Investors always watch the investments of Warren Buffett and his team at Berkshire Hathaway. At the end of the first quarter of 2023, the changes did not reveal any huge surprises, but one that might gain notice is the additional purchases of Paramount Global (PARA -2.22%) shares.

Paramount stands out among investors as the dividend stock of the streaming industry. But streaming has become an increasingly competitive business, often leading to questions about whether media companies can bring sustained profitability growth, let alone afford a dividend.

Given these circumstances, should investors follow Buffett's team into the media stock? Let's take a closer look.

The Paramount dividend

Admittedly, the motivation for Buffett's team to buy Paramount was probably not the dividend. At the current level of $0.20 per year, its yield is just under 1.3%, slightly below the S&P 500 average of 1.6%.

Worse, the dividend experienced a massive cut in early May. By adjusting the annual dividend to $0.20 per share, the company took its payout down to 2009 levels, the year it last slashed the dividend. Since then, the dividend had seen periodic increases that had taken it as high as $0.96 per share before the recent 79% reduction.

From a financial standpoint, one can understand the dividend reduction. Free cash flow had turned negative in the first quarter of 2023 with the company's net loss of over $1.1 billion during the quarter. Now, dividend expenses should drop to approximately $35 million versus $166 million in the previous quarter.

Amid the dividend cut, Paramount stock has fallen to near its 52-week low but might have finally begun to recover. Also, its price-to-sales (P/S) ratio, which stands at 0.3, compares well with streaming stocks like Netflix and Walt Disney, which sell for 6 and 2 times sales, respectively. That valuation differential is indicative of the discounts that investors like Buffett want to see.

The state of Paramount's business

Also, the company is in the middle of a transition away from traditional TV to streaming. The move is successful in one respect: customer numbers. Paramount+ has now reached 60 million subscribers. And the direct-to-consumer segment, which includes Paramount+, was the most successful in the first quarter, with 39% revenue growth.

Unfortunately, Paramount+ accounted for only 21% of revenue, far less than the dominant TV media segment at 71%. Revenue for the TV media segment declined by 8%, leading to a 1% yearly overall revenue decline for the company.

Indeed, this shows a shift from TV media to streaming. Also, the ad business has struggled in the current slow-growth economy, and revenue growth should return when the ad market recovers.

Nonetheless, Paramount+ customers pay between $4.99 and $11.99 per month for the service. Since the average cable TV package costs $217 per month, according to DecisionData.org, that might not compensate for the lost revenue from customers dropping pay-TV services. Also, as Paramount+ competes with Netflix, Disney+, and numerous others, it likely has little room to increase prices.

Moreover, with franchises such as Star Trek and Yellowstone to support, Paramount must also spend heavily on content. Such investments could ultimately deliver significant returns. But with so many forms of entertainment competing for attention, it is unclear how much a successful content business would benefit Paramount.

Should I consider Paramount?

Given the dividend cut and revenue declines, investors should probably avoid Paramount. Admittedly, its franchises make it a major player in the streaming industry, and Paramount+ will likely continue attracting more subscribers.

But streaming revenue might not compensate for the lost revenue related to cord-cutting. And high content costs might have led to a recent dividend cut. Unless Paramount shows it can grow revenue amid the competition, investors should probably stay away.