will be the operator for today's conference. Welcome to Tianwu Media's third quarter 2026 results conference call. Currently, all lines are muted to avoid background noise. After the presentation, the company will answer questions from analysts. We now invite Tianwu Media's executive vice president of finance, investor relations and fund management, to speak. Please speak.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: Good afternoon, thank you all for taking the time to attend Tianwu Media's third quarter 2026 results conference call. I'm Kevin Clayton, Executive Vice President of Corporate Finance and Investor Relations. Today, I was joined by Chairman and CEO David Ellison, Co-CEO Inon Kretz, President Andy Gordon, Chief Financial Officer Dennis Chinelli, and Tianwu Media's investor relations team. As a reminder, today we are issuing forward-looking statements involving risk and uncertainty. Our statement will cover non-GAAP financial measures, and the relevant reconciliation statements can be found in performance letters or financial trend schedules containing additional information. All of this information can be found on our investor relations website. Additionally, we plan to release test preparation financial data before the fourth quarter results conference call. Let me now ask David to speak briefly, and then we will respond to the analysts' questions.
David Ellison, Chairman and CEO of Tianwu Media: Thank you Kevin, good afternoon everyone. I am very happy to be here with Enon Kreez today. He joined the company last month as co-CEO. Inon and I work side by side every day, and I can't find a better partner than him. The merged company has only been in operation for five weeks and is still in its early stages. But our team got to work quickly, and the more we learned about the business, the more optimistic we were about future opportunities. We have quickly formed leadership teams for the three business segments of Tianwu Production, Facing the Consumer, and TV. Our strategy revolves around three goals. First, build Tianwu into the world's leading content production platform, bringing together the world's top story creators. Second, accelerate the development of an integrated consumer-facing platform. Third, optimize the highly profitable linear television business portfolio with CBS (CBS) as the core.
To achieve these goals, we will gain an advantage in content storytelling through creative ability, talent partnerships, production strength, and a rich library of iconic intellectual property films. We will build the most technologically powerful media company to cover streaming, live streaming, and linear TV with a unified technology platform to improve user experience and improve efficiency. We will also rely on scale, assets, and global reach to drive transformation and growth to stay ahead in a competitive market. Underpinning all of this is a plan to achieve at least $6 billion in annualized synergy benefits. More than 20 projects have already been initiated. We're proud of the results our leadership team achieved at Paramount. Last year, we took over an underperforming business and made significant improvements. With better content, more careful investment, and a focus on efficiency, we went beyond our initial guidelines and continued to improve them throughout the year.
We raised our efficiency target to over $3 billion, which is more than 50% higher than the initial target, and we expect to achieve annualized savings of over $2.7 billion by the end of the year. Paramount's 2026 film list's full-life cycle profit is estimated to be over $500 million more than last year's film list. Now, we've taken over another company with mixed business performance. HBO Max performed well and continued to grow in revenue. This year, it also launched a number of popular titles, including the second season of “Pittsburgh Healthcare Frontline”, the third season of “Dragon Family”, and the hugely popular new drama “Half a Man.” We're excited for what's to come, including the high-profile Harry Potter series that will premiere on Christmas Day. We're also facing some pressure, especially when it comes to the production business. Warner Bros.'s movie list this year fell short of expectations, which will drag down fourth-quarter results.
We will follow the approach taken at Paramount to more selectively approve project production, place the profitable growth of streaming media above the number of subscribers, optimize the linear TV business, and improve the efficiency of the overall cost structure. We've proven that this approach works. With an outstanding film library, series, and creative talent, we are confident that we will achieve results again. The integration process is also progressing rapidly. The $6 billion collaborative plan covers headquarters management expenses and real estate, marketing, technology, and supplier management. On the streaming side, we plan to launch the Paramount+ and HBO Max bundle in early 2027 as a first step towards full product unification. We've moved Pluto TV to the Paramount+ platform and have basically completed the first phase of technology integration. Moving Paramount+ to the same technical architecture as HBO Max is expected to be much faster.
We continue to stick to our medium-term outlook, which is to achieve mid-single digit revenue growth, adjusted profit margin before interest, tax, depreciation and amortization of around 25%, and free cash flow of at least $10 billion by 2030. Investing in the business and reducing debt are our top priorities, and we expect to reduce our net leverage ratio to less than 3 times by the end of 2029. We know investors are interested in the business we are building and look forward to sharing more information with you on Investor Day in the first half of 2027. Right now, we're confident in our plans and excited about the opportunities that lie ahead, and this has only just begun. Now I'm returning the meeting to Kevin and entering the questioning session.
The following is the performance conference Q&A session (AI-assisted summary and translation):
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you David. The first question came from Morgan Stanley's Shawn Tiffley about the first month after the takeover. It's been a month since you took over the new company. Can you talk about your initial knowledge, impressions, and what early initiatives you would like to highlight? Inon, maybe you can ask for an answer first and then ask David to add.
Inon Kreez, Co-CEO of Tianwu Media: OK, thank you Kevin, and thank Shawn for the question. I was very excited when I first joined, and after being here for over a month, that feeling became even stronger. I'm really looking forward to working with David and the Sky Dance team. We're bringing together outstanding assets, huge business scale, and a world-class team. The industry landscape is changing rapidly, and now is a critical time. According to my observations, all parts of the company have a solid foundation of business. The Warner Bros. Exploration team managed the business very well. By the time the deal was settled, the results were in line with expectations. The only weak performance was the film production business. We hope to build on their good work.
We have established a new organizational structure to co-manage the company under a unified global strategy to take full advantage of our scale, strength, and capability. As David said in his opening remarks, the transformation is off to a strong start. As the collaborative plan is implemented in depth, we are very confident in the plan. We see that there is a lot of room for cost reduction in many fields, so we are very confident that we will achieve $6 billion in synergetic benefits over the next three years. This work also involves how we do business. We want to drive business transformation and reshape workflows so we can do better in the future.
Something else is quite interesting. Everyone knows we produce a lot of great film and TV content, but for me, it's particularly exciting to get a close look at the technology we're incorporating into our operations and services. These technologies will make the company better and operate better. The immediate focus is on consolidating assets and driving collaboration, and our long-term goal is growth. We're transforming from traditional media to create a next-generation media and entertainment company driven by creativity and technology. Cost coordination is something we currently highly value and invest a lot of time in. Considering the company's business scale in intellectual property rights, series, content production, huge film library and distribution platforms, we have also seen significant revenue collaboration opportunities, and there is considerable room for growth.
Finally, as organizations gradually integrate, we are building a new corporate culture where teams can agree on an overall strategy. Overall, we are fully in the implementation phase, and the momentum continues to grow. Every part of the company has clear operational and financial goals, and we plan to achieve them. We believe that with the right assets, capabilities, team, and strategy, we can succeed.
David Ellison, Chairman and CEO of Tianwu Media: Inon, thank you for sharing. Once again, it was a pleasure working with you. As Inon said, we are more optimistic than ever about the future of these assets after the merger, and we believe we are in a good position. Looking back on the year we took over Paramount, we have achieved our business goals. Revenue increased 5% for the quarter. Paramount+ revenue grew 21%, and the growth rate continued to accelerate during the year. User engagement increased by more than 20%, and we are expected to surpass our initial collaboration goal by 50%. The team will follow the same approach in Tianwu, and we are confident that we will deliver on our plans. To that end, we're moving fast, and it's been a busy month indeed. In terms of organizational structure, we have arranged leadership teams around the three business units of Production, Facing the Consumer, and TV.
We've coordinated the management of linear TV and consumer-facing businesses, so that the trade-off between streaming media and linear TV can start globally. Following the same line of thought, a business leader now uniformly manages distribution, advertising sales, and content sales, so that decisions can be made in an integrated manner and departments are not governed separately. On the production side, there was exciting news from DC Studios this morning, and we're very happy to welcome Jeremy LaChamp on board. As a member of Marvel Pictures' founding team, Jeremy is highly recognized. We have a shared vision for DC's future, and we're all optimistic about the creative opportunities this treasure trove of superhero stories can bring. We are also very grateful to Peter Safran and James Gunn for their outstanding past contributions to DC Studios and for their continued efforts.
Now, our film studios are managed uniformly by a leadership team, and creative teams from Warner Bros., Paramount, New Line Pictures, and Sky Dance will continue to be responsible for their respective brands. TV studios are also already operating collaboratively under a unified leadership team. In terms of streaming, the first step in unifying the service is to launch bundled packages in early 2027. We will implement changes in a careful and phased manner to sustain growth throughout the transition period. The first phase of streaming integration has been completed. We moved Pluto TV to the Paramount+ platform and integrated Bet+ into Paramount+, which took around 18 months. Building on this experience, we set a challenging goal of integrating Paramount+ with HBO Max in about a year. The latest artificial intelligence tools make this goal possible. Overall, we are very confident in implementing the plan and building a next-generation media and entertainment company, as Inon said.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you both. The next question comes from Wells Fargo's Steven Cahall about synergy. Can you explain how the $6 billion synergy benefits will be distributed across business segments, and what major projects will bring these benefits? Additionally, the annualized synergetic benefit guidelines for year 1 and year 2 are 30% and 70%, respectively. Considering that the actual cost savings of profit before income, tax, depreciation and amortization in these two years may only account for a portion of the corresponding annualized savings, how should we understand the actual savings? Inon, can you answer first?
Inon Kreez, Co-CEO of Tianwu Media: OK, I'll say it first, then ask Dennis to answer. Thank you Steven for the question. As we said, we do expect to achieve at least $6 billion in annualized collaborative savings over three years. At present, more than 20 jobs have been initiated. We are integrating two global streaming services, two film and television production groups, two television business portfolios, and multiple overlapping corporate functions, involving a huge annual cost base of over $50 billion. This gives us a lot of room to reduce repetitive costs and optimize the company's operations. As I said before, this is a technology-led transformation that will make us more efficient and agile, make room for reinvestment towards long-term growth, and establish healthy profit margins and free cash flow trajectories. The significance of this transformation extends beyond cost savings.
We need to redesign the way we work. We've identified multi-billion dollar savings opportunities in a number of key areas, including labor and non-labor spending. One focus is on headquarters management costs, real estate and facilities, which are expected to save at least $2.2 billion. This includes merging back-office and corporate functions, adopting shared services, deploying a unified enterprise resource planning system through Oracle Fusion, and expanding the application of artificial intelligence workflows. The office layout also has plenty of room for optimization, including integrating our real estate in key markets. For example, we have five offices in New York, seven in Los Angeles, and multiple locations each in Atlanta and London.
We are looking to optimize the layout of our office space. In addition to reducing the size of the office, we can also move personnel into our own properties, centralize operations, and reduce rent payments to third parties. There is also significant room for savings in marketing, which could save at least $1 billion. We will streamline and optimize global spending, cross-promote key projects on our own platforms, and unify media delivery planning and procurement across business units. On the technical side, we expect to save at least $1.4 billion. To this end, we will unify enterprise technology systems in the streaming ecosystem and broadcast architecture, integrate platforms and systems, merge technical functions set up repeatedly, and use artificial intelligence programming tools.
In terms of supplier and procurement management, we expect to save at least $1.4 billion by optimizing third party expenses involving hundreds of different services provided by suppliers. We are also considering aggregating the size of procurement and centralizing procurement decisions into one team to obtain economies of scale. Also, there are opportunities in terms of content. For us, content is both an expense and an investment to build up valuable long-term film library assets for the company. We spend over $30 billion on content each year, ranking first in the industry. We see an opportunity to optimize this budget and increase its overall value to the company. The combined platform covers streaming media, radio, and cable TV, and every work brings greater value to us.
As the same company, we can make smarter decisions about how to release new content and library content, and how to monetize them. There's still a lot of work to be done, and we're still in the early stages, but we're very confident we'll achieve at least $6 billion in annualized savings over the next three years. Next, please ask Dennis to add.
Dennis Cinelli, Chief Financial Officer of Tianwu Media: Thank you, Inon. Let me talk specifically about how this plan will be reflected in the income statement and financial statements. As Yi Nong said, we know very well what work is involved in this transformation plan, and we are also in the process of implementing it. The plan includes more than 20 tasks. Each team is formulating specific plans, and early projects have also begun to be implemented. As far as the impact of the income statement is concerned, once again, we expect to achieve 70% annualized synergy by the end of 2028 and 30% by the end of 2027. These figures are calculated at annualized operating levels. Since various measures will be implemented one after another during the year, the actual income for that year will be lower than the corresponding annualized level. When we present the overall outlook for 2027 next quarter, we will provide more clear guidance on the specific contributions of synergy benefits.
Yinong has already introduced the distribution of savings according to function. I would like to spend a little more time talking about how each business sector will be affected. The savings mainly come from the company's headquarters, consumer-facing business, and television business. The consumer-facing business mainly achieves savings through technology and marketing optimization. The TV business will optimize the cost structure more comprehensively, similar to what we already did at Paramount before the merger. The implementation of the entire collaborative plan will require payment of $4 billion in cash costs, of which 60% to 70% will occur from 2027 to 2028, and $1.5 billion to $2 billion will occur in 2027.
Also, let me update you on the progress of Paramount's original project. This is the project we started before the merger. Paramount's efficiency improvement plan is progressing as expected. We previously raised our target to $3 billion, which is $1 billion higher than our initial target. By the end of 2026, we will achieve an annualized efficiency gain of 2.7 billion US dollars, and the rest is expected to be realized in 2027. This is our priority, so we will ensure that all management initiatives are implemented, that the financial results we have explained to you are fulfilled, and that progress is kept informed as we move forward.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for corporate finance, investor relations and fund management: OK, thank you for the question, Steve. The next question comes from Wolf Research's Peter Supino, about streaming strategies and bundling plans. Regarding streaming, will HBO Max and Paramount+ continue to maintain their respective brands while sharing technology platforms and consolidating support costs? When will you start increasing the price of individual subscriptions and offering discounts on bundled plans? David, can you answer that question?
David Ellison, Chairman and CEO of Tianwu Media: OK, of course. Peter, thank you for the question. Launching the bundled package is our first step in unifying our two services. In this way, before products are fully integrated, we can begin to create value for consumers and reap commercial monetization benefits. We're sure consumers will love this service because the package will provide what we think is an unrivaled mix of entertainment, news, and sports content. For example, subscribers can watch new episodes of “Harry Potter,” “King of Frisco,” “Pittsburgh Healthcare Frontline,” “The Mayor of Kingston,” “Knights of the Seven Kingdoms,” “The Rooster,” and “King of Oil” within a few months. Additionally, they can see movies released by Paramount, Warner Bros., and A24 during the first pay window. One real benefit of releasing 30 movies every year to consumers is that a fully marketed and promoted theatrical movie is launched approximately every two weeks.
There's also top sports content such as Major League Soccer, the Ultimate Fighting Championship, the Champions League, and all of the “March Madness” events. I would also like to point out that HBO Max and Paramount+ services are highly complementary, and both have particularly popular consumer groups in different regions of the US. Integrating these two services helps us meet the needs of diverse audiences. Based on this, we anticipate increased reach and user engagement, improved retention, increased revenue and profitability, and long-term performance expected to meet or surpass leading competitors. Currently, the two services have reached a total of 203 million subscribers worldwide, and Pluto TV has brought in an additional 75 million monthly active users. Regarding technology and product improvements, we have seen good results since the acquisition of Paramount. Paramount+ user engagement has increased by more than 20%, and now Pluto TV is running on the same technical architecture.
These developments have given us good momentum and confidence to support us in building a unified platform for Paramount+ and HBO Max. We will carefully phase out the new pricing plan and take into account consumer feedback so that both services can continue to grow during the transition period.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you. Thanks for the question, Peter. The next question, from Citizens Bank's Matt Condon, involves investing in technology. David, you've talked many times about building a technology-first media company, and you've also formed a leadership team with members with extensive experience in some of the largest technology companies. Looking ahead to the next three to five years, especially considering that artificial intelligence is reshaping the way consumers discover and interact with content, how do you think the way we consume high-quality entertainment content will evolve? As these consumption habits change, in what areas do you think Tianwu has the best chance of forming a differentiated advantage?
David Ellison, Chairman and CEO of Tianwu Media: First of all, thank you very much for this question. It was very pertinent. Looking at the big picture, our overall judgment is clear. The combination of creativity and technology will shape the future of the entertainment industry. First, even when the market is flooded with crude and abusive content generated by artificial intelligence, a truly well-polished story can always get a premium. Summer box office and Paramount+'s growing user engagement are just a few examples. We also believe that in the age of artificial intelligence, the intellectual property value of a series of works is more important than ever. We have about 40 billion dollar series, and I think that shows the strength of the entire content portfolio. We have also always believed that artificial intelligence is a tool for art creators and can never replace them. As to the extent to which artificial intelligence will transform our business, my answer is that the impact will be significant.
We believe this opportunity extends to every aspect of the business. Although our predictive models haven't incorporated these factors, and the development of related tools is in the early stages, there are clear signs that artificial intelligence will make content production easier, accelerate the progress of the company's projects, and change the way we work. All of these changes will further enhance the value of high-quality intellectual property and live streaming events. This trend is also having a positive impact on Paramount+, and we expect this impact to extend to all direct consumer services. When it comes to differentiation, content is one of our strengths. Our intellectual property rights, series, world-class creative talent, sports, news, and an extremely rich film library make up an unrivaled portfolio of content. Size is another advantage. As mentioned earlier, HBO Max and Paramount+ together reached over 200 million subscribers, and Pluto TV has 75 million monthly active users.
Looking at our entire business portfolio, we have CBS, the number one radio and television network, a leading cable TV brand, and two top news organizations. According to Nielsen's latest TV ratings statistics report, these businesses together make us second only to YouTube in terms of total TV viewing time. This is very appealing to advertisers, and AI-driven tools will also play an active role here. As for what role artificial intelligence is playing now and what impact it will have in the next three to five years, I don't have a crystal ball; I can only try my best to make judgments based on the current situation. The speed at which this technology is evolving must not be underestimated. Looking at the enterprise as a whole, we expect these tools to increase productivity in every department. Every area of expertise in the business will use these tools, and productivity will increase accordingly.
From a product perspective, the personalized experience of subscription activation, registration, and user retention, as well as search, content discovery, and recommendations, will all be improved. Looking at the production process from a distance, artificial intelligence may indeed become the technology that can unleash the most creative potential in modern history. The last time there was such a change in influence was in the early 1990s, when computer-generated imaging and digital synthesis technology were introduced. Those technologies have spawned amazing titles like “Jurassic Park” and “Terminator 2.” It's hard to imagine artificial intelligence not having a bigger impact than that. I personally believe this will greatly unlock creative potential. When it comes to “The Terminator,” everyone knows it's one of my favorite movies. Back in 1983, when James Cameron made that movie, it cost $4 million.
If that movie were to be remade camera by camera today, the cost would reach 60 million to 70 million dollars. Today, people who direct a film for the first time with an original idea and are not supported by a popular star rarely get this kind of opportunity. Arnold Schwarzenegger later became one of the most famous movie stars in the world, but he didn't reach that status at the time. The entire industry is rarely willing to make such a bet. We believe these tools can make production budgets more affordable, give the industry the ability to take such risks, and create more opportunities for original stories. As for the technology investments you asked about, we evaluate every investment in terms of return on investment. We will independently develop technologies that can truly form a differentiating advantage and are tailored to our business. If a partnership is right for our business, and leading technology vendors can help us grow, we'll partner with them.
Ultimately, we do see technology as our core competency, which in the long run can help us save costs and drive growth.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you for the question, Matt. The next question came from Raymond James' Rick Prentice, involving selling assets and reducing leverage. The question is: “In the process of focusing on core businesses with long-term growth potential while reducing leverage, do you see opportunities to selectively divest assets? What criteria would you use to determine whether an asset has retained strategic value?” Dennis, can you answer that?
Dennis Cinelli, Chief Financial Officer of Tianwu Media: Of course. Thank you, Rick. I would like to discuss the overall deleveraging path first, and then explain in detail what methods are available. We remain very confident that we will reach our mid-term goals. As a reminder, our goal is to achieve mid-single digit revenue growth, adjusted profit margin before interest, tax, depreciation and amortization of around 25%, and achieve $10 billion in free cash flow by 2030. We will achieve our leverage target and reduce leverage to 3 times by 2029. We will achieve this goal by generating cash flow and, of course, increasing the company's profit before interest, tax, depreciation, and amortization. I would like to point out that until the leverage target is reached, in addition to the funds required for business reinvestment and current dividends, the remaining cash will be used to repay the debt. Please also remember that both of our merged businesses themselves have strong cash generation capabilities.
The merger has enabled us to achieve faster and more profitable growth, and we already have the appropriate operating foundation. For example, as a consolidated company, after excluding one-time transformation costs, we expect to achieve an underlying free cash flow of $4 billion. As we continue to advance and achieve our deleveraging goals, there are several measures that can drive free cash flow higher than current levels. The first is to reduce one-time transformation costs. Over the past few years, these costs have had an impact on both parties' businesses. Our current free cash flow and free cash flow discovered by Warner Bros. both include cash expenses associated with Tianmu transactions. Paramount Sky's free cash flow also includes $500 million in transformation costs in 2025, and another $500 million in the first three quarters of 2026.
Of this, there was $174 million in the third quarter alone. Based on the basic operating caliber, our free cash flow conversion rate is far higher than the guidance given at the beginning of the year. We now expect a free cash flow conversion rate of 30%, excluding transformation and transaction costs. This is the first step, which is to reduce one-time transformation costs. Second, as we repay our debts, cash interest expenses will fall. Third, improve working capital. This will be one of our priorities as both businesses have room for improvement in this area. This is also one of the areas where we are pioneering the deployment of artificial intelligence workflows. We've just launched an artificial intelligence agent to help handle the process from procurement to payment. As for the capital structure, I want to make this clear.
There is no need to raise capital or divest assets to achieve leverage goals. We will achieve our goals through our business plans. At the same time, we will review our existing business portfolio during the consolidation process and monetize non-core assets when the opportunity is right. We'll keep you posted when we have more information to share.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you, and thank Rick for the question. The next question comes from Citigroup's Jason Bazinette, about the performance outlook. “Can you provide some more details to help us understand the outlook for the fourth quarter and 2027? Also, what other information can you share about moving from previous quarterly guidelines to annual guidelines?”
Dennis Cinelli, Chief Financial Officer of Tianwu Media: Of course, I'll answer that question. Let me first briefly discuss Paramount's independent third-quarter results. We are very pleased with our performance this quarter. The company's overall revenue grew strongly, up 5% year over year. We've already talked about Paramount+'s growth momentum, with revenue growing 21% year over year. The adjusted profit before interest, tax, depreciation and amortization is $1 billion, which exceeds the upper limit of our guidelines. In my opinion, this is a good example of the ability of the management team and the team in today's merged company to deliver on the stated goals. I would like to share with you our thoughts on how to provide guidance in the future. We make decisions with a view to driving the long-term development of the company. Our management does not revolve around short-term quarterly goals, so we want investors to focus on full-year and mid-term operating results.
Based on this, we will instead provide annual guidance and publish 2027 guidance at the next results conference call. When we deem it appropriate, we will also explain business trends and major drivers of change in each business on a quarterly basis. In line with this new guideline, I would like to provide some details about the rest of the year and the situation as we enter 2027. As far as the full year is concerned, with the exception of recent movie listings, Warner Bros.'s performance is in line with the estimated expectations we set for the deal. On an independent basis, Paramount is still expected to meet our previously issued 2026 guidance, including reaching the upper limit of the profit range, that is, profit before adjusted interest, tax, depreciation and amortization of US$3.9 billion. As you may recall, we raised this guidance during our last results conference call.
Let's talk more specifically about the fourth quarter. Facing the consumer business side, we expect continued strong revenue growth. As a reference, after merging Warner Bros. and Paramount's consumer-facing businesses according to test preparation standards, the business's revenue increased 15% in the third quarter. In terms of the linear TV business, after adjusting for seasonal factors brought about by political activities and sporting events, we expect the trend to be consistent with previous quarters. In terms of the production business, Paramount's film list continues to perform well, but the Warner Bros. film list continues to perform poorly, and its impact will outweigh the positive contributions brought by Paramount's film list. Based on this, we expect profit before adjusted interest, tax, depreciation and amortization for the fourth quarter to be dragged down by $200 million, involving movies that have been screened so far this quarter, as well as movies to be screened next.
As a result, we expect the consolidated production sector's revenue and adjusted profit before interest, tax, depreciation, and amortization for the current quarter to be weaker than previously anticipated. Next, let's talk about 2027, and first provide you with some initial prospects. We expect that revenue from the consumer business will continue to grow strongly, and that Tianwu production revenue will also increase. The company's overall adjusted profit before interest, tax, depreciation and amortization will rise year-on-year. The impetus is the growth of the business itself and the gradual implementation of the $6 billion collaborative plan. We'll publish our full 2027 outlook next quarter. In terms of cash flow, after factoring in the costs required to achieve collaboration, we expect next year's cash flow to break even or better.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you Dennis, and thank you Jason for the question. The next question comes from Mike Morris of Guggenheim, involving our content input and consent order. The consent order requires 30 movies to be screened online in the first two years, 32 movies per year from the third to the fifth year, increase production investment by 300 million US dollars every year in the US, and retain ownership of the two production parks for five years. Are these promises factored into your $6 billion collaborative plan and $30 billion content budget, or will they change the timing of delivery? David, can you answer this question?
David Ellison, Chairman and CEO of Tianwu Media: Of course. Thank you so much for asking this question, Mike, because I also wanted to clarify some of the doubts that may exist from the outside world. The short answer is that these requirements are all pre-planned and have no negative impact on our plans. Thirty movies have always been part of our business model, and strategically speaking, that's what we've always wanted to do. Speaking of 30 movies a year, I would like to point out a few points. First, our plans have factored into the commitments set out in the consent order, including additional production investment in the US. Again, everyone should not see this as resistance at all. We have been planning 30 movies a year, and the actual production of more than 30 films will be in 2027. The consent order also required only 20 large-scale theatrical screenings, then raised to 22. As a result, we still have a lot of flexibility in our future operations.
Also, as I said earlier, this means that every two weeks a new movie comes to our service. We know that movies are an important driving force for the platform to acquire customers and increase user engagement, and we believe this is beneficial to all businesses. In 2027 alone, we will launch “Son of Blood and Bone,” “Sonic the Hedgehog 4,” “Silent Land 3,” “Godzilla vs. Kong: Supernova,” “Tomorrow's Man,” a “Minecraft” movie, the prequel to “Ocean's Eleven,” and “Lord of the Rings: The Hunt for Gollum.” Let me just say that I think this movie list is quite appealing. We believe that whether these films hit theaters or are eventually streamed for viewers to watch at home, they will be well received by consumers. Once again, we have full confidence in operating under the consent order, and we don't expect this to cause us any resistance.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you Mike for the question. The next question comes from David Kanofsky at J.P. Morgan Chase, involving sporting events. Looking at Tianmu's original business and sports event portfolio after the merger of Paramount and Warner Bros., how do you consider the copyright that can be used on different streaming or linear TV platforms? Does this create room for you to cancel or license some of your existing live shows? David, can you answer that?
David Ellison, Chairman and CEO of Tianwu Media: Of course, thank you very much for your question. Tianwu now has the best sports event portfolio in the industry, managed uniformly by the same team. After the integration of CBS Sports and TNT Sports, we have more than 36 quality sporting event agreements. In this way, our sporting events program can cover the whole year, including Major League Rugby's NFL tournament packages, the Ultimate Fighting Championship, all “March Madness” events, the College Football Playoffs, the PGA Tour, the US Masters weekend rounds, the Big Ten League events, UEFA events, Major League Baseball, the North American Professional Hockey League, National Sports Car Racing Association events, and the French Open. We are confident in the sporting events business and will continue to play an important role and stay ahead in this field. All of our content investments start from the entire business system, taking into account growth and economic benefits. When evaluating copyright, we look not only at each tournament package individually, but also at its role in the overall portfolio.
Here are a few examples. On the audience side, we evaluate audience size, engagement, and ad value. On the streaming side, we evaluate whether it can bring in new users, increase engagement, and support the entire business system. In terms of distribution, we look at its value to partners and similar program packages built around this copyright. In terms of broadcasting, we'll see if it can fill the gaps in the sports schedule. Of course, it also depends on the return. After considering the cost, whether the economic benefits can meet our standards. We will be cautious about future copyright purchases. Each copyright must prove itself worthy of a place in the portfolio. We are very happy with the current mix. With the scale of linear TV and streaming services, we also believe we are well placed to be a quality partner for various cooperative sports leagues, and we are honored to do business with them.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you, and thank David for the question. The last pre-selected question came from UBS's John Hodulick and involved the linear TV business. “How will you deal with the long-term structural pressure of linear TV and the growing popularity of streamlined channel packages?” Inon, can you answer that?
Inon Kreez, Co-CEO of Tianwu Media: Of course. Thanks John for the question. Tianwu TV's business brings together a strong channel portfolio, led by CBS, the pearl of the American radio and television industry. It also has more than 50 cable networks, including TNT, TBS, TLC, Food Channel, and CNN. Last year, all five channels were among the top ten ad-supported cable networks in the US for a key audience of 25 to 54 year olds. This business is highly profitable and can also generate large amounts of cash. Everyone just heard David talk about our strengths in the field of sporting events. We also excel in the field of journalism. CNN and CBS News are two of the world's leading news service organizations. As the industry gradually shifts to streaming, our overall goal is to manage the combined business portfolio to optimize growth, profitability, and cash flow. Over the past few quarters, we've seen a slight narrowing of the decline in the linear TV business.
When formulating our plans, we still carefully assume that this business will experience a structural decline, but while expanding the consumer-facing and production business, we believe linear television can still maintain strong profitability and cash generation capabilities. CBS is a fantastic asset and worth a few more words. Excluding sports programs, CBS was the number one radio and television network in prime time, with a total audience increase of 18% over the same period last year. Major League Soccer games broadcast by CBS attracted an average of nearly 20 million viewers, an increase of 5% over last year. Currently, CBS is leading the new fall season and has the number one series in TV ratings. The top five series are also all from CBS, accounting for seven of the top ten. This performance has been outstanding, and CBS is a strong asset for the company.
There is one more point worth pointing out. According to Nielsen's data, based on the combined coverage of our TV networks and streaming platforms in the US, we ranked first among traditional media operators in the third quarter of this year, second only to YouTube overall. We have strong strength in this business and wide platform coverage, which is one of the company's strategic assets. As distribution models evolve, partners will increasingly want to include streaming in their packages. We're well-equipped to meet this kind of need, include Paramount+ and HBO Max in their packages, and have our TV network cover all devices. We have established a leadership structure to oversee the TV and consumer-facing business to ensure that distribution, advertising sales, and content sales are fully coordinated under the overall strategy.
At the same time, we are complying with the terms of the consent order to separately negotiate the Paramount and Warner Bros. cable business portfolios. This holistic management approach allows us to adopt a unified global business strategy to fully harness the potential of the TV and consumer-facing business portfolio.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you John for the question. Next, I returned the meeting to Sarah and asked her to set up a line and begin live Q&A.
Sarah, Tianwu Media Conference Operator: Thank you. As a reminder, if you want to ask a question in this section, just press the star key and number 1 on the phone keypad. If you want to withdraw the question, just press the star key and number 1 again. The first question came from Bank of America's Jessica Rife Ehrlich. Your line is connected.
JESSICA LIFF ELLICH, BANK OF AMERICA ANALYST: Thank you. Good evening everyone. You've made the cost side synergy very clear. I hope you can also introduce the revenue side as well. Inon mentioned it a little bit earlier. Can you specify where the revenue synergy will come from, or provide some details, and probably when it will be reflected? Because this really seems like a bigger opportunity in the long run.
Inon Kreez, Co-CEO of Tianwu Media: OK, Jessica, I'll answer that question. Thank you for your question. As we said before, we believe the business has significant room for growth in terms of revenue synergy. I'll give you a few examples. One obvious area is content licensing. With our combined library of 15,000 movies and hundreds of thousands of hours of TV shows, plus 30 new theatrical movies and 100 series produced each year, we can provide our authorized partners with a unified connection channel to better meet their needs in various programming fields. We now have more opportunities and more flexibility in arranging distribution windows, especially in the second-round broadcast licensing business. We can also arrange the window period more flexibly, optimize the distribution schedule, and maximize the reach and value of the content produced through our own platform. Another area of focus is the television business, where both the distribution side and the advertising side can generate revenue synergy.
On the distribution side, we can better serve our distribution partners with our complete product portfolio. In terms of advertising, we will be a better partner for our customers. We just talked about sports, which is clearly an important area that drives massive ad sales. After CBS Sports and TNT Sports were integrated into the same company, we have a complete sports content portfolio, and I believe this combination is highly competitive. Advertisers can purchase advertising resources in the sports portfolio through the same partner, covering radio, television, and streaming media. Of course, there is also the business of facing the consumer. We're seeing a lot of exciting opportunities here, starting with being able to integrate paid streaming services into a very attractive product. In this way, we can centrally present the depth and breadth of content in one place, thereby increasing user engagement and user lifetime value.
Every year, 30 heavyweight theatrical movies land on our streaming service after being marketed globally and amassing audiences around the world, which will help us acquire new subscribers, increase user engagement, and retain subscribers. In this context, one thing is particularly noteworthy. We know that our average revenue per user is lower than other companies in the industry. In the international market, this indicator of our peers may even be several times ours. We believe that the content mix formed by integrating these assets will gradually increase the lifetime value of the subscriber base and average revenue per user. Another point is that more than 200 million streaming subscribers give us an opportunity to allocate content and technology investment to a larger user base, thereby significantly changing our previous operating efficiency.
To do this, teams and business units need to put in a lot of work and maintain close coordination. We have taken this into account when designing our organizational structure. Earlier, we mentioned that the television business and consumer-facing business will be led by a unified management to ensure full collaboration between the two parties in execution. These are just a few examples of how beyond cost synergy, we also have multiple opportunities to drive business growth and further accelerate growth.
The original does not indicate the speaker: Inon, I would like to add one more point. Jessica, none of these opportunities are included in our future business plans or benchmark scenarios for transaction calculations. These are all upside spaces outside of current plans.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for corporate finance, investor relations and fund management: OK, thank you for the question, Jessica. Please ask the operator to connect to the next question.
Sarah, Tianwu Media Conference Operator: The next question comes from Ricky Greenfield of Lightshead Partners. Your line is connected.
RICKY GREENFIELD, LIGHTSHEAD PARTNERSHIP ANALYST: Hello, thank you for answering my questions. David, you've already announced that the HBO Max and Paramount+ bundles will be launched in 2027. At the same time, you also use multiple distribution platforms, including Amazon Channel, Roku, and YouTube Primetime Channel. I think you also have bundled packages with Disney+ and Hulu. I'd like to know, when considering how to bundle Paramount+ and HBO Max, are you planning to only offer it through direct consumer channels, that is, you only sell directly to users, so that users gradually leave these third-party aggregation platforms? This question is probably a bit far-fetched. What I mean is, are you planning to become an aggregator or platform yourself, or integrate your services into other companies' platforms? How do you guys strike the right balance between the two in the long run? Thank you.
David Ellison, Chairman and CEO of Tianwu Media: Rich, this is a great question, thank you so much for asking it. Looking at the whole thing, we really think that the bundled package of the two services will bring together some of the best storybooks on the market. As the market evolves, having the best quality content will be an important foundation for businesses to preserve these choices for themselves. In addition to that, it must be able to provide a top-notch user experience. If we can integrate the back office of the two technical architectures within a year, we will benefit a lot from this, right? Take a look at those competitors with around 300 million subscribers. We now have over 200 million subscribers, plus 75 million monthly active users from Pluto TV.
We believe that once these services are integrated into the same technical architecture, we are ready to compete with any competitor. We also fully recognize the value of direct sales as the main business. At the same time, we need to determine where we can sell directly and where we can use other companies to expand our coverage. As the business grows and scales, we need to balance the two. We have a good partnership. I think you can expect us to handle these choices from the perspective of how to create and enhance shareholder value across the entire consumer-facing business system.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for the company's finance, investor relations and fund management: OK, thank you, Rich. operator?
Sarah, Tianwu Media Conference Operator: Thank you. This is the end of question time. I'll leave the meeting to Kevin for his closing remarks.
Kevin Clayton, Executive Vice President of Tianwu Media responsible for corporate finance, investor relations and fund management: OK, thank you Sarah. Thank you also for attending the conference today and for taking the time to listen. If you have any questions or would like to know more, please contact the Investor Relations team. Thank you.
Sarah, Tianwu Media Conference Operator: This concludes today's conference call. Thank you all for participating. You can hang up the phone now.