The onset of streaming video was the beginning of a paradigm shift in home entertainment. Since early 2007, broadcast television and cable TV have been in gradual but undeniable secular decline. Cord-cutting has reached epic proportions, and streaming services have become the de facto replacement for appointment television.

After decades of avoiding technology stocks, legendary Berkshire Hathaway (BRK.A -0.46%) (BRK.B -0.33%) CEO Warren Buffett has done an about-face. In recent years, inspired by his lieutenants Todd Combs and Ted Weschler, the Oracle of Omaha has gradually made a somewhat sizable bet on a company with two hit streaming services, making it a top contender in the streaming wars.

Let's look at why he has invested in Paramount Global (PARA -2.67%) and what he recently had to say about the company.

A closeup of a smiling Warren Buffett.

Image source: The Motley Fool.

A foot in both worlds

The ongoing downturn and tough competition in the streaming industry have weighed on streaming stocks, and Paramount Global has felt the pain, down 84% from its peak. Buffett likes a bargain and went on a buying spree last year, accumulating a stake that amounted to 93.6 million shares worth more than $1.5 billion. 

Buffett is also a big fan of durable competitive advantages. Building a library of content takes years and a massive investment, but Paramount Global's vast and growing catalog of intellectual property provides not only a large moat, but also a source of continuing revenue for years to come.

This makes Paramount Global a company that can straddle the new world of streaming video and the legacy world of broadcast television and movies -- and be equally comfortable in both. The media company represents the best of both worlds, with a library that contains a diversified collection of entertainment staples, which in turn fuels its streaming ambitions.

A strong library that spans television, cable, and the multiplex

Paramount Global owns CBS, which is poised to retain the title as the No. 1 television broadcast network for the 15th successive season, claiming eight of the top 10 shows and 14 of the top 20. This includes the No. 1 drama NCIS, the No. 1 comedy Young Sheldon, and the top three new programs: Fire Country, East New York, and So Help Me Todd

It also owns several industry-leading cable networks including Nickelodeon, MTV, Comedy Central, and BET. In fact, across its networks, Paramount Global claimed the top four adult cable series in the coveted 18-to-34 age demographic. It also had the top three -- and seven of the top 10 -- kids' cable series, including the No. 1 new show Rubble & Crew

Another important content engine is Paramount Pictures. The movie studio continues to crank out hits including Scream VI and Dungeons & Dragons: Honor Among Thieves, both of which debuted at No. 1 at the box office. Last year, Top Gun: Maverick was the second-highest earner, generating nearly $1.5 billion in global ticket sales, making it the 12th-highest-grossing movie worldwide and the fifth-best-performing domestic movie in history. 

Two top-rated streaming services

Because of the company's wealth of content, Paramount Global has a bounty of resources to fuel not just one, but two top-tier streaming services: its flagship subscription video-on-demand offering, Paramount+; and its ad-supported streaming service Pluto -- each of which has impressive credentials.

In just over two years, since its debut in early 2021, Paramount+ has grown at an impressive clip, topping 60 million subscribers in the first quarter, which helped drive up revenue for the platform by 65%. And Pluto, the No. 1 free ad-supported streaming television (FAST) service in the world, grew to 80 million monthly active users, pushing revenue up 60% year over year.

Furthermore, management said that in aggregate, global viewing across Paramount+ and Pluto increased 50% year over year, a signal of strong and improving engagement.

The news isn't all good

It's well documented that when economic challenges abound, businesses cut back on spending to preserve precious resources. And because of the ease in dialing up or cutting back on advertising, marketing budgets are the first to face cuts during a downturn.

This helps explain the dismal results in the first quarter, as Paramount Global's overall revenue of $7.3 billion declined 1% year over year, while its adjusted earnings per share (EPS) of $0.09 slumped 85%. Management blamed the cyclical ad softness combined with peak content spending for the decline. Perhaps most distressing for investors, Paramount Global announced that it was slashing its dividend by 79%.

What's Buffett's take

During Berkshire Hathaway's annual shareholder meeting, in response to a question, Buffett addressed the dividend cut head-on. "It's not good news when any company cuts its dividend dramatically," he responded to a shareholder. 

He went on to address the streaming wars, saying it was a fight for "eyeballs," suggesting there would eventually be consolidation in the space. "You need fewer companies or you need higher prices, or it doesn't work," he said.

Buffett knew all this when he was accumulating Paramount Global shares over the past year. Despite the challenges, Berkshire remains Paramount Global's largest stakeholder, with about 15% of the outstanding Class B shares of common stock.