Q4 2022 Warner Bros Discovery Inc Earnings Call
This promises to be a very exciting year for our company.
We took bold decisive action over the last 10 months.
And the bulk of our restructuring is behind us.
We have full command and control of our business.
And we are one company now.
We have a fantastic leadership team moving us forward.
Everyone rowing in the same direction.
And together, we are focused on making our businesses better and stronger.
Last year was a year of restructuring.
2023 will be a year of building.
And off we go.
In today's increasingly dynamic and crowded media environment the.
The best hand has great storytelling IP.
Brilliant creative.
A full slate of production and distribution capabilities and broad global reach that stretches across premium pay TV free to air theatrical streaming licensing and gaming.
The entirety.
Of the ecosystem.
And that is exactly the hand that we have and we intend to play it decisively and with a focus on free cash flow and an eye towards sustainable future growth.
Warner Brothers discovery as a storytelling company.
And we are very fortunate to have a huge share of the most beloved and globally recognized storytelling IP in the world.
Including Harry Potter game of Thrones, Superman Batman Lord of the rings.
And we intend to take full advantage of these one of our client franchises across our various platforms.
And all that we do we are guided by three strategic pillars.
We want to tell the best stories.
Share them with the broadest audience possible.
And we do that by working together as one team one company.
The decisions, we've made and the strategies, we have set in motion 10 months ago.
Have created a solid foundation.
And we're starting to see strong momentum.
It's working.
In an increasingly challenging environment, we were able to deliver over three 3 billion of reported free cash flow in 2022.
A healthy conversion notwithstanding significant merger and integration related expenses.
Gunnar and the team are laser focused on driving transformation throughout the organization.
Supporting our ability to further generate real free cash flow.
Gunnar will take you through all of the financials and our outlook.
But I'm very pleased that we see our net leverage clearly below four times by the end of this year.
Below four times by the end of this year.
It's working.
On direct to consumer we are making meaningful progress on our goal to achieve real profitability in streaming.
Ah Kee and powerful segment of our company.
We brought our losses down considerably and are even more confident in the financial targets, we laid out a few quarters ago.
We reduced EBITDA losses by $500 million year over year to $200 million in Q4.
Supported by $1 1 million net sub adds in the quarter.
And most importantly, we saw improvement across key kpis.
More on this from <unk> in a minute, but im pleased with the trend line, we see in Q1, particularly as we are managing towards close to breakeven segment EBITDA in the quarter.
Consistent with what we told you last August we are getting ready to launch our combined streaming service here in the U S and a few months.
With Latin America to follow later, this year and markets in EMEA and APAC in 'twenty for the.
The product will offer compelling content for every member of the household.
Vod and add lite tiers, and a significantly enhanced product platform to drive better performance improved user experience and stronger engagement.
We're excited about the upcoming launch of the enhanced product and look forward to sharing more details at a press event on April 12.
In the meantime, we completed a new distribution agreement that puts HBO Max back on Amazon Prime video channels and.
And on the traditional side, we renewed agreements representing 30% of our U S affiliate revenues.
And we're able to align our networks on a co terminus basis with these distributors.
We also signed fast content deals with Roku and <unk>, adding to these popular platforms hundreds of our TV shows and movies, while maximizing the reach and overall value of our content.
It's working.
And our new studio heads are hard at work, putting their unmatched creative stamp on our future slate.
We believe strongly in the importance of the motion picture window, and having that shared experience with other people.
I'll talk more about that in a minute.
This year, we celebrate the storied Warner Brothers studios, 100th anniversary with a deepened commitment to telling quality diverse stories with the power to entertain inspire.
And when we're at our best impact or even change the culture.
And we are excited for Mike and Pam to lead the studio into its next chapter, which in 2023, we will see output more than double.
Today, I'm thrilled to announce that Mike and Pam signed a deal to make multiple lord of the rings movies.
Lord of the rings as one of the most iconic storytelling franchises of all time.
And we're so excited stay tuned for more to come on this front.
A few weeks ago, James and Peter rolled out phase one of their highly anticipated multiyear plan for DC studios across film television and animation.
With five films in five TV series already in the works the new era for DC under a single creative vision is in full swing and.
And we are especially eager to thrill fans with new Superman and Batman movies in 2025.
There hasnt been a standalone Superman movie in a decade.
This is some of the most recognized and beloved storytelling IP in the world.
And we're excited to tell even more of those stories.
We're also excited for the release of for DC films. This year, starting with Shazam in two weeks and followed by the Flash, which James Gunn called one of the greatest superhero movies ever made.
A masterpiece.
I saw it and loved it.
Wow I can't wait for the flash to hit the theaters in June .
We're also thrilled by what we're seeing coming out of our games business, which represents a core part of our overall strategy.
As the only studio scaled in gaming, we see it as a meaningful differentiator with substantial opportunity.
With the successful launch of Hogwarts legacy two weeks ago.
We re imagined one of the biggest global franchises in the world.
The game was one of the most highly anticipated of 2023.
And consistent with our overall commitment to great storytelling, we delayed the launch to get it right and.
And the response from consumers has been overwhelmingly positive.
We've already seen more than $850 million in retail sales.
And we still have more platforms launching over the next few months.
And there is lots more to come including the highly anticipated Mortal Kombat 12, and suicide squad killed. The Justice League games also set for release this year with ambitious launch projections.
We have a great hand, and we're doing a lot right.
That said there is still more that we need to get right.
And we are hard at work to them.
And linear AD sales is a top priority at the moment, particularly as we balance both cyclical headwinds and ongoing secular challenges much of which we've dealt with for the last several years.
It was a heavy lift to bring two teams together notwithstanding the economy being what it was and we are now drilling down on all facets of the business.
We've contended with recent share shifts away from our portfolio during the NFL and college football season, and the World Cup.
We are still in the early stages of bringing this comprehensive portfolio together and.
And harnessing all that it can deliver.
I am confident that we will get there, particularly with some of the operational and content driven initiatives implemented by Kathleen Finch and her team.
They have great plans to revitalize the nets and have also begun to use our exceptional library of film and TV content in a way that will benefit our linear and cable networks.
We're also advantaged by the fact that our U S networks averaged 30% of all nightly cable viewers in the key 25 to 54 demo.
And there are times when our share is significantly higher with marquee events, such as March madness, and the MLB and NBA playoffs.
On the new side, we are fighting hard and making real progress.
CNN stands as the Premier Global News organization, and we want it to be the place for fact based reporting and thoughtful discourse that is broader than politics of support.
We are already seeing a more inclusive range of voices and viewpoints as demonstrated last month when over 70 Republicans came on our air during the congressional speaker election process, a first and a very long time, and we intend to continue advancing on this balanced strategy.
Chris Licht and the team are focused on building an asset for the long term across cable and digital that is worthy of that great Global brand.
We must get it right.
Nowhere is this more important in my view and it isn't going to happen overnight.
And I believe we are on the right path.
The efforts ongoing enterprise wide are helping to turn the flywheel and grow and improve our businesses.
And we see so much opportunity ahead, we continue to be the place creators are choosing to bring their visions to life and.
In recent weeks, we signed new deals with a number of the most prolific and celebrated created in the industry.
Including Greg Berlanti.
<unk>.
Knight shallow model.
Ah Kiva Goldsman.
Zach Cregger.
With more to come.
One of brothers television group has more than 110 shows currently in production across our own platforms as well as third party broadcast cable and streaming outlets, including Emmy winners Ted last so in Abbott elementary young.
Young Sheldon network Tv's number one comedy the voice the number one most watched unscripted show on network television.
And the newest hits Nitecore on NBC and shrinking on Apple TV.
I believe Warner Brothers television is the greatest quality maker of content in the world.
We're committed to creating shows that people really want to watch.
And they also want to experience them with other people that is exactly what we see happening at HBO.
HBO has never been stronger and is firing on all cylinders behind the recent successes of HBO originals.
For your house of the Dragon White, Lotus and our newest Mega hit the last of us.
These shows have average as many as 20 million viewers in episode with strong week over week growth.
The last of US for example grew its Sunday Permian viewership by about $1 million with each episode over the first four weeks.
And after just five weeks, an astounding 35 million people have watched episode one.
These are huge numbers, particularly in today's day and age of binge viewing.
When there was so much content to choose from.
And it all stems from great storytelling again, creating shows that people want to watch it reminds me of my time at NBC. When Thursday night was must CTV. Those shows had a supersized effect on people and culture.
And back then you had to watch the show on Thursday night.
Today with direct to consumer more and more people are joining the party that's the power of streaming.
And HBO is streaming new must see TV.
With all of its cultural impact and excitement.
Every week, a new episode comes out and by the time. The next one <unk> a week later tens of millions of people have watched the last episode social media explodes and people are calling their family and friends to talk about what they saw.
This phenomenon can go for 810 plus weeks for each series.
That's the power of curation.
We believe that when you have content that is so good at.
And it hits the zeitgeist, the best way to drive interest and engagement is not by dropping the entire season on our platform all at once.
But by allowing the buzz and anticipation to build over time.
And it's the same principle with theatrical.
Perceived value of content increases when there is a great expectancy and excitement.
People want to be part of something.
And when you tell them a great story and they get to experience it with others either in a Pac theater or on a Sunday night, It really is magic.
At Warner Brothers Discovery, we believe we have the strongest hand in the industry.
With the most complete portfolio of assets and globally renowned franchises personalities and storytelling IP.
<unk> sports news non fiction and entertainment.
In virtually every region of the globe and in every language.
We have an exceptional leadership team that is truly aligned across a common set of strategic operational and financial goals and metrics.
We are a largest maker and seller of content in the world.
And while we've got lots more to do we are increasingly seeing positive traction and strong proof points.
For US 2023 is a year of building.
We are more confident than ever that we have the right strategy to be successful and ultimately achieve our goal of being the greatest media and entertainment company in the world.
With that I'll turn it over to Gunnar and he'll walk you through the financials for the quarter.
Thank you David the fourth quarter marked the end of the first and very defining chapter for Warner Brothers Discovery in which we took some pivotal initial steps among them the integration and repositioning of our global finance organization through which we implemented a number of initiatives to drive efficiency and better support.
The company's long term sustainable growth.
We've accomplished a significant amount in 2022 and I'd like to take this opportunity to thank the entire finance team for their persistence and resolve and working through these very difficult, but necessary first steps.
Which has resulted in greater command control and precision across the enterprise and laid the foundation on which we are positioning the company.
This is in part a function of a successfully executed synergy program and ongoing continuous improvement efforts.
With respect.
Back to these initiatives, we are working on a total potential opportunity of $5 billion over the next few years that is what we're tracking in our system today specific initiatives with associated direct financial impact responsible owner and detailed milestone plans natura.
Naturally and as I have said before not all of these initiatives will come to fruition or get realized for the full extent, but this represents a significant pipeline for us as components of both near term cost out and longer term continuous improvement and to that end. We're now confident in a path to at least $4 billion of savings.
Largely addressable through 2024, representing an increase of $500 million over our prior estimate.
Through the end of 2022, we've already realized over $1 billion of synergy inclusive of a couple of hundred million dollars of course corrective measures that we undertook early after launching Warner brothers discovery in April last year.
We are laser focused on delivering against our high level strategic operational and financial targets.
And the three pillars that comprise our core principles.
And as we look to 2023 main near term key financial priorities remain number one delivering against our synergy and transformation targets, while we're managing towards an incremental $2 billion of cost capture in 2023, and the larger opportunity I mentioned previously.
Number two partnering with our business leaders to embrace a more rigorous analytical framework through which capital allocation decisions will be viewed particularly as we refine our content is monetized in windows.
Echoing some of what David said the leadership team is ever more aligned on strategic decision, making that benefits the company as a whole versus one segment or another and is incentivized as such.
I believe we've barely begun to scratch the surface in terms of the potential here and I'm excited about the benefits as this cascade throughout the organization.
Number three evaluating capital allocation opportunities with rigor. So that we can both achieve near term efficiency and enhance long term asset value and growth number for driving overall efficiency and free cash flow conversion towards our near term goal of one third to one half conversion of adjusted EBITDA with longer term upside towards our 60%.
Goal naturally we are laser focused on delevering the balance sheet, whereas the net leverage very comfortably inside of four times by the end of 2023 and reiterate our prior guidance to be within the investment grade range by mid 2024 and within our gross leverage target of two five to three times by the end of 2024.
I am proud of what we achieved in 2022 against the targets, we set out in the summer and against an increasingly challenging environment in the second half of the year and I'm proud of the momentum we have built exiting the year.
Turning to the quarter I'd like to quickly take you through some of the puts and takes impacting performance given we're still in the first year. Following the closing of our acquisition I will discuss the P&L impacts on a pro forma ex FX basis.
Starting with the studio segment as expected performance was negatively impacted by lower television licensing revenues against the very tough comp last year.
Something we will face again in the first quarter of 2023.
Games and home entertainment is difficult year over year comps as well due to last year's Covid induced tailwind for library content.
In addition to less activity in home entertainment, given the leaner and theatrical release schedule in 2022, which was very much a result of deliberate decisions. We made about specific titles and overall release dates.
Partially offsetting revenue headwinds were lower content expenses distribution fees and marketing costs.
Looking ahead within the studio a 2023 will be a pivotal year, particularly behind our larger and broader release slate at both Warner Brothers Pictures and FTC not to mention a wonderful start with hardware its legacy on the game side.
Turning to networks revenue decreased 6% as global advertising revenues declined 14% and distribution revenues decreased 2%.
Adjusted EBITDA decreased 7% as revenue declines were partially offset by lower content expenses as well as lower personnel and marketing costs.
In part, reflecting our cost synergy efforts.
Clearly as we have pointed out as a key risk since the summer underlying advertising trends, particularly in the U S have continued to soften through the fourth quarter.
And that was further exacerbated by general entertainment audience declines while visibility remains limited we are seeing revenue trends very modestly improving sequentially in certain pockets and while this is indeed encouraging we're hesitant to forecast any meaningful near term revenue improvement.
International markets continued to perform relatively better stronger markets, such as Poland, and Italy were in part offset by weaknesses in the U K Nordics and certain Latin American countries.
And while we are comping the winter Olympic games in Q1.
Which we expect will account for roughly 100 basis point headwind to our global advertising growth rate.
We see underlying international trends modestly improving like in the U S. We're being mindful about overall visibility and regional macro and political influences.
Distribution revenues on the whole were impacted primarily by subscriber declines in the U S and lower affiliate rates in certain European countries, while larger contractual rate increases in the U S and premium sports packages in Latin America helped to offset part of this impact.
<unk>, we successfully completed affiliate renegotiations, which accounted for more than 30% of U S distribution revenues and which brought our portfolio together coterminous Lee an important reference point for the value of our combined portfolio of networks to our distribution partners.
I'm, especially happy about the development in R&D to see segment, where we delivered a market improvement across a number of key operational kpis.
Leading to a healthy sequential improvement to financial performance.
Moreover, the exit rate coming out of the fourth quarter lends confidence and continued very strong financial performance, thus far in Q1 and into our soon to be relaunched DTC offering.
Casey and the team continue to fuel critical and audience a claim with globally resident content driving improvements in engagement and churn, which is setting up a nice tailwind into the relaunch.
Q4 revenue growth of 6% against the 12% decrease in combined operating expenses led to a significantly reduced EBITDA loss of roughly 200 million, a 500 plus million dollar improvement year over year, notwithstanding largely content driven 6% increase in cost of revenue.
Global core subscribers increased $1 1 million sequentially and $10 million year on year, while global ARPA increased as well modestly to $7 58.
This doesn't yet reflect the $1 price increase on the AD free retail here in the U S that was implemented in January and which has been digested quite well.
Our over we're analyzing our pricing strategy in a number of key international markets, particularly in Latam, where we believe our service a significant pricing upside.
Based on the traction we're seeing across the broad spectrum of operational and financial Kpis, We expect segment EBITDA to be more or less breakeven in Q1, which implies another $500 million improvement year over year roughly in line with the improvement seen in Q4.
Naturally our domestic relaunch of the combined product offering in the spring will result in a sequential step up in P&L investments in Q2 behind a requisite increase in marketing spend support and premier content launches.
However, we remain very enthused about the trend line here and I have greater and greater confidence in our ability to achieve our long term segment targets of breakeven in the U S. In 2024 and $1 billion of profitability in 2025 globally.
And we continue to track above our internal plans.
Turning to consolidated results in free cash flow Q4 revenues decreased 9% year over year, while adjusted EBITDA decreased 2% helped by a reduction in consolidated SG&A by 22% a bit more than we guided to.
Currency was an approximate $100 million headwind to EBITDA for the quarter and near $200 million headwind for the full year.
A year over year increase in corporate expenses were due to a number of factors almost exclusively related to external market factors, such as an incremental $120 million related to underlying rates on our securitization facility.
We generated $2 $5 billion of free cash flow in Q4, bringing the reported full year free cash flow to $3 3 billion.
Note that merger and integration related cash cost totaled nearly $150 million in Q4, and nearly $800 million for the year. In addition to a nearly $350 million headwind from securitization and factoring since the closing of the deal in early April .
The sequential.
<unk> improvement in Q4 free cash flow versus Q3 was the result of greater EBITDA the timing of interest payments on acquisition debt and some first improvements from working capital initiatives.
We repaid $1 billion of debt during Q4, bringing the total debt repaid since the closing of the transaction to $7 billion.
And we ended the quarter with $49 $5 billion of gross debt and nearly $4 billion of cash on hand, implying net leverage just below five times.
Turning to the total company EBITDA outlook.
Reiterating my earlier point I am very pleased with where we ended the year and encouraged with our ability to balanced choppy macro tides with success in repositioning the company for future growth I remain very optimistic about the range of potential outcomes in 2023 and beyond these outcomes will reflect an incremental $2 billion of synergy and transformation efficiencies.
Fee capture while additional puts and takes to consider include positive revenue inflection in DTC the broader release slate at Warner Brothers Pictures and games.
<unk> by cyclical advertising headwinds.
We expect 2023 pro forma adjusted EBITDA to be in the low to mid $11 billion range representing growth of low to mid 20%.
Against pro forma adjusted EBITDA of $9 2 billion in 2022.
We continue to expect to convert a third to a half of EBITDA into free cash flow as I stated earlier with the key determinants and drivers of growth being the magnitude of EBITDA net.
Net cash content spend.
The impact of working capital initiatives, and the timing and magnitude of a trend change in the advertising market. We do expect the cash cost to achieve synergies and transformation efforts will be around the higher end of our one to $1 $5 billion guide given the expanded synergy target.
Some of which possibly hitting in 2024.
With respect to the cadence of free cash flow as it historically the case for both legacy discovery and Warner Media Q1 free cash flow will represent the low point for the year.
Given the timing of sports rights payments timing of content outlays in cash interest payments on a large portion of the acquisition debt. Accordingly, we expect free cash flow in the first quarter to be negative.
The long term earnings and free cash flow generation potential of this company are stronger than ever.
Particularly after having taken some courageous and crucial first steps. This past year, we're committed to continue executing our strategic initiatives to drive top line performance.
And with much repositioning behind US we are beginning to fully lean into the opportunities ahead of us as always we are not managing this company for short term financial performance, but rather with the next 100 years of this vibrant creative organization in mind with that I'd now like to turn it back to the operator, and David JB and I will take your questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from Jessica Reif Ehrlich with Bank of America.
Yes.
Thank you Ty.
So David as you said 22 was a year of really heavy lifting and had challenges.
Division, whether it's film advertising, CNN et cetera, I mean macro et cetera TTC.
As you look out to 'twenty three I think when you kind of touched on some of the potential.
Potential tailwind.
But it sounds like Youre walking away from close to $12 billion and EBITDA to maybe low to mid $11 billion in EBIDTA Im just wondering if you can.
Yes.
Talk about some of these assumptions clearly you still have some macro challenges but.
What could go right what what's in their fast upside, which is something that you.
Didn't really talk about that much but it's new.
And on the potential for the balance sheet the balance sheet improvement is very encouraging.
Does that include any potential asset sales like non strategic asset sales you have so many hidden assets within the company is there.
What are you considering.
Alright, Thank you Jessica.
So let me start with the second question. The guidance does not include any asset sales. There are some opportunities that I am looking at below deck, as we say, but none of that would be baked into these into this leverage guidance and on the on the 20th non strategic.
And on the on the 2023 outlook look it's early in the year and Theres a number of uncertainties.
You won't be surprised to hear and I'm very very glad that we put out some targets in the summer of last year, and we were able to hit those targets we're putting these.
Targets are out for 2023 with the same mindset that we want to hit or outperform that guidance.
Gone through a couple of the puts and takes here. The biggest unknown continues to be the AD sales environment.
We have a lot of.
Points to be very excited about where we're going to be releasing 12 films six game one of them is off to a very good start.
A lot to be looking forward to we're excited about jbt's product, we launched in the second quarter, but those are those are uncertain factors. It's very early in the year and I'm not taking anything off the table here, but I just want to be realistic as well about what we're seeing today.
Yes.
We hit this year with full leadership team in place we met with.
With 186 of the top leaders in for a week in early January this is one team now.
Everybody has a strategic focus on improving free cash flow market share for each of the businesses, we have command and control of each of the businesses and I think our diversity we.
We have all these different assets that have.
There are different some are advertisers driven this the gaming business is all consumer products revenue.
And I think that diversity is strength.
The next question please.
Our next question comes from Michael Morris with Guggenheim Partners.
Okay.
Thank you guys. Good afternoon appreciate all the information you shared.
I'd like to ask you about advertising trends youre, seeing and maybe kind of advances discussion a bit more really trying to understand how much of the AD impact that youre seeing is kind of coming from the macro environment. How much you feel like is more reflective of some of the underlying trends that just have to do with ratings declines are cord cutting.
<unk>.
Those types of trends if you could share your view on those two impacts that would be very helpful. And my second question is about the.
This pending relaunch Max product is there any of your content that's definitely off the table to be included in that service and so I think of the investments that you're making live sports content on Turner live content on CNN.
Are those types of things definitely offer the structurally not able to be put on the service or is that something that might fuel that service. Thank you.
Let me start with the second.
In addition to all of our entertainment and nonfiction.
We do have all of our news and sports and that gives us real optionality in terms of nursing and audience.
And for a reduction in churn and for overall price value.
We will we will do a full presentation on April 12, which will lay out.
<unk> a significantly improved product the launch what will be on it Jamie.
<unk> anything to add to that no I think the focus right now is obviously continuing to on the expanded entertainment offering.
And we think the complementarity of the HBO, Max and discovery plus entertainment offering is significant and will be.
A major step forward for consumers, who are looking for simplified number of choices more breadth of options in terms of content all in one place and for good value. That's what we're looking to primarily deliver but as David said, we've got sports and news that today are really untapped in the streaming world and those are optionality for what we might be willing to do in the future and we will.
Share more of that on the <unk>.
With you with more details and in fact, we.
We use news and sports quite effectively.
In Europe , and we've learned a lot about when it does work and when it doesn't.
The advertising side.
It's kind of a complex answer ill just take a swing at it and you can follow.
The market is the macro environment is very challenging it's significantly better outside the U S right now.
Which is a surprise the sentiment.
<unk> is not terrific the scatter market overall is very slow.
I would say steady to maybe a little bit better than it's been it was in the fourth quarter, but the digital inventory, which really held up in the fourth quarter has also softened.
We have an unusual situation on the one hand, we have tremendous breath with live news live sports Entertainment and nonfiction, a tremendous share and reach.
Having said that we closed this deal right before the upfront and with first bringing our teams together, we've effectively done that now, but we had to take two different sales teams in Poland. Together, So I think that I am.
Hyper focused on this meeting once a week with the team, but getting our stride as a new working team and I feel like we're starting to get some momentum on that we also made a decision in the upfront to drive price rather than extra volume and I believe and that having been in this business for 30 years I think in order to really drive asset Valley.
Q you need to drive price and we were able in the upfront to drive price significantly more.
Then then all of our peers.
But.
In order to do that we took less volume than we could have.
And.
Now you see a very soft scatter market. So that is having some impact on us versus others that it took a much bigger position in the upfront having said that as we face. This next upfront which is coming up in two months.
I think the breadth of our content.
Together with where we go in on price positions us very well and so we'll keep in mind this balance of volume versus price, but I always would err toward.
Price, because I think thats, where you really build asset value and we've also introduced.
Digital advertising on HBO, which advertisers are very excited about being able to be in these marquee shows and.
And we're doing it in a very tasteful way by putting it on the very front end.
Yes.
The only thing I would add is from the perspective of cyclical versus secular there is no doubt I mean put levels in the industry I think we're down 14% in the quarter.
Arguably if we've done a little worst than that partly driven by the scheduling work or the sport schedules that David mentioned.
A couple of minutes ago.
But I also think we're very well positioned to grow from here.
Gasoline is doing a lot of work.
Getting the the enormous.
The value of our library on screen, we've got some tests going on and it's very early but some of the numbers that are coming in are looking exciting as she has also restructured the team with the development focused doors. We're running this portfolio as one integrated portfolio and we've got a time tested approach to cross promotion and we're adjusting.
Right now to the larger portfolio and a larger number of assets that we're promoting we were able to put that to work behind some of the cases launches behind some of our film launches.
And we're seeing some some real opportunity here. So I think we're very well positioned in terms of the.
The market itself.
As I said before it's not a good environment, we do see the weekly bookings right now ticking up slightly if you compare January and February with maybe the November December timeframe, looking a little better retail fast food entertainment a little better.
Telecom small, but coming back on and <unk> got other areas like technology is still completely depressed. So again as I said similar picture with more diversity international some areas actually.
Trending up now others still difficult, it's just too early to really.
The trend change here, but what we are assuming that things will get better in the second half.
We're assuming that and I have no doubt that when the market turns we're going to be in a very very good position to capture that upswing as well, especially as David mentioned with more inventory on the digital side.
Coming available here, which last year was.
The limiting factor for us.
Thank you. Thanks next question please.
Our next question comes from Brett Feldman with Goldman Sachs.
Great. Thanks for taking the question there's been an increasing discussion recently about what the right General Entertainment content strategy is supposed to be for media companies as your models continue to pivot and become more streaming centric. We've heard the word curated I think you used it during your script. We also hear a bigger discussion around how you decide when something should be exclude.
To your platforms and when maybe you should be licensing. So I was hoping you could just give us your most updated thoughts as we kind of have that framework for assessing the new product when you rolled out on April 12. Thank you.
Sure.
Well one of the big advantages that we have Brad is that we have this diversity of content and.
As we think about where we put content.
As Casey looked at HBO, we were able to see which content.
People spending time watching what.
What content is really powerful to us in terms of reducing churn and then there was a lot of content that just wasn't being viewed and so we were able in many ways to Monday morning quarterback that's what led us to the conclusion that direct to streaming movies, we're providing really no value to us and so which we pivoted and said we were going.
<unk> to move all of our films back out with real Windows in order to optimize those products.
So.
We are excited about the fact that we're going to take all of the discovery content and put it together with the HBO Max content in a much better platform, but the key to this company is as a storytelling company. We have this diversity, we have storytelling and games with Hog watts, which is really off towards <unk>.
<unk> start for US, we have channing and her team.
Right now with the number one or two show on almost every platform in America, where we're selling to all of our.
Our peers in the business.
And then we have the ability to to pick from all of these different baskets.
Two to build really what's maybe most important for us which is a successful and profitable streaming business at HBO Max whatever we call it on the launch.
<unk> is a product that we take around the world and that has a real impact in how people consume content. We believe in it because we believe we have the best menu of content. The best portfolio of the best quality and we're Curating now in a way that's having an impact on.
On America.
And so I think that is key to us in terms of building the long term strength, but the other key is that we have the largest TV and motion picture Library, and we're the biggest producer of quality content in the world and so selling that to drive free cash flow and to nourish. The overall segment. So that we as a media segment can be successful.
As important.
In answering that question you reiterated something you said before which was an intent to fold the discovery content into the new product. There had been some media reports a few weeks ago that you were going to actually keep discovery as a standalone product is that something you're able to comment on now.
Just simply that.
Those that have discovery right now the churn is very low and it's profitable discovery plus.
Many of those people are going to want to move up to a bigger product more robust with a bigger offering for those that are happy paying five or $7 and having new home food.
Discovery in one type content.
Our strategy is no sub left behind we have profitable subscribers that are very happy with the product offering of discovery plus.
Why would we shut that off.
Thank you.
And it is a shared.
The platform itself for discovery plus will be a shared platform. So we have a best of.
We have all of this work that we've done to build this platform will be taken so that's to the benefit of all of our subscribers on all of our different products.
And Brad just to be clear the discovery content would still be available on the bigger relaunched.
Combined product no question about that.
Understood. Thank you.
Okay. Let's go to next question. Please.
Our next question comes from Ben Swinburne with Morgan Stanley .
Thanks, Good afternoon, two questions Dave.
David James and his DC strategy is successful, which I'm sure is your expectation what does that mean for the company overall over the long term obviously successful films will help your studio segment earnings but.
And I know Thats, a tough question to put numbers around but just as you think about the impact of DC.
Fully realizing the opportunity over the next five plus years.
Could that mean to Warner brothers discovery and sort of the earnings power of the organization.
And then Gunnar you sound very bullish and confident on the DTC targets the $1 billion of EBITDA and 25 can you talk a little bit about the revenue outlook for <unk>, you had 6% growth this quarter.
A lot of that from advertising and content do you need revenue growth to accelerate in order to deliver that $1 billion. Just maybe help us think about the levers you have and your expectations around top line over the next few years. Thank you guys.
Yes, Thanks Ben.
We were laser focused on building this DC 10 year plan.
James was writing Superman, we were spending time with him and Peter.
And he had a vision for for DC that we are all in on and believe in it.
He presented that to you in the press about about a month ago.
It's one of the biggest value creation opportunities for us I think it could and should be huge because.
It wasn't being pushed on if you look if you look at DC, Harry Potter and Lord of the Rings and then you take a look at Warner is a company without those three okay. It's those three of the tent pole products that when someone's at dinner anywhere in the world.
And if they look at their watch at eight o'clock and you mentioned Batman Superman Wonder woman, Harry Potter Lord of the rings in every country.
They leave dinner and they got to go home to view that product that they love. It gives a huge advantage with those tentpoles and so we are a storytelling company, but I believe that.
We have an overwhelming advantage in the marketplace with the IP that we own but to take to get that advantage. We have to create great content with that IP. So that storytelling IP, we haven't done a Superman movie in 10 years, we havent done new Harry Potter content in over a decade and <unk>.
Lord of the rings, which is a fantastic franchise.
And Andy Jaffe was pushing on it at Amazon with with a lot of success when we own those movie rights and so we want to optimize that as a unified strategy for the company and we take that across film television.
And even to sell to third parties, because we have something we have a treasure that no one else has.
<unk>.
For us DC alone.
We'll be again could and should be a game changer and I think there was a lot left on the table, we got to take those swings we got some of the best creative in the industry right now focused on those swings.
Okay.
Ben on the on the D to C. A question, let me start with the revenue side of it we definitely are planning for a for an inflection on the revenue side keep one thing in mind. The entire last year was impacted by this headwind from coming off of Amazon and we've lapped that now in.
We're seeing some growth now.
We will always be a little lower maybe than sort of a pure play <unk> product just because of the.
The HBO linear trends that are that are baked into our revenue number and we'll definitely we are definitely planning for revenue improvement and then on the cost side all of the all of the trends are pointing in the right direction, we see better engagement and better churn, which makes marketing efficiencies come up.
Rightsize the content investments and we have high hopes for all of these metrics after the combined product launches.
Two to further improve and later later down the road. We're also obviously going to start looking at new market launches.
Again.
The only other thing I would add Ben is for US. It's not just a question of subscribers scaling yes. That's one important ingredients. So we do see subscriber scale is one part of the revenue growth story, we see price as a very important second part <unk>.
Internationally as I said before we look at our pricing is significantly under where we think the market is.
We see churn as a third important variable that historically has been relatively higher on the HBO Max product that with the two products coming together that ultimately coming down is important and then obviously with the new product.
We just look at some of the features that we're going to be rolling out in some of the improved and enhancements.
From a performance standpoint in the product at a much higher engagement, which will help both our AD light monetization.
Including as David mentioned earlier, the fact that we're now putting ads and all the content on HBO Max as opposed to just some of the content on HBO Max all of those will be part of the revenue drivers. In addition to obviously.
Having the right like we've talked about before.
For all of our sports in the U S and news content eventually that could also help us drive further scale and pricing.
In the in the years ahead.
Thanks, Jamie Thanks, guys.
Next quarter next question.
Comes from Robert Fishman with VB Moffett Nathanson.
Hi, Good afternoon, I have one for David and then one for J P. R.
David as part of the upcoming DTC re launch can you just talk a little bit about how you plan to balance protecting the HBO brand while at the same time leamy leaning on the HBO premium content to help drive the new service going forward and then for good or JP can you maybe just expand upon your fast strategy at <unk>.
To do the deal with Roku, and <unk>, and maybe how that might impact the launch timing of your own fast service.
Sure.
The the symmetry of the.
The discovery plus content, which is heavily viewed for hours a day, mostly during the day and infringe against the HBO content, which is watched more.
Discovery, plus maybe more passively HBO more with family that the more research we do them. All we look at it the more we think these fit together very well with appealing content to everybody in the family.
So we're feeling more and more confident about that on the 12th will lay out to you. We have a clearer attack plan, where we will drive this really.
Across the country and into markets around the world.
With conviction.
But we will take you through what that plan is and how we intend to do it on the <unk>, but we're locked and loaded.
Faster fast sorry, Robert on fast look the strategy is I think back to some of the questions earlier at the end of the day one of the advantages we feel like we have is.
The question keeps coming up about windowing the reality is in today's environment.
It would be.
You wouldn't want us to say, we have a static one.
100% defined windowing strategy the reality of the market is evolving so dynamically that what we are doing is as one team looking at all the different windows and what our real asset is having actual distribution assets in almost every form of media, whether it be linear television on demand television through streaming game.
The optical distribution free to air pay TV <unk>.
And having all those distribution outlets gives us the optionality to look at what the data shows us and see where we need to lean in further or not fast is one area that as we look at the evolution of consumer behavior. We look at obviously a lot of the free to air viewing moving to what we call free to view online.
And we don't yet have we think a strong enough position in that market the roku and the <unk> deal was really just that.
<unk> in the water if you will 14 channels a b.
Beginning for us, but there'll be more to come as we go through the year and we do want to have a bigger presence in that space, because we do see consumer behavior, continuing to shift and having a very robust amount of consumers around the world, who will want to consume AD supported content and with the breadth and depth of content that we have across the company. We think we're very unique.
We were able to do that without jeopardizing, our risking the subscription business the theatrical business or some of our upstream windows, which will obviously continue to focus on.
Great. Thank you all.
Our next question comes from.
Mauro with RBC capital markets.
Good afternoon, and thanks for taking the question I wanted to follow up on the stream discussion.
Ahead of the curve here, but it seems like everyone. These days is reshaping the streaming strategy and pretty profound ways, whether it's there.
Our structure to content spend types of content investments philosophy around content exclusivity and licensing international pricing just so much more I think the focus for many of US is usually each company's pops profitability, but maybe theres not enough attention to the fact that each of these moves could help create dramatic impacts to the industry and competitive.
Land scape. So I know, it's a pretty open ended question, but can you talk about how you see the streaming industry involving overall with these changes and where does <unk> fit in that thank you.
Well look.
For us the market right now our focus is building a best of class product and putting all of our content together in so that it's easy to consume and that people are aware of all the different content that we have.
I do believe as JP said, we do believe as a company that.
We'll sort of re create this.
Streaming service, which is AD free then, which then there'll be add light and then we ourselves will run on our own.
Fast service and so effectively whether you want to look at content for free you want to look at with ads you want to look at.
Want a premium.
That you would have all of that opportunity with us and it makes sense because we have the largest TV and motion picture library in the world and we can create a <unk> or a pluto without buying content from anybody by just being able to put it on ourselves and so.
As the largest owner of producer of content in the world.
We want to Super serve effectively our streaming service, which is a top priority as well as an <unk> service. So that we could reach everyone in every country everywhere in the world.
But in addition, we want to run this company to drive free cash flow and the ability to monetize a lot of the content that isn't critical to subscriber growth and that isn't critical to or helpful to churn and having some of that content appear on our platform and sell it not exclusively to others.
Is very economically beneficial and the good news is we've had a real chance to look at content on each of the platforms over the last two years and we could see for instance at HBO. The majority of viewership of content on HBO was only 40% of of the of the content. So there was 60% that was hardly being viewed.
And why should we need to monetize that in order to drive shareholder value. Once we establish this funnel.
Then we can take things like the first season of succession of the second season, we can put that down on our <unk> service and then a few loved it you can come up and you could then pay for an AD light or in subscription and basically we created a flywheel of our own where we own the full ecosystem.
The subscription the add light and the NDA AD free and we take advantage of all the content that we have.
And I think I would just only add that okay. Yeah. No I was just going to say that David has said before I think the industry. Obviously was at a scale at any cost. We said starting last August we believe and profitable scale. The industry was in a quantity of content over quality we.
Even a quality over quantity and therefore spend wise spend needs to get rationalized and at the end of the day. The consumer is at a point in time, where they want more choice and better breadth of choice from fewer services because they just don't have you have the share of wallet to be able to spending on 567 services.
Anymore, and so you put the discovery plus an HBO Max propositions together at a great value and we think we deliver something that ultimately has something for everybody in the household which will help us on scale and help us on churn, which are two of the two major ingredients were focused on as well as obviously engagement.
The other point that.
<unk> is front and center for US is curation, there's loads of content out there, but curation, creating content at a time when people can watch it creating a community conversation. If you look at the last of US was growing every week euphoria to be able to deliver.
2030, 35 million people in America watching.
And to have it be a conversation.
Storytelling content is most powerful when youre watching it and then you with others either in a theater or you were able to talk about either online or with your friend that's the power of of content not when you're viewing content alone content alone is really only half of the of the equation and cures.
Adding content so that people can watch it and have a shared experience is a very big piece of the Warner brothers.
Discovery advantage.
We can take you into the theater around the World. We can put you on HBO on a Sunday or Monday night, where it's where it must see streaming TV.
Four.
We could have that we've launched your movie we can put you right on HBO on Sunday night with the biggest audio with the biggest audience in America tuning right into you. So I think that.
That's something that's really resonating with the creative community.
Their content is seeing its curated and it's elevated.
And that is part of the cultural conversation both in the theater and on the platform and that that is what all great talent wants. They want we wanted to have an opportunity for their content to be seen to be talked about and they want to feel respected.
And that is the culture here at Warner Brothers Discovery, and the best thing that we have going for US right now is.
All of that hard work that we did and it was probably two years of work that we did in 10 months.
It's now almost it's overwhelmingly behind US all of the meetings that I've had in the last two weeks or about great content that we're producing meeting with creative that want to come here, how we what more shows.
Are we going to be selling what more shows that we are going to be keeping on our platform and getting ready for our new launch.
So I think this is an exciting time, because I think we're really we made some tough decisions. Some of them. We may find we need to adjust but we feel really good about where we are and we're accelerating forward.
Great.
Great last question.
Yes.
Our final question comes from John Hodulik with UBS.
Great. Thank you guys.
David maybe just to sort of wrap up on the content side a number of your competitors.
Cut back on that total amount of spending on cash content 23 versus <unk> 22 is that.
It sounds like you guys have.
On the one hand, a lot of new.
Programs, a lot of new movies in the outlet new initiatives, but at the same time pulling some content, but we're just what should we expect in terms of 23 versus <unk> 22, and then on the affiliate side.
We're doing 30% of the <unk>.
Your affiliate deals I mean, just.
How should we think of sort of pricing in.
How should that translate into sort of results as we look out to 'twenty three.
Yes look I mean.
On the content has been.
Remember our strategy changes leading to the content restructuring and write offs over the course of last year, obviously, that's going to flow through cash as well as we adjust but that said, there's always going to be a place for our quality content and we're open for business. It is the backbone of what we're doing and we will keep invest.
And one of the tenants is we're not going to launch any content before its time, we have a lot of motion picture content that we're reworking.
And making a lot of progress with the Hogwarts game, we took several additional months to rework it to get it right. It's not about getting it out quick it's not about getting it for a certain date, it's about telling the best story.
<unk>.
So we're going to be Casey is the best example of that channel is the best example of that and now this.
This year Youre going to see us fighting on DC youre going to see us fighting at Warner Brothers on the motion picture side and.
In order to really I think theres, a huge opportunity on the Warner Brothers motion picture side for investment in quality content and storytelling, but it's we're not going to tell any story before its time and I think youre going to see a big difference that when we release something.
What's going to be a product that we think is the best it can be.
And regarding the.
The linear affiliate renewals.
As we've said a couple of times that we're very happy with how those discussions went clear testament to the importance and the value that our network portfolio is delivering to our affiliates.
Taking a step back here, though I mean, the reason why one of the reasons why we carved out the linear business. The network business is one separate segment has to be completely transparent about where those trends are moving in as I said before net net that's not a segment.
I would.
Expect a sustained revenue growth thats not the point, it's about the sustainability and the longevity of the free cash flow being delivered by that segment.
To that point I have no doubt that we have years and years of that coming our way.
Great. Thank you.
Q&A session is now closed which concludes today's conference. Thank you for attending today's presentation. You may now disconnect.
And Permian.
Sure.