Q1 2024 Warner Bros Discovery Inc Earnings Call
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Operator: BF-WATCH TV 2021 [inaudible] BF-WATCH TV 2021 Please stand by, your program is about to begin. If you need audio assistance during your call, please press star zero. Ladies and gentlemen, welcome to the Warner Bros. Discovery first quarter 2024 earnings conference call. At this time, all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session. Additionally, please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mr. Andrew Slavin, Executive Vice President, Global Investors Strategy. Sir, you may begin.
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Speaker Change: Ladies and gentlemen, and welcome you to the Warner Brothers Discovery first quarter 2024 earnings Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Additionally, please be advised that today's conference call is being recorded I would now like to hand the.
Speaker Change: Conference over to Mr. Andrew Slaven Executive Vice President Global Investor strategy, Sir you may begin.
Andrew Slabin: Good morning, and thank you for joining us for Warner Bros. Discovery's Q1 earnings call.
Andrew Slaven: Good morning, and thank you for joining us for Warner Brothers discoveries Q1 earnings call.
Andrew Slabin: Joining me today is David Zaslav, President and Chief Executive Officer, Gunnar Wiedenfels, Chief Financial Officer, and J.B. Perrette, CEO and President, Global Streaming and Games. Today's presentation will include four forward-looking statements that we may
Andrew Slaven: Joining me today is David Zaslav, President and Chief Executive Officer, Gunnar of Eaton felt chief financial Officer, and JB, Perrette, CEO and president global streaming of games.
Andrew Slaven: His presentation will include forward looking statements that we make pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. The forward looking statements may include comments regarding the company's future business plans prospects and financial performance and involve risks and uncertainties that could cause actual results to differ materially from our expectations for additional information.
Andrew Slabin: Pursuant to the Safe Harbor Provisions of the Private Security Litigation Reform Act of 1995.
Andrew Slabin: The forward-looking statements may include comments regarding the company's future business plans, prospects, and financial performance and involve risks and uncertainties that could cause actual...
Andrew Slabin: Actual results may differ materially from our expectations. For additional information on factors that could affect
Andrew Slaven: On factors that could affect these expectations. Please see the company's filings with the U S Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K, and its reports on Form 10-Q, and form 8-K with that I'd like to turn the call over to David.
Andrew Slabin: Please see the company's filings with the U.S. Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K and its reports on Form 10-K.
Andrew Slabin: on Form 10-Q and Form 8-K. With that, I'd like to turn the call over to David.
David Zaslav: Hello, everyone, and thank you for joining us. As we kicked off the new year, our focus was simple: to continue building this company for the future, recognizing that it's not business as usual, and that we are transforming ourselves for what's next in an industry undergoing tremendous disruption, largely driven by technological innovation impacting consumer behavior. And we're embracing that innovation here at Warner Bros. Discovery with bold and courageous decision-makers.
David Zaslav: Hello, everyone and thank you for joining us.
David Zaslav: We kicked off the new year, our focus was simple.
David Zaslav: When you're building this company for the future recognizing.
David Zaslav: Recognizing that it's not business as usual.
David Zaslav: We are transforming ourselves for what's next in an industry undergoing tremendous disruption.
David Zaslav: Largely driven by technological innovation impacting consumer behavior.
David Zaslav: We are embracing that innovation here at Warner Brothers discovery with bold and courageous decision, making.
David Zaslav: To that end, we've had a productive start to the year, and we are pleased to see positive momentum building in several critical areas. Most notably, Max is gaining subscriber traction in all regions, adding 2 million subs this quarter, with our total direct-to-consumer subscriber count nearing the 100 million mark. And while our U.S. subs will be impacted by some seasonality, particularly related to sports in Q2, we're on track for continued robust international growth this quarter and new subscriber highs through the remainder of the year.
David Zaslav: To that end, we've had a productive start of the year. We are pleased to see positive momentum building in several critical areas.
David Zaslav: Most notably Max is gaining subscriber traction in all regions, adding 2 million subs this quarter with our total direct to consumer subscriber count nearing the 100 million Mark.
David Zaslav: While our U S subs will be impacted by some seasonality, particularly related to sports in Q2. We're on track for continued robust international growth this quarter and new subscriber highs through the remainder of the year.
David Zaslav: We're also gaining ground in ad sales, with an acceleration in direct-to-consumer and sequential improvement in linear this quarter, helped in part by a record March Madness men's basketball tournament and steadier overall ratings. At the same time, we're taking meaningful steps to rebuild our studios as the cornerstone of our storytelling engine. And we're proud of the recent creative successes that have supported our number one box office share this year, including Wonka & Dune Part 2, and Godzilla X-Con.
David Zaslav: We're also gaining ground in AD sales with an acceleration in direct to consumer and sequential improvement in linear this quarter helped.
David Zaslav: Helped in part by a record March Madness men's basketball tournament and steadier overall ratings.
David Zaslav: At the same time, we're taking meaningful steps to rebuild our studios is the cornerstone of our storytelling engine.
David Zaslav: And we're proud of the recent creative successes that have supported our number one box office share this year, including Walker.
David Zaslav: Due in part to <unk>.
David Zaslav: Godzilla X com.
David Zaslav: And we're excited about the quality and breadth of our future pipeline. We're also exploring the ways that new technologies like data-driven systems and AI can improve our consumer offerings and enable us to run our businesses more productively and effectively. This is one of our top priorities. Regarding the balance sheet, we continue to see tangible results from our focus on transformation and efficiency. Even in our seasonally weakest free cash flow generation quarter, our free cash flow improved by $1.3 billion year-over-year to roughly $400 million in Q1 and $7.5 billion in trailing 12-month free cash flow.
David Zaslav: And we're excited about the quality and breadth of our future pipeline. We're also leaning into the ways that new technologies like data driven systems and AI can improve our consumer offerings and enable us to run our businesses more productively and effectively this is one of our top priorities.
David Zaslav: Regarding the balance sheet, we continue to see tangible results from our focus on transformation and efficiency.
David Zaslav: Even in our seasonally weakest free cash flow generation quarter, our free cash flow improved by one 3 billion year over year to roughly $400 million in Q1, and $7 $5 billion in trailing 12 month free cash flow.
David Zaslav: And we will continue to opportunistically manage our capital structure, evidenced by this morning's debt tender announcement. While we've accomplished a lot over the last two years, we're still just scratching the surface of our long list of to-dos that we see as catalysts for change and ultimately levers of growth for Warner Bros. Discovery.
David Zaslav: And we will continue to opportunistically manage our capital structure evidenced by this morning's debt tender announcement, while we've accomplished a lot over the last two years.
David Zaslav: We're still just scratching the surface of our long list of to Dos that we see as catalysts for change and ultimately levers of growth for Warner Brothers Discovery.
David Zaslav: The current media landscape is increasingly dynamic, and in response, we've had to make some tough and, at times, unpopular decisions. But we are doing what we believe is necessary to best position the company for the future. And while transformation success is not easily measured in short-term months or even quarters.
David Zaslav: The current media landscape is increasingly dynamic and in response, we have had to make some tough and at times unpopular decisions, but we are doing what we believe is necessary.
David Zaslav: Best position the company for the future.
David Zaslav: And while transformation success is not easily measured in short term months or even quarters.
David Zaslav: We're very confident in the strength of our assets and believe we will see both strategic and financial progress in the quarters ahead. I'll briefly touch on a few key operational milestones and objectives as we look out over the near-term landscape. On direct-to-consumer, this is a pivotal and critical year for Max with an aggressive relaunch and rollout underway that will meaningfully expand our global presence and growth potential. Since the start of the year, we've expanded from a single market in the U.S. to 39 countries and territories with the launch of Latin America.
David Zaslav: We're very confident in the strength of our assets. We believe we will see both strategic and financial progress in the quarters ahead.
David Zaslav: I'll briefly touch on a few key operational milestones and objectives as we look out over the near term landscape.
David Zaslav: On direct to consumer this is a pivotal and critical year for Max with an aggressive re launch and rollout underway that will meaningfully expand our global presence and growth potential.
David Zaslav: Since the start of the year, we have expanded from a single market in the U S to 39 countries and territories with the launch of Latin America.
David Zaslav: And over the next several weeks, we will roll the service out in over 25 additional markets across Europe, including our first new markets, France and Belgium, with more to follow, and we're launching it ahead of the Paris Olympics. Max will be the only place where viewers across Europe will be able to watch every part of the Olympic Games.
David Zaslav: And over the next several weeks, we will roll this service out in over 25 additional markets across Europe, including our first new markets, France, and Belgium with more to follow.
David Zaslav: And we're launching it ahead of the Paris Olympics, Matt.
Max will be the only place where viewers across Europe, we will be able to watch every part of the Olympic games.
David Zaslav: Our goal in 2024 is to drive top-line improvements and build upon the profitability we achieved last year, while positioning us to achieve our one billion EBITDA target for 2025 with further growth beyond. And we're off to a strong start with nearly 90 million positive EBITDA generated this quarter, despite absorbing some of the launch cost of LATAM. But more importantly, we're laying the critical groundwork and infrastructure from which we expect to build a broader and more profitable direct-to-consumer segment.
David Zaslav: Our goal in 2024 is to drive topline improvements and build upon the profitability we have achieved last year.
David Zaslav: All positioning us to achieve our 1 billion EBITDA target for 2025 with further growth beyond.
David Zaslav: And we're off to a strong start with nearly 90 million positive EBITDA generated this quarter. Despite absorbing some of the launch cost of Latam.
David Zaslav: But more importantly, we're laying the critical groundwork and infrastructure from which we expect to build a broader and more profitable direct to consumer segment.
David Zaslav: Three key metrics underpin our strategic and financial objectives for direct to consumer. The first is subscriber growth. As I said, we're nearing the 100 million mark and see strong indicators of continued growth in Q2 and the remainder of the year. We're also leveraging our best practices from the U.S. and LATAM rollouts, such as our strongest content slate yet, more partnerships in place to accelerate our rollout, an enhanced subscriber migration experience that reduces one-time churn, and more optimized marketing investments. Second, engagement and modernization.
David Zaslav: Three key metrics underpin, our strategic and financial objectives for direct to consumer.
David Zaslav: First is subscriber growth.
David Zaslav: As I said, we're nearing the 100 million Mark and see strong indicators of continued growth in Q2, and the remainder of the year.
David Zaslav: We're also leveraging our best practices from the U S and Latam rollouts, such as our strongest content slate yet more partnerships in place to accelerate our rollout and enhanced subscriber migration experience that reduces one time churn and more optimized marketing investment.
David Zaslav: Engagement and monetization.
David Zaslav: Thanks to a combination of stronger content and product enhancement, engagement reached an all-time high, and we are taking meaningful steps to grow it further. The team continues to improve the product to deliver a more personalized consumer experience, feature set, and more impactful content offering. Additionally, we grew global ARPU 4% in the quarter. This, in part, reflects a greater mix shift of lower ARPU international subscribers as compared to U.S. subscribers. However, this quarter, U.S. ARPU grew by a healthy 8%.
David Zaslav: Thanks to a combination of stronger content and product enhancements engagement reached an all time high and we are taking meaningful steps to grow it further.
David Zaslav: The team continues to improve the product to deliver more personalized consumer experience feature set and more impactful content offerings. Additionally, we grew global <unk>, 4% in the quarter.
David Zaslav: This in part reflects a greater mix shift of lower <unk> international subscribers as compared to our subscribers.
David Zaslav: This quarter U S. <unk> grew by a healthy 8%.
David Zaslav: While we still have lots to do, I am pleased to say the content lineup on Max over the next 12 to 18 months is one of the strongest ever. March was particularly strong with March Madness and Quiet on the Set, a huge hit coming out of our ID network, and in Q2, Max will benefit from the third season of critically acclaimed series at, the streaming premiere of Iron Claw and Dune Part Two.
David Zaslav: While we still have lots to do.
David Zaslav: Champions League in LATAM, and the June 16th premiere of season two of House of the Dragons, which was one of the most successful series in terms of engagement and subscriber acquisition, just to name a few. In addition to House of the Dragons, over the next 18 months, Max will premiere a robust combination of high-impact global original series, including season three of The White Lotus and season two of The Last. Season 3 of And Just Like That, along with highly anticipated tentpole original series, including the Penguin's Dune Prophecy, It. Welcome to Dairy!
David Zaslav: I am pleased to say the content lineup on Max over the next 12 months to 18 months is one of the strongest ever.
David Zaslav: March was particularly strong with March madness, and quiet on the set a huge hit coming out of our <unk> networks and.
David Zaslav: And in Q2 will benefit from the third season of critically acclaimed series ex the.
David Zaslav: The streaming premiere of iron claw and due in part to <unk>.
David Zaslav: <unk> League in Latam.
David Zaslav: And the June 16th premiere of season, two of house of the Dragon.
David Zaslav: Which was one of the most successful series in terms of engagement and subscriber acquisition just to name a few.
David Zaslav: In addition to house the Dragon over the next 18 months Max will premiere a robust combination of high impact global original series, including season three of the White Lotus.
David Zaslav: Season, two of the last of us.
David Zaslav: Season, three of and just like that along with highly anticipated Tentpole original series <unk>.
David Zaslav: Including the Penguin.
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Speaker Change: Welcome to dairy.
David Zaslav: A Knight of the Seven Kingdoms, a spinoff from the Game of Thrones franchise, plus an ongoing slate of fresh new Warner Bros. theatrical releases, such as Godzilla, X-Con, Furiosa, Beetlejuice, Joker 2, and more. The third metric is churn, which, while still above our longer-term target, continues to trend downwards and, in fact, was at an all-time low in the U.S. at the end of the first quarter. Habituality and diversity of viewing are the most correlated inputs to churn.
Speaker Change: A night of the seven kingdoms, a spinoff of the game of Thrones franchise.
Speaker Change: Plus an ongoing slate of fresh new Warner brothers theatrical releases, such as Godzilla X Con curiosa.
Speaker Change: Little juice, Joker too and more.
Speaker Change: The third metric is churn, which.
Speaker Change: While still above our longer term target continues to trend downwards and in fact was at an all time low in the U S. At the end of the first quarter.
Speaker Change: The <unk> and diversity of viewing on the most correlated inputs to churn.
David Zaslav: And we saw continued healthy improvements in both in the first quarter, and with our even stronger content lineup coming over the next few quarters, as well as our ongoing user experience enhancements, we feel confident about our trajectory. As you know, I have been a big proponent of bundling. And yesterday.
Speaker Change: And we saw continued healthy improvements in both in the first quarter and with our even stronger content lineup coming over the next few quarters as well as our ongoing user experience enhancements, we feel confident about our trajectory.
Speaker Change: As you know I have been a big proponent of bundling.
Speaker Change: And yesterday.
David Zaslav: Together with Disney, we announced a first-of-its-kind offering that gives U.S. consumers the option of an ad-like or ad-free package that includes Mac... Disney+, and Hulu. The product will go live later this summer, and we couldn't be more excited. Two of the world's most storied content companies are joining forces to deliver consumers the best and most diverse offering of entertainment at a very attractive price, in addition to the unprecedented consumer value this product will provide. There are real business benefits as well.
Speaker Change: Together with Disney.
Speaker Change: We announced a first of its kind offering that gives us consumers the option of an AD like or AD free package that includes Max is.
Speaker Change: Any plus and Hulu.
Speaker Change: The product will go live later this summer and.
Speaker Change: And we couldnt be more excited.
Speaker Change: Two of the world's most storied content companies are joining forces to deliver consumers the best and most diverse offering of entertainment at a very attractive price.
Speaker Change: And in addition to the unprecedented consumer value of this product will provide.
Speaker Change: Real business benefits as well.
David Zaslav: The modest overlap between the three services means we have an opportunity to drive incremental subscriber growth. And also, because consumers will have to retain all three, Disney Plus, Hulu, and Max, take advantage of the price value in the offering, we expect this product will help increase retention and lower churn, and thus support higher customer lifetime values. And finally, over time, if the bundle gets more traction, we will benefit from increased efficiencies and greater marketing effectiveness. The bundle will go live later this summer, and we're excited about what it could mean for our business going forward.
Speaker Change: The modest overlap between the three services means we have an opportunity to drive incremental subscriber growth.
Speaker Change: And also because the consumers will have to retain all three Disney plus Hulu and Max to take advantage of the price value in the offering we expect this product will help increase retention and lower churn.
Speaker Change: Thus support higher customer lifetime values and.
Speaker Change: And finally overtime at the bundle gets more traction we will benefit from increased efficiencies and greater marketing effectiveness.
Speaker Change: The bundle will go live later this summer and we're excited about what it could mean for our business going forward.
David Zaslav: Of course, the heart and soul of our company is storytelling, and we are using all the formidable assets and the greatest creative minds to tell the best stories in the best ways possible as we strive to return the luster to Warner Bros. Pictures. Clearly, this takes time and is not something that can be accomplished overnight, and the heavy lifting taking place under Mike and Pam's leadership at Warner Bros. Pictures and under Peter and James at DC isn't something that you see fully reflected yet in our financials. However, we are confident it will become more apparent with time.
Speaker Change: Of course, the heart and soul of our company is storytelling.
Speaker Change: And we are using all of the formidable assets and the greatest creative minds to tell the best stories and the best way as possible as we strive to return the luster to Warner Brothers Pictures.
Speaker Change: Clearly this takes time and it's not something that can be accomplished overnight and the heavy lifting taking place under Mike <unk> leadership at Warner Brothers Pictures, and under Peter and James at PC isn't something that you see fully reflected yet in our financials.
Speaker Change: However, we are confident it will become more apparent with time and in fact, we are seeing some strong proof points of our bold more disciplined approach. While we continue working through the remainder of the slate that was in place when we took over the business.
David Zaslav: And in fact, we are seeing some strong proof points of our bold, more disciplined approach while we continue working through the remainder of the slate that was in place when we took over the business. Warner Bros. generated more than $1.8 billion in global box office since the start of the year, and it was the first studio this year to reach $1 billion in both overseas and worldwide box office, and they've got a great slate in the works.
Speaker Change: Warner Brothers has generated more than one $8 billion in global box office since the start of the year.
Speaker Change: And it was the first studio this year to reach $1 billion in both overseas and worldwide box office.
Speaker Change: And they've got a great slate in the works.
David Zaslav: This morning, I'm excited to announce that the team is now in the early stages of script development for the first of the new Lord of the Rings movies, which we anticipate releasing in 2026, and we'll explore storylines yet to be told. Peter Jackson and his longtime writing partner.
Speaker Change: This morning, I'm excited to announce that the team is now in the early stages of script development for the first of the new Lord of the rings movies, which we anticipate releasing in 2026, and we will explore storylines yet to be told.
Speaker Change: Peter Jackson and his longtime writing partners Fran Walsh and Filippo volumes are producing and will be involved every step of the way.
David Zaslav: Fran Walsh and Philippa Boyens are producing and will be involved every step of the way. Lord of the Rings is one of the most successful and revered franchises in history and presents a significant opportunity for our theatrical business. Warner Bros. Discovery's great storytelling IP, including Harry Potter, Lord of the Rings, Superman, and many other parts of the DC Universe, are largely underused.
Speaker Change: Lord of the rings as one of the most successful and revered franchises in history and presents a significant opportunity for our theatrical business.
Speaker Change: Warner Brothers discoveries great storytelling IP.
Speaker Change: Including Harry Potter.
Speaker Change: Lord of the rings, Superman and many other parts of the DC universe.
Speaker Change: Our largely underused.
David Zaslav: We are hard at work fixing that. It's a core value and a key advantage for us. We have the characters and stories people love and yearn for everywhere in the world, in every language. Unfortunately, the studio's Q1 financials were overshadowed by the tough competition at games following the great performance of Hogwarts Legacy last year and the disappointing release of Suicide Squad in Q1 in our gaming group.
Speaker Change: We are hard at work fixing that.
Speaker Change: It's a core value and a key advantage for us we have the characters and stories people love and yearn for everywhere in the world in every language.
Speaker Change: Unfortunately, the studio's Q1 financials were overshadowed by the tough comp at games. Following the great performance of Hogwarts legacy last year and the disappointing release of suicide squad in Q1 in our gaming group.
David Zaslav: On the advertising front, while total company ad sales were down 7% in the quarter, we continue to see sequential improvement, Q2 to date, led by what we anticipate will be our biggest direct-to-consumer quarter ever. As we highlighted last quarter, and underpinning some of this improvement is the resilience. International Linear Advertising, primarily from our free-to-air channels in EMEA, which outperformed in the quarter with positive revenue growth. This was primarily driven by robust revenue growth in Poland, Italy, and Germany.
Speaker Change: On the advertising front, while total company AD sales were down 7% in the quarter. We continued to see sequential improvement Q2 to date led by what we anticipate will be our biggest direct to consumer quarter ever.
Speaker Change: As we highlighted last quarter and underpinning some of this improvement is the resiliency of international linear advertising, primarily from our free to air channels in EMEA.
Speaker Change: Which outperformed in the quarter with positive revenue growth. This was primarily driven by robust revenue growth in Poland, Italy and Germany.
David Zaslav: These firmly entrenched legacy broadcast assets continue to serve as highly effective platforms for advertisers to reach consumers. And while we just launched our international ad-lite offering in LATAM, with EMEA soon to come, these platforms will be critical to enhance our portfolio offering. Linear has obvious secular challenges.
Speaker Change: These firmly entrenched legacy broadcast assets continue to serve as highly effective platform for advertisers to reach consumers.
Speaker Change: And while we just launched our international AD light offering in Latam with EMEA as soon to come these platforms will be critical to enhance our portfolio offerings.
Speaker Change: Linear has obvious secular challenges we continue to see select opportunities for example.
David Zaslav: We continue to see select opportunities. For example, U.S. network production hubs can be sources of popular high ROI content for both linear and stream. This is a benefit we will pursue where it makes sense, particularly as a more intelligent Max platform helps to inform how we allocate content budgets across specific genres and verticals. For example, Max's hit, Quiet on the Set, which I mentioned earlier, was created by the team at i-D and became the most watched title on streaming in its debut week, with a massive 1.2 billion minutes of viewing time.
Speaker Change: S networks production hubs can be sources of popular high ROI content for both linear and streaming.
Speaker Change: This is a benefit we will pursue where it makes sense.
Speaker Change: Particularly as a more intelligent Max platform helps to inform how we allocate content budgets across specific genres and verticals for.
Speaker Change: For example, Max's hit quiet on the set which I mentioned earlier was created by the team at <unk> I'd.
Speaker Change: Came the most watched title on streaming in its debut week with a massive $1 2 billion minutes of viewing time.
David Zaslav: The True Crime Vertical has great traction on Max, and by leveraging the production scale at ID, we will be able to curate additional series very effectively and efficiently that work across Max and our other distribution platforms. I mentioned AI earlier. We recognize that AI is going to have an increasing impact on society and our industry, and we intend to take full advantage of it to enhance the products and experiences we deliver to consumers and to achieve greater efficiency company-wide.
Speaker Change: The true crime vertical has great traction on Max and by leveraging the production scale at I'd we.
Speaker Change: We will be able to curate additional series very effectively and efficiently that work across Max and our other distribution platforms.
Speaker Change: I mentioned earlier.
Speaker Change: We recognize that AI is going to have an increasing impact on society and our industry.
Speaker Change: And we intend to take full advantage to enhance the products and experiences we deliver to consumers and to achieve greater efficiency companywide.
David Zaslav: We are focused particularly on improvements to our ad targeting and recommendation algorithm. Our AI-based understanding of our customers and content is being activated in our product, marketing, and ad sales, which you'll hear more about at next week's Upfront. Since the initial launch of Max, we've been using AI and machine learning to personalize content discovery. We've continuously innovated to improve our model to present the right content in front of our consumers at the right time.
Speaker Change: We are focused particularly on improvements to our AD targeting and recommendation algorithms are AI based understanding of our customers and content are being activated in our product marketing and AD sales, which you'll hear more about at our next weeks upfront.
Since the initial launch of Max we've been using AI and machine learning to personalized content discovery.
Speaker Change: We've continuously innovate to improve our models to present, the right content in front of our consumers at the right time.
David Zaslav: And this is helping us to drive better content diversity on Mac. We've also been leveraging AI to more efficiently and swiftly identify and optimize ad break opportunities in our premium HBO content, which typically does not have natural ad breaks. This has enabled us to offer premium content on our ad-like tier, and it's also allowed us to create a variable ad load for our content as we monetize it using multiple tiers and platforms.
Speaker Change: And this is helping us to drive better content diversity on Max.
Speaker Change: We've also been leveraging AI to more efficiently and swiftly identify and optimize AD break opportunities and our premium HBO content, which typically does not have natural ad breaks.
Speaker Change: This has enabled us to offer the premium content on our AD light tier and it's also allowed us to create variable AD load for our content as we monetize it using multiple tiers and platforms.
David Zaslav: And we have dozens of other experiments across a spectrum of areas ranging from corporate and developer efficiency to marketing optimization and targeting. And all this experimentation is guided by clearly defined AI principles. We believe strongly that creativity and the kind of empathy and humanity necessary to create world-class storytelling can only be found in people, not systems. We also believe that AI is another in a long line of technology and tools that will enable creators to innovate and evolve how we tell stories and inspire audiences.
Speaker Change: And we have dozens of other experiments across the spectrum of areas ranging from corporate and developer efficiency to marketing optimization and targeting.
Speaker Change: All of this experimentation is guided by clearly defined AI principles.
Speaker Change: We believe strongly the creativity and the kind of empathy and humanity necessary to create world class storytelling.
Speaker Change: Can only be found in people not systems.
Speaker Change: We also believe that AI is another in a long line of technology and tools that will enable creators to innovate and evolve how we tell stories and inspire audiences.
David Zaslav: Before I close, I want to mention a topic I know is top of mind for everyone, and that's the NBA. We've enjoyed a strong partnership with the NBA for almost four decades. We're continuing conversations with them now, and we hope that we will be able to reach an agreement that makes sense for both sides. We've had a lot of time to prepare for this negotiation, and we have strategies in place for the various potential outcomes.
Speaker Change: Before I close I want to mention a topic I know is top of mind for everyone and that's the NBA.
Speaker Change: We've enjoyed a strong partnership with the NBA for almost four decades.
Speaker Change: We're in continuing conversations with them now and we're hopeful that we'll be able to reach an agreement that makes sense for both sides.
Speaker Change: Had a lot of time to prepare for this negotiation and we have strategies in place for the various potential outcomes.
David Zaslav: However, now is not the time to discuss any of this, since we are in active negotiations with the league, and under our current deal with the NBA, we have matching rights that allow us to match third-party offers before the NBA enters into an agreement with. With that in mind, please understand that this is as much as we're prepared to say about this topic today. These are challenging times for our industry. There's no question about that.
Speaker Change: However, now is not the time to discuss any of this since we are in active negotiations with the league and under our current deal with the NBA. We are matching rights that allow us to match third party offers before the NBA enters into an agreement with them with.
Speaker Change: With that in mind. Please understand that this is as much as we're prepared to say about this topic today.
Speaker Change: These are challenging times for our industry. There is no question.
David Zaslav: But the reality is, and I tell my team this all the time, there isn't a more exciting moment to be in this business. We continue to do the hard work to transform our company to drive meaningful growth in the future. We are positioning ourselves to take full advantage of opportunities that we see around us, and we're more confident than ever in our assets and our playbook. With that, I'll turn it over to Gunnar, and he'll walk you through the financials for the quarter.
Speaker Change: But the reality is and I tell my team. This all the time there isn't a more exciting moment to be in this business.
Speaker Change: We continue to do the hard work to transform our company to drive meaningful growth in the future.
Speaker Change: We are positioning ourselves to take full advantage of opportunities that we see around us.
Speaker Change: And we're more confident than ever in our assets and our playbook.
Speaker Change: With that I'll turn it over to Gunnar and he'll walk you through the financials for the quarter.
Gunnar Wiedenfels: Thank you, David, and good morning, everyone. I'd like to begin by spending a minute or two on the balance sheet and highlighting the key factors that underpin the $1.3 billion positive year-over-year swing in Q1 free cash flow in what is our seasonally weakest cash production quarter and where we typically see more cash outflows than inflows. Namely, number one, the continued benefit from the many initiatives to improve working capital, which we are still in the early innings of realizing.
Gunnar Wiedenfels: Thank you David and good morning, everyone.
Gunnar: Like to begin by spending a minute or two on the balance sheet and highlighting the key factors that underpinned the $1 $3 billion positive year over year swing in Q1 free cash flow and what is our seasonally weakest cash production quarter, and where we typically see more cash outflows and inflows.
Namely number one the continued benefit from the many initiatives to improve working capital, which we are still in the early innings of realizing.
Gunnar Wiedenfels: Number two, a more disciplined and analytical approach to content investment and allocation. Number three, meaningfully lower cash restructuring costs, and number four, lower cash interest expense as a result of the more than $6 billion of debt we repaid over the past 12 months. The primary use of our free cash flow remains de-levering the balance. We remain committed to our gross leverage target range of two and a half to three times. And I'm confident that we will continue to make progress towards further delivering this.
Gunnar: Number two the more disciplined and analytical approach to content investment and allocation number.
Gunnar: Number three meaningfully lower cash restructuring cost and number four lower cash interest expense as a result of the more than $6 billion of debt, we repaid over the past 12 months.
Gunnar: The primary use of our free cash flow remains delevering the balance sheet we.
Gunnar: We remain committed to our gross leverage target range of two five to three times and I am confident that we will continue to make progress towards further delevering this year.
Gunnar Wiedenfels: We paid down over $1 billion of debt during the first quarter, including nearly $400 million from open market purchases at a discount. I continue to view our debt stack as an important and valuable resource. Our weighted average maturity is roughly 15 years with very manageable average annual maturities for the foreseeable future, with maturities at any given year significantly less than our annual free cash flows even normalized for the strike. Our debt is virtually all fixed, with an average cost of 4.6% in line with the yield on comparable U.S. long-dated treasuries.
Gunnar: We paid down over $1 billion of debt during the first quarter and tooling nearly $400 million from open market purchases at a discount.
Gunnar: I continue to view, our debt stack as an important and valuable resource.
Gunnar: Our weighted average maturity is roughly 15 years with very manageable average annual maturities for the foreseeable future.
Gunnar: With maturities in any given year significantly less than what our annual free cash flows have been.
Gunnar: Even normalized for the strikes or that is virtually all fixed with an average cost of four 6% in line with the yield on comparable U S long dated treasuries.
Gunnar Wiedenfels: Based on the difference in current market value to book value, reflecting the current rate environment versus when issued, we have a $6 billion asset in our debt stack, and you should expect that we will begin to be more opportunistic in monetizing this asset, as evidenced by the debt tender that we announced this morning. We intend to repurchase outstanding debt using up to $1.75 billion a year.
Gunnar: Based on the difference of current market value book value, reflecting the current rating environment versus when issued we have a $6 billion asset in our debt stack and you should expect that we will begin to be more opportunistic in monetizing this asset as evidenced by the debt tender that we announced this morning, we intend to repurchase outstanding debt using up to $1 70.
Gunnar: $5 billion of cash.
Gunnar Wiedenfels: Turning to the segment results, I'd like to provide some brief commentary to supplement the discussions in the earnings report. Starting with studios, the $400 million plus year-over-year decline in Q1 was primarily due to the very tough comp we faced in games against the success of Hogwarts Legacy last year in the first quarter, in conjunction with the disappointing Suicide Squad release this past quarter, which we impaired, leading to a $200 million impact on EBITDA during the first quarter. This overshadowed an otherwise very bright spot from the contributions of recently released theatrical films, where we have had excellent traction to start.
Gunnar: Turning to the segment results I'd like to provide some brief commentary to supplement the discussions in the earnings release, starting with studios the $400 million plus year over year decline in Q1 was primarily due to the very tough comp we faced in games against the success of hardware legacy last year in the first quarter in conjunction with the disappointing.
Gunnar: Suicide squad released this past quarter, which we impaired leading to a $200 million impact to EBITDA during the first quarter.
Gunnar: This overshadowed an otherwise very bright spot from the contributions of recently released theatrical films, where we have had excellent traction to start the year.
Gunnar Wiedenfels: I'm excited that we have broken ground on a significant expansion project at our world-class production facility in Leavesden, UK. This is a great example of where we are making long-term investments at the heart of our company with an attractive return profile. It's also another example of how our new 1WBD processes are supporting the studio leadership team and combining creative excellence with overall financial discipline, while the studio business will always be characterized by hits and misses.
Gunnar: I'm excited that we have broken ground on a significant expansion project at our World class production facility. It leaves the U K a great example of where we are making long term investments at the heart of our company with an attractive return profile.
And it's also another example of how our new <unk> processes are supporting the studio leadership team combining creative excellence with overall financial discipline, while the studio business will always be characterized by hits and misses with these more rigorous processes in place I have no doubt that we should realize more upside for the bottom line with our hits, while reducing the bottom.
Gunnar Wiedenfels: With these more rigorous processes in place, I have no doubt that we should realize more upside for the bottom line with our hits while reducing the bottom line drag from our misses. Turning to DTC, we have successfully migrated the HBO Max subscriber base of Latin America over the past couple of. To be clear, this was no easy feat, with 160 platform integrations that were required to migrate existing subscribers to the new service.
Gunnar: Line drag from our Mrs.
Gunnar Wiedenfels: This required significant management time and resources, and we transitioned subscribers with better than expected migration-related churn, in part attributable to the best practices from the U.S. Another important outcome from the LATAM relaunch is the ability to now offer more consumer-friendly pricing and packaging across AdLite, AdFree, and Premium tiers, with more flexibility in subscription options and additional paths to monetize the base. For example, installment billing for consumers who are unable to pay the full multi-month subscription price up front.
Gunnar: Turning to D to C. We have successfully migrated the HBO Max subscriber base in Latin America over the past couple of months.
Gunnar: To be clear this was no easy feat with 160 platform integrations that were required to migrate existing subscribers to the new service.
Gunnar: This requires significant management time, and resources, and we transitioned subscribers with better than expected migration related churn in part attributable to the best practices from the U S launch.
Gunnar: An important outcome from the Latam relaunch is the ability to now offer more consumer friendly pricing and packaging across AD light AD free and premium tiers with more flexibility and subscription options and additional paths to monetize the base.
Gunnar: For example, installment billing for consumers, who are unable to pay the full multi month subscription price upfront, we will apply a similar approach to customer segmentation in EMEA.
Gunnar Wiedenfels: We will apply a similar approach to customer segmentation in EMEA. Levers of D2C growth include our significant opportunity to further scale the international subscriber base while improving worldwide monetization. As we push further into this geographic expansion, we are taking a more holistic view of our distribution deals with partners that both distribute our linear content offering as well as wholesale our max streaming. Thus far, we have, in many cases, captured greater overall value for WBD while managing the transition from linear to streaming.
Gunnar: Leavers of DTC growth include our significant opportunity to further scale the international subscriber base, while improving worldwide monetization.
Gunnar: As we push further into this geographic expansion, we are taking a more holistic view of our distribution deals with partners that both distribute our linear content offering as well as wholesale or Mac streaming service. Thus far we have in many cases captured greater overall value to W. BD, while managing the transition from linear to streaming.
Gunnar Wiedenfels: And with our strong start in Q1, I expect us to remain profitable in the D2C segment during 2024, despite the heavy launch investments, and I remain fully confident in our path to achieve our $1 billion plus EBITDA target for 2025 and our growth ambitions thereafter. One final note on D2C: content revenue was down 46% during Q1. And as a reminder, we will have a more difficult comp in Q2, both of which are the product of the timing of output deals renewed last year, the availability of content, as well as our content utilization choice.
Gunnar: And with our strong start in Q1, I expect us to remain profitable in the <unk> segment during 2024 despite that.
Gunnar: Launch investments and I remain fully confident in our path to achieve our $1 billion plus EBITDA target for 2025, and our growth ambitions thereafter.
Gunnar: One final note on DTC content revenue was down 46% during Q1 and as a reminder, we will have a more difficult comp in Q2.
Gunnar: Both of which are the product of timing of output deals renewed last year availability of content as well as our content utilization choices.
Gunnar Wiedenfels: Turning now to advertising, we did see sequential improvement both linear and D2C in the first quarter. Total company advertising in Q1 was down 7%, a sequential improvement of 300 basis points, and was supported by a 70% growth at D2C, which is beginning to scale nicely, and we expect another record quarter in Q2.
Gunnar: Turning now to advertising, we did see sequential improvement both linear and <unk> in the first quarter.
Gunnar: Total company advertising in Q1 was down 7% a sequential improvement of 300 basis points and was supported by a 70% growth at <unk>, which is beginning to scale nicely and where we expect another record quarter in Q2.
Gunnar Wiedenfels: It also, in part, reflects an increasingly more holistic portfolio approach to monetizing viewership of both linear and mass. Supporting our ability to offer our partners incremental reach and more customized solutions spanning all platforms, particularly in the US. The trend in quarter-to-day linear cash pacings in the U.S. continues to improve modestly, even excluding the positive impact of the NCAA men's Final Four and the championship. As a reminder, we will benefit from having these games exclusive to WBD this year, but we do not have the Stanley Cup Finals, and the exit of the AT&T Sports Nets will continue to be a headwind to revenues with a marginal profit impact through the end of Q3.
Gunnar: It also in part reflect an increasingly more holistic portfolio approach to monetizing viewership at both linear and Max.
Gunnar: Supporting our ability to offer our partners incremental reach and more customized absolution spanning all platforms, particularly in the U S.
Gunnar: The trend in quarter today linear cash pacings in the U S continues to improve modestly even excluding the positive impact of the NCAA men's final four and championship game.
Gunnar: As a reminder, we will benefit from having these games exclusive to double your BD. This year, but we do not have the Stanley Cup finals, and the exit of the At&t's sports Nets will continue to be a headwind to revenues with marginal profit impact through the end of Q3.
Gunnar Wiedenfels: Internationally, EMEA continues to be a standout bright spot, particularly in our three-day earmark. Advertising revenue grew nicely in Q1, and we are seeing a continuation of this trend in Q2. Poland, Italy, and Germany were notable outperformers among the key EMEA markets. In fact, except for the UK and the Nordics, advertising revenues were flat to up in virtually all EMEA markets during the first quarter.
Gunnar: Internationally EMEA continues to be a standout bright spot, particularly in our free to air market advertising revenue grew nicely in Q1, and we're seeing a continuation of this trend in Q2.
Gunnar: And Italy, and Germany were notable outperformers among the key EMEA markets in fact, except for the UK and the Nordics advertising revenues were flat to up in virtually all EMEA markets during the first quarter.
Gunnar Wiedenfels: Though materially smaller, Latin America has been and continues to be a different story, particularly given cyclical and secular headwinds in Brazil and Mexico, our two largest markets in the region. And unlike in Europe, where we are a scale broadcaster in several markets, we are more exposed to the less resilient pay TV ecosystem that is experiencing a more pronounced secular shift of advertising dollars to streaming. With Max now in the region, we have a growing AdLib presence and are better positioned to capture a share of this migration.
Gunnar: No materially smaller Latin America has been and continues to be a different story, particularly given the cyclical and secular headwinds in Brazil, and Mexico, our two largest markets in the region and.
Gunnar: Unlike in Europe, where we are a scale broadcaster in several markets. We are more exposed to the less resilient pay TV ecosystem that is experiencing a more pronounced secular shift of advertising dollars to streaming.
Gunnar: With Max now in the region, we have a growing at light presence and are better positioned to capture our share of this migration. We look forward to updating you on our progress here, which while early is exceeding our expectations thus far.
Gunnar Wiedenfels: We look forward to updating you on our progress here, which, while early, is exceeding our expectations thus far. Finally, I'd like to update you on our continuing transformation efforts, where we've made enormous progress on capturing cost efficiency throughout the company over the last few years. We continue to push forward with new initiatives and have added to the pipeline of opportunity. We now see a path to meaningfully exceed the more than $1 billion of remaining cost savings that we had previously guided to, which is on top of the more than $4 billion that we already realized through the end of 2023.
Gunnar: Finally, I'd like to update you on our continuing transformation efforts, while we've made enormous progress on capturing cost efficiencies throughout the company over the last few years.
Gunnar: We continue to push forward with new initiatives and have added to the pipeline of opportunities.
Gunnar: We now see a path to meaningfully exceed the more than $1 billion of remaining cost savings that we had previously guided to which is on top of the more than $4 billion that we already realized through the end of 2023.
Gunnar Wiedenfels: I would best characterize these efforts as a continuous improvement mindset that has become muscle memory for the WBDC. We see tangible further benefits from consolidation of real estate facilities and taking advantage of the great talent across our global capability. As well, we see meaningful savings from the ongoing consolidation of one dozen global content centers. As noted, identifying opportunities to utilize AI to increase productivity in all facets of business operations remains a top priority that may drive further upside to our updated cost savings target.
Gunnar: I would best characterize these efforts as a continuous improvement mindset, having become muscle memory for the W. BD team.
Gunnar: We see tangible further benefits from consolidation of real estate facilities, and taking advantage of the great talent across our global capability centers as well, we see meaningful savings from the ongoing consolidation of one dozen global content workflow systems.
Gunnar: As noted identifying opportunities to utilize AI to increase productivity in all facets of business operations remains a top priority that may drive further upside to our updated cost savings target.
Gunnar Wiedenfels: I am proud of the continued progress we are making to best position Warner Bros. Discovery to respond to the changes taking place in the industry. Indeed, this demands that we make difficult and bold decisions. We are focused on doing what is right for the long-term health and sustainability of the business to best serve the needs of customers and partners while positioning the company to drive long-term shareholder value.
Gunnar: I am proud of the continued progress we are making to best position Warner brothers discovery to respond to the changes taking place in the industry. Indeed, this demands us making difficult and bold decisions. We are focused on doing what is right for the long term health and sustainability of the business to best serve the needs of customers and partners, while positioning the company to drive long term.
Operator: Now I'd like to return the call to the operator, and David, JB, and I will take your question. And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your questions at any time by pressing star 2. Once again, that is star and 1 for your questions. We will take our first question from Brian Kraft with Deutsche Bank, please.
Gunnar: Shareholder value now.
Speaker Change: Now I'd like to return the call back to the operator, and David JB and I will take your questions.
Operator: And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your questions at any time by pressing star 2. Once again, that is star and 1 for your questions. Now, we will take our first question from Brian Kraft with Deutsche Bank. Please go ahead.
Speaker Change: And at this time, if you would like to ask a question. Please press star one on your telephone keypad you may withdraw your questions at any time by pressing star to once again that is star and one for your questions.
Speaker Change: We will take our first question from Bryan Kraft with Deutsche Bank. Please go ahead.
Bryan Kraft: Hi, Good morning, I was wondering if you could share any additional details about the bonding bundling relationship with Disney plus and Hulu for example.
Bryan Kraft: Pricing, how much marketing will be behind it and how the two companies are coordinating and funding the marketing activities and related how has the Max Netflix bundle with Verizon performed and we continue to see additional domestic bundles created and how about on the international side or are you doing anything.
Bryan Kraft: Yet outside the U S or do you plan to it thank you.
David Zaslav: Thanks so much, Brian. The bundle with Netflix is doing much better than expected with Verizon. And so I think, you know, it's another example where there is more strength together. And it's really driven by the need for a change in the consumer experience. We see it in all of our studies and even on a practical basis when talking to consumers. And so it's just much more efficient.
Bryan Kraft: Yeah.
Speaker Change: Thanks, so much Brian.
Speaker Change: Wonder with Netflix is doing.
Speaker Change: Much better than expected.
Speaker Change: With Verizon and so I think it's.
Speaker Change: Another example, where.
Speaker Change: There's more strength together and it's really driven by the.
Speaker Change: The need for a change in the consumer experience, we see it.
Speaker Change: In all of our studies and then even on a practical basis talking to consumers.
Speaker Change: And so it's just much more efficient what's interesting and I think different about the bundle with Disney as I've been saying for a long time, we need to come together ourselves and provide a better consumer experience.
David Zaslav: What's interesting, and I think different about the bundle with Disney, is I've been saying for a long time that we need to come together ourselves and provide a better consumer experience, a more compelling and exciting offering, or there'll be other companies that will do it for us. And there are a lot of great companies like Roku, Apple, and Amazon that are doing a terrific job of aggregating services in the quest to provide a better consumer experience. It's much more efficient, with a better ARPU, and a much better business if we can do it ourselves. And Disney itself is a fabulous company. They, together with us, turned a hundred years old this past year.
Speaker Change: They buy.
Speaker Change: More compelling and exciting.
Speaker Change: Offering or there'll be other companies will do it for us and there are a lot of great companies like Roku, and Apple and Amazon that they're doing a terrific job of aggregating services in the quest to provide a better consumer experience, it's much more efficient better <unk>.
Speaker Change: In a much better business, if we can do it ourselves.
Speaker Change: <unk>.
Speaker Change: Disney itself.
Speaker Change: Fabulous company.
Speaker Change: They together with US turned 100 years old.
David Zaslav: They have some of the greatest content and stories in the world. They're a global company like we are. And coming together, an incredibly well-run company with Bob Iger. And so coming together for this bundle, Disney Plus, Hulu, and Max, is really an extraordinarily positive offering. It'll be priced well, and it'll be both ad-light and ad-free. And for consumers in the U.S., I think it'll be a really positive consumer experience and give us, I think, a real advantage and opportunity. When you look at the market,
Speaker Change: This past year, they have some of the greatest content and stories in the world. They're a global company like we are and coming together, an incredibly well run company with Bob Iger, and so coming together for this bundled Disney plus Hulu and Max is really an extraordinarily positive offering it will be.
Speaker Change: It will be priced well and it'll be both add light and.
Speaker Change: An ad free and.
Speaker Change: Consumers in the U S. I think it'll be a really positive consumer experience and gives us through I think a real advantage and opportunity when you look at the marketplace.
David Zaslav: You know, there's this question of distribution versus content. I've always felt that in the long run, the best content wins, and that's why we've really focused on the creative side of our company, building the TV production business, the motion picture business, bringing the best talent back to Warner Bros., and ultimately, and having the best TV and motion picture library, that ultimately, the best content wins. The marketplace right now has looked at the great distribution companies and assessed that it looks like the distribution companies are going to be the companies that will be the big winners.
Speaker Change: There is there is this question of distribution versus content.
Speaker Change: Yeah, I've always felt that in the long run the best content wins and that's why we've really focused on the creative side of our company building the television production business the motion picture business, bringing the best talent back to Warner brothers that ultimately and having the best TV and motion picture Library that ultimately the best can't.
Speaker Change: <unk> wins.
Speaker Change: The marketplace right now.
Speaker Change: <unk> has looked at the great distribution companies and have have gate have assessed that it looks like the the distribution companies are going to be the companies that will be the big winners and those are great companies.
David Zaslav: And those are great companies. But I believe that distribution companies and great content companies will be winners. And that's why our quest to be the best storytelling company in the world, Disney, as we look over to Bob and his leadership, is an extraordinary storytelling company. And so I think this will be a great opportunity to provide great content for a reasonable price to consumers in America.
Speaker Change: But I believe that distribution and content distribution companies and content great content companies will be winners and Thats why our quest to be the best storytelling company in the World Disney as we look over to Bob and his leadership.
Speaker Change: <unk> is an extraordinary storytelling company and so I think this will be.
Speaker Change: This will be a.
Speaker Change: A great opportunity to provide great content for a for a reasonable price to consumers in America.
Unknown Executive: JB, do you want to add to that? Yeah. I mean, Brian, just the other things I'd add on pricing, as David said, we'll come out with more specifics, but you should imagine it will be priced very attractively for the consumer as a reference point. It's really working off of the Max standalone and the existing Disney Plus and Hulu package bundle. So, on a comparative basis, it'll be priced very attractively for consumers.
Speaker Change: I don't know JD, you want to add to that Brian just the only other things I'd add on pricing as David said, we'll come out with more specifics, but you should imagine it will be priced very attractively for the consumer as a reference point, it's really working off of the Mac standalone and the existing.
Speaker Change: At Disney plus and Hulu.
Speaker Change: Packaged bundles so.
Speaker Change: As a comparative basis, it'll be priced very attractively for consumers. The second on the flip side for us on the <unk> side. It also has very strong deal for both parties that.
Unknown Executive: The second, on the flip side for us, on the ARPU side, it also is a very strong deal for both parties that we feel very, very good about. And obviously, not to mention the LTV of those subscribers, which we expect to be significantly better than what we see today.
Speaker Change: We feel very very good about and obviously not to mentioned the LTV of those subscribers, we expect to be significantly better than what we see today.
Unknown Executive: On the marketing front, it's two-pronged. We will have a significant amount of marketing support from both parties, both third-party marketing as well as on-air and our own platforms driving traffic to the bundle. And at least as importantly, the buy flows, and everywhere you see people once they get into the buy flow, whether they're coming in for the bundle or they're coming in just for our standalone products, you'll see a high prominence of the offering across all the buy flows on both sides, both Disney and ourselves.
Speaker Change: On the marketing it's two pronged we will have a significant amount of marketing support from both parties.
Speaker Change: Both third party marketing as well as on air on our own platforms driving to the to the bundle and then at least as importantly by flows and everywhere you see people once they get into the bi flow, whether they're coming in through the bundle where theyre coming in just for a standalone products you already have.
Speaker Change: Hi prominence of the offering across all the buy flows on both sides, both Disney and ourselves and then on the international side.
Unknown Executive: And then on the international side, look, you should expect, obviously, this has been a very big priority for us, as David said, and we haven't really executed on it. We've done a lot of international partnerships and bundles with telcos and mobile broadband players. And as you'll see us roll out in Europe and as we announced on Tuesday, when we come to markets on Wednesday, sorry, when we come to markets like, new markets like France, we have big partnerships with people like Canal, Free, Orange, SFR, all the big mobile telco players.
Speaker Change: Look you should expect obviously this has been a very big priority for us as David said.
Speaker Change: And we are we havent really.
Speaker Change: Executed similar we've done a lot of international partnerships and bundles with telco mobile broadband players and as Youll see us rollout in Europe, and as we announced on.
Speaker Change: Tuesday, when we come to markets on Wednesday, sorry, when we come to markets like new markets like France, we have big partnerships with people like canal.
Speaker Change: Free Orange FSFR, all the big mobile telco players that will continue to be our strategy and then partnerships with other programmers that other streamers. We will continue to explore and I think you should see that in our roadmap in the quarters to come and one of the advantages that we're seeing is by having 10 to 12 channels in every country and free to air.
Unknown Executive: That'll continue to be our strategy, and then partnerships with other programmers and other streamers will continue to be explored. And I think you should see that on our roadmap for the quarters to come. And one of the advantages that we're seeing is that by having 10 to 12 channels in every country and free-to-air and local content all over the world, we have relationships with all these distributors. And when you see deals here in the U.S., this innovative deal that Bob and Chris did with Charter and Disney, those are deals outside the U.S. that you'll see replicated or already happening.
Speaker Change: Air and local content all over the world, we have relationships with all of these distributors.
Speaker Change: And when you saw deals here in the U S. This innovative deal that.
Speaker Change: With that Bob and Chris stated with charter and Disney those are deals outside the U S that youll see replicated already happening and you'll see it as we launch that allow for a real advantage for the fact that we're already in business a real advantage.
Unknown Executive: You'll see that as we launch that allows us a real advantage because we're already in business. And it's a real advantage that not only are we in business, but that consumers are watching our content, and we'll be transitioning a lot of those consumers to watching us through our Max product.
Speaker Change: Not only we in business, but consumers are watching our content and we will be transitioning a lot of those consumers to watching us through our Max product.
Speaker Change: Great. Let's go to next question. Thanks, so much.
Operator: Thank you. We'll take our next question from Vijay Jayant with Evercore ISI. Please go ahead.
Speaker Change: Thank you we'll take our next question from Vijay Jayant with Evercore ISI. Please go ahead.
Unknown Executive: Good morning. This is Kutgun Maral on behalf of VJ.
Cut: Good morning. This is cut on morale on for Vijay Thanks for taking the questions.
David Zaslav: Thanks for taking the questions. If I can just follow up on the Disney bundle, maybe a high-level question. If we take a step back, content companies entered distribution years ago with streaming, and now we're kind of going through this re-bundling phase of these services. Between the Disney bundle, as well as the separate sports JV you announced a while back with Disney and Fox, you're clearly placing yourself in a key position in this industry transition. So I guess the question is, how will this evolve over the next few years? And what will this mean for industry consolidation and how will you look to invest behind your VTC and linear assets? Thank you.
Speaker Change: If I can just follow up on the Disney bundle, maybe a high level question, if we take a step back the content companies.
Speaker Change: Their distribution years ago with streaming and now we're kind of going through this re bundling.
Speaker Change: These services between the Disney bundle as well as the separate sports JV, you announced a while back with Disney Fox you are clearly, placing yourself in a key position in this industry transition. So I guess the question is how does this evolve over the next few years and what does this mean for industry consolidation and how you look to invest behind here.
Speaker Change: <unk> your assets. Thank you.
David Zaslav: Well, we've been saying for the last two years that the consumer experience is a real challenge, and ultimately, you have to follow the consumer. Our philosophy is to create the best consumer experience. And then, ultimately, the consumer will go to the best content, the best storytelling in the world. And so in order to effectuate that, we've pushed for this real direct-to-consumer with no middleman. There are great companies that are doing a terrific job of helping this as we make this transition to provide a better consumer experience.
Speaker Change: Okay.
Speaker Change: We've been saying for the last two years that the consumer experiences a real challenge and ultimately you've got to follow the consumer our philosophy is create the best consumer experience and then ultimately the consumer will will go to the best content the best storytelling in the world and so.
Speaker Change: In order to effectuate that.
Speaker Change: We've pushed for this real direct to consumer with no middleman. There are great companies that are doing a terrific job of helping this as we make this transition to provide a better consumer experience, but the ability for Austin Disney together to reach out to consumers.
David Zaslav: But you know, the ability for us and Disney together to reach out to consumers. It's a stronger business; we get all the data, we have an ability to work directly with consumers and work to enhance that experience. We're doing that ourselves. With Max, the key for us is we need to be, you know, prominent in all of the major bundles and all because we want to be. We want to be in front of all consumers. And we think that we have an entitlement as long as we can continue to provide great content, whether it's entertainment, nonfiction, sports news, and we have content in every language, JB.
Speaker Change: As a stronger business, we get all the data we have an ability to.
Speaker Change: To work directly with consumers and to work to enhance that experience with doing that ourselves.
Speaker Change: With Max the key for Us is.
Speaker Change: We need to be prominent in all of the major <unk>.
Speaker Change: All of the major bundles.
Speaker Change: Because we want to be.
Speaker Change: We want to be in front of all consumers.
Speaker Change: And we think that we have the entitlements as long as we can to continue to provide great content, whether it's entertainment and nonfiction spa.
Speaker Change: Sports news and we have content in every language JV.
Unknown Executive: Yeah, I just the only thing I'd add is, look, I think what happened in the 2010s is the industry went down a very dangerous financial path of trying to invest in every type of content in every genre to try and be something for everyone. And at the end of the day, we know where that led us. We're now getting back to all being great at what we do and swimming in the lanes that we were great at. Disney, obviously, is incomparable and a world leader in kids and family.
Speaker Change: The only thing I'd add is look I think what happened in the 2000 tens as the industry went down.
Speaker Change: Very dangerous financial path of trying to invest in every type of content in every genre to try and be something for everyone.
Speaker Change: And at the end of the day, we know where that lead.
Speaker Change: Let us too we're now getting back to all being great at what we do in swim in the lanes that we were great at Disney Obviously is.
Speaker Change: Incomparable in.
Speaker Change: Our leader in kids and family.
Unknown Executive: We are world leaders in premium drama, scripted drama, comedy, and nonfiction verticals, and we can get back to investing and prioritizing our lanes and our key content. We can do theirs, too.
Speaker Change: We're world leaders in premium drama unscripted drama comedy nonfiction verticals.
Speaker Change: And we can get back to investing in prioritizing our lanes and our key content. They can do theirs and synthetically. These bundles allow us to do that while still providing the consumer with a very attractive price for the combination of products such that they feel like they don't need to anymore do old.
Unknown Executive: And synthetically, these bundles allow us to do that while still providing the consumer with a very attractive price for the combination of products, such that they feel like they don't need to anymore do all the switching in and out of services month to month but rather pay and get an advantage of one price. And even if they don't use the service in one month, they still feel like they're getting great value, and they might use it the next month.
Speaker Change: Switching in and out of services month to month, but rather pay and get an advantage a one price and even if they don't use the service in one month, they still feel like theyre getting great value and they might use it. The next month and so it's got a lot of rationale by pulling these together it makes us all be able to go back to investing in the areas that we really are great at it does.
Unknown Executive: And so it's got a lot of rationale for pulling these things together and making us all be able to go back to investing in the areas that we really are great at. It does feel like this is a moment, a moment in terms of what the next year, two years will bring. You know, I said a while back that this is a generational disruption. I went through a disruption not quite as big as this, but you know, when my career started, when the cable business was getting started, that was a real disruption.
Speaker Change: Feel like this is a moment.
Speaker Change: A moment in terms of what the next year or two years will bring.
Speaker Change: I said, a while back that that this is a generational disruption.
Speaker Change: I went through a generation.
Speaker Change: Disruption not quite as big as this but when when when my career started wind into the cable business was was getting started and that was a real disruption and.
Unknown Executive: And as we look at what happens ahead, there likely will be a, you know, restructuring of how people view content. And there's a lot of irrationality in the market that's getting shaken out in terms of the amount of money spent. We said early on that it's not how much, it's how good, and that's what we're focusing on. And ultimately, I think the business will look very different in two to three years. And it'll be much better for consumers, from our perspective.
Speaker Change: As we look at it what happens ahead, there likely will be a.
Speaker Change: <unk>, a restructuring of how people view content and.
Speaker Change: There is a lot of irrationality in the market, that's getting shaken out in terms of.
Speaker Change: The amount of money spent we said early on it's not it's not how much it's how good and that's what we're focusing on and.
Speaker Change: Ultimately I think the business will look very different in two to three years.
Speaker Change: And there'll be much better for consumers.
Speaker Change: From our perspective.
Speaker Change: Thank you Bob.
Speaker Change: Okay. So the next one.
Operator: Thank you. We'll take our next question from... Jessica Riefelrich with BOA Securities. Please go ahead.
David Zaslav: Let's go to the next question. Thank you. We'll take our next question from... Jessica Riefelrich with BOA Securities. Please go ahead. Thank you. Maybe sort of following up, David, on what you just said. You know, the last two years, you've, as you well know, you've gone through restructuring while navigating, you know, through
Speaker Change: Thank you we'll take our next question from <unk>.
Speaker Change: Jessica Raphael Rick with BLA Securities. Please go ahead.
Speaker Change: Thank you maybe sort of following up on David on what you just said the last two years.
Speaker Change: As you well know you've gone through restructuring while navigating.
Speaker Change: Through the massive industry changes and as you look at over the next two years and you said there would be some.
Speaker Change: The industry would restructure.
Speaker Change: W. B D point of view, what do you think the biggest surprises will be.
Speaker Change: How different will the company look and then secondly next week is the upfront as we all know you know can you give us your outlook for.
Speaker Change: Both sides, both direct to consumer on linear.
David Zaslav: Thanks, Jessica. Look, we've spent the last two years at the very essence has been there. The investing community uses the word synergy. You know, when we looked at it, we had an opportunity to restructure each business and start over. What would this business look like if we started today to build a business that will be successful for the future? We did that at Warner Brothers Motion Picture. We did that at Disney. We did that at DC.
Speaker Change: Thanks Jessica.
Speaker Change: We've spent the last two years at the very essence has been.
Speaker Change: They are the investment community uses the word synergy.
Speaker Change: The way we looked at it is we had an opportunity to restructure each business to start over what does this business look like if we started today to build it.
Speaker Change: The business that will be successful for the future. We did that at Warner Brothers Motion picture, we did that at Disney We did.
Speaker Change: D C. We did that with with Max and HBO, we did it with our channels business.
David Zaslav: We did that with Max and HBO. We did it with our channels business, our production business on Warner Brothers Television. And they, for us, it's really two tiers.
Speaker Change: Our production business on Warner Brothers television.
Speaker Change: And.
Speaker Change: For us it's really two tiers. One is we got rid of a lot of content. We didn't think was going to help us but at the same time, we brought in a lot of great creators and invested a lot of content. So it's how do we run these businesses efficiently for real free cash flow and drive for growth, but to creative excellence.
David Zaslav: One is, we got rid of a lot of content we didn't think was going to help us. But at the same time, we brought in a lot of great creatives and invested in a lot of content. So the question is, how do we run these businesses efficiently for real free cash flow and drive for growth?
David Zaslav: But too creative. How do we have the best content? And this past year, well, HBO had maybe its best year ever. And, in addition to that, Warner Brothers Television has some of the best, highest-quality TV production. And we're looking at our motion picture business now, which we're feeling really good about. It's number one to start the year, but we have a lot of great content. And so I think it's that combination.
Speaker Change: How do we have the best content and this past year.
Speaker Change: <unk> had maybe its best year ever.
Speaker Change: And.
Speaker Change: In addition to that Warner Brothers television has some of the best highest quality television production and we're looking at our motion picture business now, which we're feeling really good about it.
Speaker Change: That's number one.
Speaker Change: Start the year, but we have a lot of great content and.
Speaker Change: So I think it's that combination great great content, great creative palette fighting to tell the best stories on every platform and then running it like a real business real free cash flow and real EBIT.
David Zaslav: Great, great content, great creatives, fighting to tell the best stories on every platform and then running it like a real business, real free cash flow and real EBIT. And, you know, I think those two are going to, or will drive us for the future. And, and, but it all starts with the content. If our content is great, you know, that's our mantra: the best content will win. And we have to continue to tell the best stories.
Speaker Change: And I think those two we're going to we'll drive us for the future.
Speaker Change: But it all or all starts with the content if our content is great.
Speaker Change: That's our mantra the best content will win and we have to continue to tell the best stories.
Gunnar Wiedenfels: Yeah, I mean, look, for the up front, I think it's a little early. We definitely hope to continue some of the momentum that we saw last year. I would also say that we're operating in a much more constructive environment this year than we did last year. So hopefully, you know, that'll be supportive.
Speaker Change: Yes.
Speaker Change: For the upfront I think.
Speaker Change: Little early we definitely hope to continue some of the momentum that we've seen last year I would also say that we're operating in a much more constructive environment. This year than we did last year. So hopefully that'll that'll be supportive to your point about the differentiation between DTC and linear where really.
Gunnar Wiedenfels: To your point, Jessica, about the differentiation between D2C and linear, really, one of the things that's working very well right now is that convergence. The way John and the team take our inventory to the market is fully harmonized now. It's across platforms, and incremental reach. We're leaning in further.
Speaker Change: One of the things that's <unk>.
Speaker Change: Working very well right now is that convergence the the way John and the team take our inventory to the market is fully harmonized now it's across platforms incremental reach we're leaning in further you've seen some nice growth rates for our DTC inventory, we've got more to take to the market, we're taking it to the mark.
Gunnar Wiedenfels: You've seen some nice growth rates for our D2C inventory. We've got more to take to the market. We're taking it to the market with more data-driven products like the Ali announcement that we made earlier. And so there should be further opportunity. We're just getting started. And longer term, there is definitely more opportunity here. We have been very transparent about the significant monetization difference between linear and digital advertising.
Speaker Change: With more data driven products like the all the announcement that we made earlier and so.
Speaker Change: There should be further opportunity, we're just getting started and look longer term.
Speaker Change: There is definitely more opportunity here, we have been very transparent about the significant monetization difference between linear and <unk>.
Speaker Change: Digital advertising, David talked about about AI, a couple of minutes ago, certainly that should be a helper longer term as we think about our go to market here. So.
Speaker Change: Definitely.
Speaker Change: Some upside and maybe one thing to add.
Speaker Change: To your question about the surprises here I think if you take a step back and look at our numbers right now what we just discussed for <unk> for the first quarter.
Speaker Change: We have full conviction that our studio can earn a lot more than it is doing right. Now we have full conviction that J P. M. Casey on the team are on an incredible incredibly successful track, but as we've laid out many many times before this doesn't happen overnight.
Speaker Change: But we're seeing we're seeing the sausage, making we're seeing how we're running the company fundamentally differently, that's not reflected in our current and near term financials and I think that's going to be the surprises we as we come through and show you what the DTC business in our contract business can do longer term as we as we come out of the <unk>.
David Zaslav: That's not reflected in our current and near-term financials, and I think that's going to be the surprise as we come through and show you what the D2C business and our content business can do longer term as we come out of the transformation. When you think about the D2C business in the U.S., we need to fix the consumer experience, and I think these bundling structures that we've come up with in sports and with Disney will help to do that.
Speaker Change: Transformation, yes, when you think about the <unk> business in the U S. We need to fix the consumer experience and I think these bundling structures that we've come up within sports and.
Speaker Change: And with and with Disney will help will help to do that but.
David Zaslav: We're a global business. We're in business in virtually every country in the world with multiple channels or free-to-air channels. Two-thirds of a mature, if a subscription business is gestationally beginning to mature, come from outside the U.S. You know, so when we launch with the Olympics, we're just getting started outside the U.S. So when you look at our subs, you know, this is a big moment for us.
Speaker Change: We're a global business, we're in business almost in virtually every country in the world with multiple channels of free to air channels and.
Speaker Change: Two thirds of our mature.
Speaker Change: If if the subscription business is gestation really beginning to mature come from outside the U S.
Speaker Change: So when we launched with the Olympics were just getting started outside the U S. So when you look at our subs.
Speaker Change: This is a big moment for us and we think we have a real advantage because we have local content in every market. We got relationships in every market and this new idea of distributors, particularly in in in Europe.
David Zaslav: And we think we have a real advantage because we have local content in every market. We have relationships in every market. And this new idea of distributors, particularly in Europe, as well as Latin America, recognizing they don't want to get left behind, and they're starting to talk to us proactively about moving our content onto broadband. How can they offer our products in such a way? Because they don't want to be the antiquated cable operator.
Speaker Change: Well and as well as Latin America, recognizing they don't want to get left behind and they're starting to talk to us proactively about moving our content onto broadband how can they offer our products in a way because they don't want to be the antiquated cable operator, they want to be the cable operator in the channel store as well so all of that.
David Zaslav: They want to be the cable operator and the channel store as well. So all of that, I think, bodes very well for our future. You have to be global. This is not a game for the U.S. Only companies have to be global, above the globe. Thank you. We'll take our next question from David Joyce with Seaport Research Partners. Jake, go ahead. Thank you for the following on to the upfront and advertising question.
Speaker Change: Bodes very well for our future you have to be global this is not a game for U S. Only companies have to be global above the globe.
Speaker Change: Okay.
Operator: Thank you. We'll take our next question from David Joyce with Seaport Research Partners. Please go ahead. Thank you.
Speaker Change: Thank you we'll take our next question from David Joyce with Seaport Research Partners. Please go ahead.
David Joyce: Thank you.
David Joyce: Following on to the upfront advertising question.
Operator: You obviously have a lot
David Joyce: Obviously have a long strong relationship with the advertisers and the been on the forefront of Ed Tech I'm. Just wondering how you are able to match up.
David Joyce: Sure.
David Joyce: Analytics and data and targeted advertising on the linear networks with the offerings that the various digital platforms are doing just wondering when.
Speaker Change: That might be showing through or is it starting to show through as some of this.
Speaker Change: Modest sequential improvement.
Gunnar Wiedenfels: Well, it's certainly beginning to shine through, but I think there's a lot more opportunity. The thing to keep in mind here is that we have to differentiate between traditional linear and D2C advertising. Obviously, on the D2C platform, we are enjoying all the benefits that everybody else enjoys in terms of being plugged into all the key marketplace platforms and taking advantage of data partnerships in the marketplace. But also, on the traditional linear side, it's important to remember that with the shift in the distribution landscape, we've got a much greater share of virtual MVPDs in the mix.
Speaker Change: Well, it's certainly beginning.
Speaker Change: Shine through but I think there is a lot more opportunity.
Speaker Change: <unk>.
Speaker Change: The thing to keep in mind here is we got to differentiate between the b the traditional linear and DTC.
Speaker Change: Advertising, obviously on the <unk> platform, we are enjoying all the benefits that everybody else enjoys in terms of being plugged into all the key marketplace platforms and taking advantage of data partnerships.
Speaker Change: The marketplace, but also on the traditional linear side.
Speaker Change: Important to remember that with the shift in the.
Speaker Change: And the.
Gunnar Wiedenfels: That opens up opportunities for us to do targeted advertising with dynamic ad insertion within the linear streams, and those are some areas where we see additional opportunities. And if you take that together with the fact that JB is bringing in more and more ad night subscribers, that drives additional scale that not only drives inventory but also a real scale advantage as we increase our reach across the combined platform. So to answer your question more precisely, I think it's starting to come through, but this is going to be a growth cycle for many, many years to come.
Speaker Change: Distribution landscape, we've got a much greater share of virtual mvpds and the mix that opens up opportunities for us to do targeted advertising with dynamic AD insertion within the the linear streams.
Speaker Change: And those are some some areas, where we see additional opportunity.
Speaker Change: If you take that together with the fact that JV is bringing in more and more at night subscribers that drives additional scale that not only drives inventory, but also a real scale advantage as we as we increase our reach across the combined platform. So.
Speaker Change: But to answer your question more precisely I think it's starting to come through but this is going to be a growth cycle I think for many many years to come.
Speaker Change: Alright, thank you.
Operator: Thank you. We'll take our next question from Kannan Venkateshwar, with Barclays. Please go ahead.
Speaker Change: Thank you we'll take our next question from <unk>.
Speaker Change: Cannon Kessler with Barclays. Please go ahead.
Unknown Executive: Thank you. One on the JV.
Cannon Kessler: Thank you.
Cannon Kessler: One on the <unk> when you think about the Disney GB.
Cannon Kessler: So when Disney plus is there an opportunity maybe to add.
Cannon Kessler: Kind of an anchor.
Cannon Kessler: And are you viewing the long term as an opportunity to maybe bring other services into the fold as well.
Unknown Executive: When you think about the Disney JV with Hulu and Disney+, is there an opportunity, maybe, to add other services? Does this become kind of an anchor? And are you viewing this long term as an opportunity to maybe bring other services into the fold as well? And is there also a role for some degree of exclusivity in the sense that, you know, when you go to market with APU on a standalone basis or Max on a standalone basis and a bundle, obviously, the price difference has to be attractive enough for consumers to go for the bundle?
Cannon Kessler: And.
Cannon Kessler: Is there room for some degree of excuse it would be.
Cannon Kessler: When you go to market with BP on attending maximum a stand alone basis in a bundle.
Cannon Kessler: Obviously, the price difference has to be attractive enough for consumers.
Cannon Kessler: Good towards the bundled so is there any kind of a different approach as you think about.
Cannon Kessler: What kind of content becomes available across the bundle.
Unknown Executive: So, is there any kind of different approach as you think about what kind of content becomes available across the bundle and individual services, and maybe one on advertising? I mean, your advertising increases or year-over-year change in DPC is now starting to become meaningful enough to offset, you know, a bigger and bigger portion of the declines in linear. I think it was about 30% offset this quarter. Is there a point over the course of maybe next year or year and a half where you see this becoming a big enough driver to offset a big part of your linear ad declines?
Cannon Kessler: Individual services.
Cannon Kessler: And maybe one on advertising I mean.
Cannon Kessler: The advertising increase in.
Cannon Kessler: Year over year change in DTC is now starting to become meaningful in that philosophy.
Cannon Kessler: Because it's a bigger portion of the declines in linear I think to put about 30% of it this quarter.
Cannon Kessler: Did a point over the course of the meat, maybe next year on year and a half that you see this becoming big enough.
Cannon Kessler: To offset a big part of your Linac decline. Thank you.
Operator: Thank you.
Cannon Kessler: Yeah.
Speaker Change: Thanks, Ken on your first question look we think this proposition.
Speaker Change: Disney plus Hulu and Max is incredibly robust and compelling.
Unknown Executive: Thanks, Kannan. On your first question, look, we think this proposition of Disney+, Hulu, and Max is incredibly robust and compelling. You've got to truly, when we think about a lot of what's happened, as I said earlier, around people trying to figure out whether every individual company could invest sufficiently to deliver something great for everyone in the household, the reality is we've, I think, all learned somewhat painfully that the expense and, frankly, the excess of content from a consumer standpoint were way too much. And this allows us to come back.
Speaker Change: You've got truly when we think about a lot of what's happened as I said earlier around people trying to figure out whether every individual company could invest sufficiently to deliver something great for everyone. In the household. The reality is we've all learned somewhat painfully that the expense.
Speaker Change: And frankly, the excess of content from a consumer standpoint was way too much and this allows us to come back and when you see that package together you have.
Unknown Executive: And when you see that package together, you have, you know, the greatest offering of kids and family content, the greatest offering of adult fare, the greatest offering of scripted and non scripted content. So we don't think we need anybody else in that package to make it incredibly compelling. And when you see the dynamics of the existing landscape, obviously, you know, Amazon and Netflix are both incredibly compelling, have great offerings and have become sort of utilities, you sort of look at people saying I need that plus one other package at a very attractive price.
Speaker Change: The greatest offering of kids and family content, the greatest offering of adult.
Speaker Change: Fair the greatest that's offering a scripted and non scripted content.
Speaker Change: So we don't think we need anybody else in that package to make it incredibly compelling.
Speaker Change: And when you see the dynamics of the existing landscape.
Speaker Change: Obviously.
Speaker Change: Amazon and Netflix.
Speaker Change: Both incredibly compelling have great offerings, and it becomes sort of utilities, you sort of look at people, saying I need that plus one other package at a very attractive price.
Unknown Executive: Those two, you know, our bundle plus one or two of those other services pretty much, I think, can make up the entertainment experience for most consumers very happily. I think it'll probably put more pressure on independent services from a churn perspective because they'll likely see more and more, you know, serial churners, people come in and out on a much more ad hoc basis. And so we do think this package can be an anchor tenant of every household's entertainment experience, and we don't think there's a need at this point for anything more to it.
Speaker Change: Those two are bundle plus one or two of those other services pretty much I think can make up the entertainment experience for most consumers very happily I think it will put more pressure probably in.
Speaker Change: Independent services from a churn perspective, because they'll see likely more and more.
Speaker Change: Cereal Turner's people come in and out on a much more AD hoc basis and so we do think this package can be an anchor tenant of every household entertainment experience.
Speaker Change: And we don't think there is a need at this point for anything more to it.
Gunnar Wiedenfels: Yeah, look, I mean, in terms of replacing linear ad sales, again, one important point that I want to reiterate, and we've made this a couple of times before, I think it's too simplistic to just look at, okay, we're doing whatever $7 billion of linear advertising today, and that's going to transition elsewhere because the viewership is transitioning elsewhere. I do believe that we're going to see a very, very long period of coexistence, and the feedback we're getting from the marketplace and the success we're seeing in our ad sales go-to-market, I think supports that. So those environments are going to coexist.
Speaker Change: Okay sooner, yes look I mean in terms of replacing linear AD sales again, one important point that I want to reiterate we have made this a couple of times before I think it's too simplistic to just look at okay, where doing whatever 7 billion linear advertising today and thats going to transition elsewhere, because the viewership is transitioning elsewhere.
Speaker Change: I do believe that we're going to see a very very long period of coexistence and the feedback we're getting from the marketplace and the success, we're seeing in our AD sales go to market I think supports that so.
Speaker Change: Environments are going to are going to coexist.
Gunnar Wiedenfels: But as I said before, we are seeing significant acceleration on the streaming side. We've gone through the CPM benefits that we're getting with a more targeted and more direct advertising approach, and we're seeing that there is a long runway for inventory growth on the streaming side as well. Two years ago, everybody thought that this was going to be an ad-free environment. I think we can clearly conclude that that's not the case, and we're still in the early innings.
Gunnar Wiedenfels: If you just compare the penetration of AdLight subscribers as a percentage of the total subscriber base, it's growing, but still from a lower starting point. If you look at ad loads in a lot of the offerings, by the way, specifically for HBO, which for years has had zero advertising embedded, and we're taking very careful steps still to increase that, yet we're already seeing pretty significant growth.
Speaker Change: Yes, we're already seeing pretty pretty pretty significant we're only doing a 32nd spot or a 62nd spot, yes and for those that are purchasing add light I don't I think there is an expectation that there would be.
Gunnar Wiedenfels: We're only doing a 30-second spot or a 60-second spot, and for those that are purchasing AdLight, I think there's an expectation that there would be more advertising than that. It wouldn't be approaching any kind of significant density, but you could easily go up to two or three minutes. If you look at double or triple what we're doing now.
Speaker Change: More appetizing and that wouldn't be approaching any kind of significant density, but you could easily go up to two or three minutes. If you look at double or triple what we're doing now and if you look at the combined company.
Gunnar Wiedenfels: And if you look at the combined company, you know, as we said in our prepared remarks, the combined company advertising trend is still down, obviously, compared to what we're seeing in linear, but it's gone, you know, from down 10% to down 7%. And that's really driven by some of that support we're seeing in the streaming world.
Speaker Change: As we said in our prepared remarks, I mean, the combined company advertising trends its still its still down obviously with with what we're seeing in linear but its a its gone.
Speaker Change: Down, 10% or down 7% and that's really driven by some of that support we're seeing in the streaming world.
Speaker Change: Okay. Thank you.
Operator: Thank you. We'll take our next question from Rich Greenfield with Light Shed Partners. Please go ahead.
Speaker Change: Thank you we'll take our next question from Rich Greenfield with Mike said partners. Please go ahead.
Unknown Executive: Hi, thanks for taking the question. I wanted to follow up on JB.
Richard Greenfield: Hi, Thanks for taking the question I wanted to follow up on J B, you mentioned the by flows and sort of how this will work from both of you, adding it into those by flows but how about the marketing like when you walk through I'm sure everyone. On this call is walk through JFK, you've seen the massive Disney Hulu advertising like <unk>.
Unknown Executive: You mentioned the buy flows and sort of how this will work from both of you adding it into those buy flows. But how about marketing? Like when you walk through, I'm sure everyone on this call has walked through JFK, you see the massive Disney Hulu advertising, like, are they going to be marketing, you know, House of Dragons this summer when it launches? And conversely, when things like Moana 2 hit Disney+, is Max going to be promoting like sort of the overall content offering among not just your services but theirs as well?
Speaker Change: Are they going to be marketing house of dragging this summer when this launches and Conversely, when things like Milwaukee to Disney Pluses is Max gonna be promoting like sort of the overall content offering among not just your services, but there's as well I'm just trying to understand how this will functionally work and then just because it is.
Unknown Executive: I'm just trying to understand how this will functionally work. And then, just because it's obviously topical, it doesn't look like Paramount Plus is going to exist much longer. I think probably most people now sort of realize that if that content is up for grabs, how interested are you in licensing a wide swath of kinds of Paramount sports content, entertainment content, anything you could talk about would be great.
Speaker Change: Obviously topical it doesn't look like Paramount pluses going to exist much longer I think probably most people now sort of realize that.
Speaker Change: That content is up for grabs how interested in you are arguing licensing a wide swath of kind of Paramount sports content Entertainment content anything you could talk about would be great.
Unknown Executive: Thanks, Rich. On the marketing question for the bundle, look, both parties will continue to market their offerings clearly. And obviously, if you think about the majority of marketing spend is really related to content marketing. So each of us will still have a responsibility, and we'll continue to market our content through our individual companies. And those will be attributed to the Mac service or the Disney Plus service or the Hulu service. On the performance side of the house, I think you will see a heavy leaning on the bundle.
Speaker Change: Thanks Rich.
Speaker Change: On the marketing question for the bundle.
Speaker Change: Look both both parties will continue to market clearly their offerings and obviously if you think about the majority of the marketing spend is really related to content marketing. So each of us will still have responsibility and will continue to market our content on our from our individual companies.
Speaker Change: And those will be attributed to the Max service of the Disney plus service at a Hulu service in.
Unknown Executive: And it'll be at launch, and then we'll do obviously more heavier lean-ins periodically throughout the year. But my point about the buy flows, Rich, is that even if we're individually marketing our services or our content, I should say, the reality is once you get to that landing page, once you get to the top of the fold on our buy flows, the bundle, this bundle will be prominently positioned such that people will see it every time they go through the buy flows.
Speaker Change: In the performance side of the House I think you will see a heavy lean in on the bundle.
Speaker Change:
Speaker Change: And it'll be at launch and then we will do obviously more heavier lean ins periodically throughout the year, but my point about the buy flows riches that even if we are individually marketing our services or our content I should say.
Speaker Change: The reality is once you get to that landing page once you get to the top of the fold.
Speaker Change: On our by flows.
Speaker Change: <unk> the bundle this bundle will be prominently positioned such that people will.
Speaker Change: See it.
Speaker Change: Every time they go in through the <unk> by flows and so whether it's marketing of individual content pieces marketing of individual services for marketing of the bundle.
Unknown Executive: And so whether it's marketing individual content pieces, marketing individual services, or marketing the bundle, you won't be able to not see this offer as part of the buy flow, whether you're coming in through Max, Hulu, or Disney+, which is the prominence that we think is really important and visibility to help drive more, obviously not just awareness, but ultimately subscriber growth.
Speaker Change: You won't be able to not see.
Speaker Change: This offer as part of the bi flow, whether youre coming in through Max Hulu or Disney plus which is the prominence that we think is really important and visibility to help drive more obviously, not just awareness, but ultimately subscriber growth from them.
David Zaslav: And look, we're always looking for good content. We structured a deal a while back for South Park, which has been, you know, a great product for us. When NASCAR came available for the summer, we bought some NASCAR. We have hockey, which we've done, which we added in the last few years, and we're having a lot of success with. So, you know, any content company where we bought a movie output deal with A24, anytime there's an opportunity to buy content that we think will enhance our offering, whether it's a specific piece of content, or whether it's a broad swath of content, if we think it can provide a better consumer experience and strengthen our offering, we're always looking at opportunities.
Speaker Change: And look we're always looking for good content, we structured a deal a while back for South Park, which has been a great product for us with.
Speaker Change: When NASCAR came available for the summer we bought some NASCAR we.
Speaker Change: We have hockey, which we've done in which we added in the last few years, we're having a lot of success with so any.
Speaker Change: Any content company.
Speaker Change: We bought a movie output deal with 824 anytime there is an opportunity to buy content that we think will enhance our offering whether it's a specific piece of content or whether it's a broad swath of content.
Speaker Change: If we think it can provide a better consumer experience and strengthen our offering we're always looking at opportunities.
Speaker Change: Thank you.
Operator: Thank you, and we will take our final question from Steven Cahall with Wells Fargo. Please go ahead.
Speaker Change: Thank you and we will take our final question from Steven Kay Hall with Wells Fargo. Please go ahead.
Unknown Executive: Thank you. So, David and Gunnar, with a continuous improvement mindset, it seems like you have some tools that could help re-accelerate EBITDA. And then I think there's some concern, you know, about what you might be willing to do to match the MBA rights. So, I'm just wondering if we can think about these things being tied together.
Speaker Change: Thank you, David and Gunnar with a continuous improvement mindset. It seems like you have some tools that could help reaccelerate EBITDA and then I think there's some concern about what you might be willing to do to match on the NBA right. So I'm just wondering if we can think about these things being tied together do you think you can find enough cost improvement.
David Zaslav: Do you think you can find enough cost improvement that strengthens your hand as you think about a more aggressive matching offer to retain some of those rights? And then, David, you said the churn is still above your target, and I think this new Disney Hulu bundle should certainly help that? I think you've also maybe got a bundle that's rolling off towards the end of this year with AT&T. Can you just help us think about some of the churn benefits you get from bundles and then some of the ARPU dilution, which usually hits, and on a net-net basis, do you think that these improve the value of BTC earnings over time?
Speaker Change: It strengthens your hand, as you think about a more aggressive matching offer.
Speaker Change: You retain some of those rights and then David you said the churn is still above your target and I think this new bundle should certainly help that I think <unk> also maybe got a bundle that is rolling off towards the end of this year with AT&T can you just help us think about some of the churn benefits you get from bundling and then some of the ARPA dilution, which usually.
Speaker Change: Hits and on a net net basis do you think that these improve the value of BTC earnings over time. Thank you.
Speaker Change: Thanks, Luke the churn is the <unk>.
Speaker Change: You need to have a great great product you need to have great content, but the churn is the <unk> is just a killer in this business and so we've been hyper focused on it and it's not.
Speaker Change: Not one simple answer, but the churn is down dramatically.
Speaker Change: And we measure it daily weekly from when we launched this business.
Speaker Change: It's not at our target because our target is that it should be extremely low in the.
Speaker Change: With a two handle that would be.
Speaker Change: That's when your business starts to be really healthy when you are below three.
Speaker Change: And.
Speaker Change: So Jamie why don't you talk we have very specific initiatives on churn certainly bundling is.
Speaker Change: It is a big helper.
Jamie: A lot of these deals that we're talking about with players in Latin America and in Europe.
Jamie: Where youre working with an existing distributor the abbott relationship with.
Jamie: It's hard bundling in many cases with with users.
Jamie: You have different characteristics that are quite attractive.
Jamie: But we need to go at this.
Jamie: As as like an attack mode, JV I think to Stephen to David's point.
Jamie: The fact that up until.
Jamie: We launched in Latam or add light.
Jamie: Offering and SKU was only in the United States for HBO Max is a good example of where as we look to partner with.
Jamie: All sorts of distributors across the world Oftentimes you're right. There is pressure to do it at a price point that is more attractive and less costly to the partner and so launching that SKU.
Jamie: Across Latin America in a number of markets in Europe, not only ultimately helps US go after a new customer segment Thats more price sensitive at the lower end of the price points, but also allows us to work with partners, who are more price sensitive in those partnerships and find a way to make it more affordable for them to get into business with.
Jamie: Us.
Jamie: While at the same time, not seeing ARPA dilution, because thats SKU and success is our highest ARPA SKU.
Jamie: And so we.
Jamie: We get the benefits of new distribution for new customers and better partnership.
Jamie: Opportunities by getting that skew out into markets and into partnerships with new players and the LTV I would say, which is obviously the other metric that we track very closely.
Jamie: Our bundled partnerships generally do have some of the highest ltvs we see.
Jamie: Obviously.
Jamie: We evaluate every deal on its own merits, we make sure that we're making the right trade offs.
Jamie: But we look at both.
Jamie: <unk> and LTV as the core metrics when we think about the values of those partnerships.
Jamie: This change of working with existing distributors.
Jamie: Is really meaningful.
Jamie: Because.
Jamie: Yeah.
Jamie: These distributors cable operators broadband players across Europe with the innovative deal to Chris.
Jamie: What they're basically saying is that they want to take part they want to be part of it.
Jamie: Of the of the content opportunity in the content economics.
Jamie: In the new World.
Jamie: So when you're working with an existing distributor, where we would have all of these economics against our cable business with distributors in a 180 to 200 countries around the world. They don't want to see that relationship go away when people start consuming on.
Jamie: Broadband on App more contemporary products and so they are starting to really recognize that there's a real opportunity for them as well in recapturing those economics.
Jamie: Through broadband broadband product why should they stand behind let somebody else get the revenue share on viewership of the quality content that we have that we're transitioning over a period of time from free to air and cable to two more contemporary app products. So the fact that we're working.
Jamie: With broad distributors.
Jamie: And they are starting to recognize the value for them to be hard bundling marketing driving this to recapture that younger consumer.
Jamie: <unk> is a very very good trend for us and for the industry.
Jamie: And then Steve on the on the continuous improvement mindset again.
Speaker Change: I think it's important to take a step back.
Speaker Change: A large part of this company and maybe the entire industry was never very focused on financial discipline. We have dramatically changed that we have a completely different mindset across the entire management team now and that starts from from from the creative to know that.
Jamie: The creative stores need to be great, but we're also running a business and we have.
Jamie: So many different processes in place now and some of those.
Operator: Thank you.
Jamie: Pay dividends over time, but again I mentioned the content workflow system in my opening remarks here. If you designed Warner Brothers Discovery today, you would not create 12 different content systems 14 different teams.
David Zaslav: Thanks. Look, churn is the, you need to have a great, great product, you need to have great content. But churn is just a killer in this business. And so we have been hyper focused on it. And it's not, it's not one simple answer.
David Zaslav: But the churn is down dramatically, and we measure it daily, weekly, from when we launched this business. It's not at our target because our target is that it should be extremely low, you know, in the, you know, with a two handle. That would be, you know, that's when your business starts to be really healthy when you're below three. And so, JB, why don't you talk? We have very specific initiatives, you know, on churn.
David Zaslav: Certainly, bundling is a big helper. A lot of these deals that we're talking about with players in Latin America and in Europe, where you're working with an existing distributor that you have a relationship with, that's hard to bundle in many cases with users, have different characteristics that are quite attractive.
Unknown Executive: But we need to go at this, you know, in like an attack mode. JB? Yeah.
Unknown Executive: Yeah, well, I think to, even to David's point, the fact that up until we launched in LATAM, our AdLight offering and SKU was only in the United States for HBO Max is a good example of where as we look to partner with all sorts of distributors across the world, oftentimes you're right, there is pressure to do it at a price point that is more attractive and less costly to the partner. And so launching that SKU across Latin America, in a number of markets in Europe, not only ultimately helps us go after a new customer segment that's more price sensitive at the lower end of the price points, but also allows us to work with partners who are more price sensitive in those partnerships, and find a way to make it more affordable for them to get into business with us, while at the same time not seeing ARPU dilution because that SKU in success is our highest ARPU SKU.
Unknown Executive: And so we get the benefits of new distribution from new customers and better partnership opportunities by getting that SKU out into markets and into partnerships with new players. And the LTV, I would say, which is obviously the other metric that we track very closely, our bundled partnerships generally do have some of the highest LTVs we see. And so obviously, you know, we evaluate every deal on its own merits. We make sure that we're making the right tradeoffs. But we look at both ARPU and LTV as the core metrics when we think about the values of those partnerships.
David Zaslav: This change of working with existing distributors is really meaningful because these distributors, cable operators, broadband players across Europe, with the innovative deal that Chris did, what they're basically saying is that they want to take part. They want to be part of the content opportunity and the content economy in the new world. And so when you're working with an existing distributor where we have all these economics against our cable business with distributors in 180, 200 countries around the world, they don't want to see that relationship go away when people start consuming through broadband, on apps, more contemporary products.
David Zaslav: And so they're starting to really recognize that there's a real opportunity for them as well in recapturing those economics through broadband products. Why should they stand by and let somebody else get the revenue share on viewership of the quality content that we have that we're transitioning over a period of time from free-to-air and cable to more contemporary app products? So the fact that we're working with broad distributors and they're starting to recognize the value for them of hard bundling, marketing, driving this to recapture that younger consumer is a very, very good trend for us and for the industry.
Gunnar Wiedenfels: And then, Steve, on the continuous improvement mindset, again, I think it's important to take a step back. You know, a large part of this company, and maybe the entire industry, just was never very focused on financial discipline. We have dramatically changed that.
Jamie: Issues that HBO Max faced in 'twenty, one where they tried to roll out the product and we're simply not able to get our content asset through the pipes because it was all duct tape together, we're in the process of working through all that.
Gunnar Wiedenfels: We have a completely different mindset across the entire management team now, and that starts with the creatives, who know that the creative stories need to be great, but we're also running a business. And we have so many different processes in place now, and some of those pay dividends over time. Again, I mentioned the content workflow systems in my opening remarks here.
Gunnar Wiedenfels: If you designed Warner Bros. Discovery today, you would not create 12 different content systems, 14 different teams, you know, the issues that HBO Max faced in 21, where they tried to roll out the product, and they were simply not able to get their content assets through the pipes, because it was all, you know, duct taped together. We're in the process of working through all that, you know. My own financial systems, the corporate systems, we're still, you know, ripping out five different ERP systems. I have 225 financial boundary systems that we're replacing.
Jamie: One financial systems, the corporate systems, we're still ripping out five different ERP systems I have 225 financial.
Jamie: Boundary systems that were that were replacing these things are paying dividends over many many years and what's also important is the one company mentality that just didn't exist.
Gunnar Wiedenfels: These things will pay dividends for many, many years. And what's also important is the one company mentality that just didn't exist, you know, on the Time Warner slash WarnerMedia side. Everybody is fully focused and fully aligned.
Jamie: On the time Warner <unk> Warner Media side, everybody is fully focused and fully aligned our linear our teams are proud to deliver the cash flow that we need as a company to fund our investments are proud to deliver the content.
David Zaslav: Our linear teams are proud to deliver the cash flow that we need as a company to fund our investments. They're proud to deliver the content, regardless of whether it works on linear networks or whether you have a quiet on set working in the D2C space. And one company really, you really see it, in the ability to market globally. You saw it with Barbie, Wonka, Dune II, Godzilla, you saw it with House of the Dragon, The Last of Us. When we launch House of the Dragon again, you know, every platform, you know, every platform everywhere in the world will be promoting it, but it won't be just in spots.
Jamie: Regardless of whether it works on linear networks or whether you have quiet on staff working on the DTC space One company really you really see it.
Jamie: In the ability to market.
Jamie: Globally.
Jamie: You saw it with you start with Barbie Banca.
Jamie: With with doomed to with with Godzilla, you saw it with house of the Dragon the last of Us.
Jamie: When we launch our house of the Dragon again ever.
Jamie: Every platform.
Jamie: Every platform everywhere in the world will be promoting it but it won't be just in sparks it'll be all of our talent talking about what's coming up on Max.
David Zaslav: It'll be all of our talent talking about what's coming up on Max, and it's something that's become very attractive, and it's recognized in the community that this is a place where if you create great content, the Warner Bros. Discovery team will globally get behind it. People will know it's coming and will generate a lot of energy behind any great content. And so I think that's becoming one of the signatures of this company, this company and the ability to market globally like no one else.
Jamie: And its something thats become very attractive and it's recognized in the community that this is a place where if you create great content.
Jamie: That the Warner Brothers Discovery team will globally get behind it people will know what's coming.
Jamie: And we will generate a lot of energy behind any great content, and so I think thats, becoming one of the signatures of this company one company and the ability to market globally like no one else and even in our growth business under JV and Casey we're still focused on discipline. There is a difference between an investment in an expense.
David Zaslav: And even in our growth business under JB and Casey, we're still focused on discipline. There's a difference between an investment and an expense. And it's not a coincidence that we're leading in terms of profitability while we're getting ready to significantly accelerate our growth over the next couple of years.
Jamie: It's not a coincidence that we're leading in terms of profitability, while we are getting ready to significantly accelerate our growth over the next couple of years.
Speaker Change: Thank you.
Operator: Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: [inaudible]
Speaker Change: Thank you and this does conclude today's program. Thank you for your participation you may disconnect.
Speaker Change: Right.
Speaker Change: Hum.
Speaker Change: Goodbye.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Hum.
Speaker Change: Hum.