Q4 2024 Warner Bros Discovery Inc Earnings Call
Speaker Change: Ladies and gentlemen, welcome to the Warner Brothers Discovery Sports quarter, 'twenty 'twenty four earnings conference call.
Speaker Change: 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.
Speaker Change: I would now like to hand, the conference over to Mr. Andrew Sleep-in Executive Vice President Global Investor strategy, Sir you May now begin.
Speaker Change: Good morning, and thank you for joining us for Warner Brothers discoveries at Q4 earnings call.
David Zaslav: Joining me today is David Zaslav, President and Chief Executive Officer, Goodnough, Eatonville, Chief Financial Officer, and JB, Perrette, CEO and president global streaming and games.
David Zaslav: Earlier. This morning, we released our Q4 earnings results trending schedule as well as the accompanying shareholder letter.
David Zaslav: We will begin this morning with some very brief remarks by David and then turn the call right to Q&A.
David Zaslav: Today's presentation will include forward looking statements that we made 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.
David Zaslav: <unk> from our expectations for additional information 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 and.
David Zaslav: In addition, we will discuss non-GAAP financial measures on this call reconciliations of these non-GAAP financial measures to the closest GAAP financial measure can be found in our earnings release and in our trending schedules, which can be found in the investor relations sections of our website and with that I am pleased to turn the call over to David.
David Zaslav: Good morning, everyone.
David Zaslav: Do you for joining us.
David Zaslav: Two and a half years ago, when we bought Warner Brothers Discovery together are.
David Zaslav: Our vision was to combine discoveries leading position.
David Zaslav: Global Force in media and entertainment with local content and local sports.
David Zaslav: Alongside the iconic storytelling brands IP libraries of Warner Brothers and HBO.
David Zaslav: This powerful combination is a unique compelling offering that.
David Zaslav: We believe would resonate with consumers worldwide.
David Zaslav: It was the strategic cuts of our transaction.
Our direct to consumer business ended 2024 with about 117 million subscribers across more than 70 countries. When we still have nearly half the world to go with many key markets like the U K, Italy, Germany, and Australia launching over the next few years.
David Zaslav: We added about $6 5 million subscribers in the fourth quarter, and nearly 20 million subscribers in less than a year.
David Zaslav: Max continues to grow at a powerful pace.
David Zaslav: We expect it to continue throughout 2025 and beyond.
David Zaslav: In this generational media disruption.
David Zaslav: Only the global streamers will survive and prosper.
David Zaslav: And Max is just that.
David Zaslav: With the launch of Max internationally in 2024.
David Zaslav: We now have a global subscription business it is growing subs revenue and EBITDA.
David Zaslav: We have a clear demonstrable path.
David Zaslav: So at least 150 million subscribers by the end of 2026.
David Zaslav: Fueling further revenue and EBITDA growth.
David Zaslav: Max is one of the world's very few global and profitable streaming services.
David Zaslav: Our direct to consumer business contributed almost $700 million in EBITDA.
David Zaslav: A $3 billion improvement in just two years.
David Zaslav: And we expect direct to consumer EBITDA to nearly double in 2025.
David Zaslav: As I mentioned in our last earnings call we are.
David Zaslav: Laser focused on getting our studios back to a place of industry leadership, and generating 3 billion or more in EBITDA.
David Zaslav: We are showing growth and real strength.
David Zaslav: Our brothers television business, which I believe is the highest quality and largest maker of TV content in the world.
David Zaslav: We are excited about our studios' creative and financial outlook this year and beyond.
Particularly all of Thats coming from Warner Brothers Pictures, and DC Studios kicking off with the release of Superman. This July.
David Zaslav: Despite the headwinds facing linear TV, we recently struck a flurry of multi year renewal agreements with five of the six largest pay TV providers in America.
David Zaslav: Many of which we're a year early.
David Zaslav: All of which commanded overall rate increases.
David Zaslav: These long term deals provide real security and stability to our linear business.
David Zaslav: Finally, we've been hard at work and have made real progress implementing the reorganization we announced in December.
David Zaslav: Which went into effect on January one.
David Zaslav: This new structure will provide investors with better visibility to the strength of our streaming and studio business.
David Zaslav: And will give us real strategic value and optionality into the future.
David Zaslav: 2024 marked a year of significant progress in transforming Warner Brothers discovery.
David Zaslav: The foundation for what's next.
David Zaslav: Positioning us as a global media leader committed to providing shareholders with sustainable future growth.
David Zaslav: We remain fully focused on enhancing shareholder value.
David Zaslav: We welcome your questions.
Speaker Change: Ladies and gentlemen.
David Zaslav: Yeah.
Speaker Change: We will now begin the question and answer session should you have a question. Please press star followed by the one on you touched on phone you'll hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: Your first question comes from Jessica Reif Ulrik with Bank of Securities. Your line is now open.
Speaker Change: Thank you and good morning, everybody two questions. Please.
Speaker Change: Can you give us an update.
Speaker Change: David you just alluded to the restructuring taken.
Speaker Change: Taking place. This is January one can you talk about potential longer term more transformative vaccines and then secondly in the shareholder letter there was a comment on near term linear pressure.
Speaker Change: You asked about the consumer and.
Speaker Change: Greater packaging flexibility can you flush that out.
Speaker Change: Maybe discuss the lung.
Speaker Change: 25 will there be consolidated growth.
Good morning, Jessica.
Speaker Change: This is gonna let me.
Speaker Change: Let me take those two and.
Speaker Change: Starting with the.
David Zaslav: With the corporate restructuring. So this has been a real priority for us and we've made great progress as we said in the letter we have implemented that new structure effective January the first.
Speaker Change: As you would imagine there is still a lot of project work underway.
David Zaslav: To manage an end.
David Zaslav: Implement the financial aspects of the reorganization, we would still have some processes run off out of the wrong entities no tax implications et cetera. So we're still working through that with.
With a lot of focus and where.
David Zaslav: We're making great progress on that as I said.
David Zaslav: As we said in the letter.
David Zaslav: We're hoping to wrap that up really within the next few weeks.
David Zaslav: The point that I want to.
David Zaslav: So I would just add that I think this restructure.
David Zaslav: <unk> creates real visibility to the strength of our studio and library and our global streaming business.
David Zaslav: It allows us to we'll be better able to respond to this generational disruption.
David Zaslav: The new structure will enhance our strategic flexibility.
David Zaslav: And also create potential opportunities to unlock additional shareholder value, which we're focused on.
David Zaslav: And we're also focused on executing our strategy, while ensuring we're able to take advantage of broader market opportunities as they arise in this disruption we expect that there will be.
David Zaslav: Right.
David Zaslav: Yeah last thing.
David Zaslav: I was gonna add Jessica as we we don't think from today's perspective that we're going to see a dramatic change to our segment reporting, but we are planning to provide incremental guidance beyond that to create more clarity on the global linear networks on the one side and then streaming and studio is think of it as sort of a soft consolidation and based on the <unk>.
David Zaslav: We're making I'm hopeful that we'll be able to provide that as we report first quarter earnings.
David Zaslav: And then and then on the on your point about the linear.
David Zaslav: Linear pressure.
David Zaslav: Packaging flexibility.
David Zaslav: I want to take a step back.
David Zaslav: The work that our affiliate team has done in 2024 is just absolutely unbelievable working through all of these agreements are ahead of schedule and securing rate growth.
David Zaslav: In the current environment I think is a.
David Zaslav: A remarkable accomplishment.
David Zaslav: And it takes us and gives us a different cadence.
David Zaslav: Having started as a in the distribution side of the business normally you would have your deals coming up 20% a year. So you are always facing that on that either opportunity around certainty.
David Zaslav: And in all of my experience, we've never had this secure.
David Zaslav: They have a base, where virtual where almost all of our deals are done with increases with all of our channels carried for a period of years that gives us I think.
David Zaslav: Our real advantage as we go into it.
David Zaslav: It takes one issue off the table for us.
David Zaslav: We look forward the one thing I would want to call out.
David Zaslav: We've seen.
David Zaslav: <unk> seen pretty strong rate increases in the prior year I mean in Q4 close to 6% rate increases.
David Zaslav: Our domestic affiliate business with the with the new set of deals those rates those rate increases are going to be slightly slower and more in the in the in the low single digits versus mid single digit rate, but as we laid out we are also as an industry.
David Zaslav: We can come together and created some flexibility that will drive the sustainability and longevity of that ecosystem and then some.
David Zaslav: Specifically when we look at the international part of our business, it's really remarkable.
David Zaslav: Across our international footprint in the aggregate we are already seeing positive net revenue impact from from our affiliate renewals.
David Zaslav: What does that mean in many of these renewals, we're working together with our affiliate partners to make some concessions on the linear side, where they're facing not as pronounced but similar pressures as domestically here, but we're cooperating through software hard bundled on the on the on the DTC side and net net in the aggregate we're growing across our international.
David Zaslav: No.
David Zaslav: Affiliate portfolio were up in revenues. That's yeah. That's the kind of crossing the lines that were looking for were not there in the U S yet, but it's.
David Zaslav: It's a great proof point that we're seeing that that's strong value and demand for our content internationally already leading to.
David Zaslav: Consolidated growth.
David Zaslav: Thank you.
David Zaslav: Okay, let's move to the next question your.
Speaker Change: Your next question comes from Robert Fishman with Moffett Nathanson. Your line is now open.
Robert Fishman: Hi, good morning.
Robert Fishman: Two for you guys as you think about the importance of scale and DTC curious that does macs have enough diversity in programming as a standalone service to compete with those larger platforms or maybe asking it differently any updated thoughts on whether the smaller streaming platform ultimately need to consolidate.
Robert Fishman: And then on a related note when you think about the strategy to use sports and news on Mac pulling that content from the AD tier I think yesterday can you talk more about how are you.
Speaker Change: Plan to explore ways to evolve the sports and news distribution ecosystem. Thank you.
Robert Fishman: Thanks Robert.
Robert Fishman: We really see our offering is unique.
Robert Fishman: And there are very few global streaming services and the kind of demand and consumption that we're seeing around the world is quite compelling and it's really driven by the quality of the.
Robert Fishman: The original storytelling.
Robert Fishman: Whether it's white Lotus house of the drag in the pit together with.
Robert Fishman: Great Library of content that we have and the great IP and motion pictures, but you add that to the fact that we have 2025 years of entertainment content from our free to air channels cable channels around the world and sports.
Robert Fishman: It's.
Robert Fishman: Well, it's really the quality package of content, you really want to see which includes even things like friends and Big Bang theory.
Robert Fishman: It's got a great menu, it's distinguished from others. Because in addition to that very high quality you also have.
Robert Fishman: Meaningful local and so it and that is also driving not only consumer interest, but distributors interest in the product. So we feel really good about where we are at JB talk a little bit about our news and sports strategy because it differs.
Robert Fishman: In the U S where southern markets yeah.
Robert Fishman: Robert I think both on the diversity point also.
Robert Fishman: We've never gone into a period as we look out the next two years and frankly well into 2027 at this point.
Robert Fishman: We feel better about the lineup the consistency the strength.
Robert Fishman: So and I know, we have 15 franchises returning that's been in our top 20 of all time. So we feel really good about the content lineup coming in the diversity of that content lineup over the next two plus years.
Robert Fishman: On the sports or news front, we recognize and we have said I think fairly openly.
Robert Fishman: We're we're continuing to experiment on what the right model is and the reality is we have a variety of different models in operation around the world.
Robert Fishman: In the U S. As you rightly point out we announced yesterday, we are moving our sports and news out of the add light and into the premium and standard AD free.
Robert Fishman: In America, we have it across all of our packages.
Robert Fishman: In Europe, we up sell it.
Robert Fishman: As a add on and a buy through.
Robert Fishman: And so are we.
Robert Fishman: Were openly continuing to experiment as to what the right model is and what the best way is to both drive engagement and first views our acquisition through that powerful content, but at the same time make sure we'll figure out a business model that works.
Robert Fishman: And we're going to continue to experiment and see what works and we have the beauty of a global footprint with rights across the world that we can experiment with.
Robert Fishman: One of the things that we've pivoted on his Mark Thompson, and Alex Maccallum, who the two of them built the digital business at the New York Times, we see that is.
Robert Fishman: An opportunity to build a completely separate digital and subscription line of businesses and over the next few months there'll be out talking to you about how theyre, taking advantage of CNN as the largest digital news brand in the world. The most trusted news brand in the world with over 150 million people.
Robert Fishman: Coming every month, and how they're going and what we're doing to build a sustainable digital business out of that but when you look at the overall question of what are we we said three years ago.
Robert Fishman: It's not how much.
Robert Fishman: It's how good.
Robert Fishman: And that has been our focus so in Europe. When we have sport. We are the best we have the best sport.
Robert Fishman: And what we're going out with the highest quality content and so that is kacey and chatting and R and Mike and Pam the focus is.
Robert Fishman: It's not how much is how good for this scrutiny.
Speaker Change: Okay, let's move to the next question please.
Speaker Change: Your next question comes from Cayman than Cat.
Speaker Change: You are with Barclays. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Maybe a couple the first one on strategy.
David Zaslav: David if you could just outline.
Speaker Change: How do you see the asset landscape right now.
David Zaslav: There's a lot going on in the industry.
David Zaslav: With different objectives, but.
David Zaslav: In this environment do you see yourself.
Speaker Change: A buyer or a seller I mean is there an opportunity to maybe become the consolidator and.
David Zaslav: There was some kind of a bigger spinoff of network.
David Zaslav: Your thoughts on that would be useful and good or just to follow up on Jessica's question on the.
David Zaslav: The full year when you have easier comps on studios this year.
David Zaslav: And.
David Zaslav: If you just look at the networks.
David Zaslav: The headwinds if you just take that.
David Zaslav: And later this year into next year.
Speaker Change: And then DTC profitability that you've guided to it would imply that you should grow EBITDA in 'twenty. Five so is there something that takes away from that that would be great to get your thoughts on that thanks.
David Zaslav: Oh.
David Zaslav: I guess fundamentally when you look at the marketplace.
David Zaslav: We really believe that the global players will be those that will really prosper in the years ahead and ultimately the largest sustainable growth media companies, they will probably be four or five.
David Zaslav: Or six and our job every day is to fight to get a seat at that table and we feel that we've made real progress now.
David Zaslav: With our global streaming service in the global appeal of all of our content and the consumer reaction to assure that seat.
David Zaslav: The consequence of that I think as there's more and more pressure on regional players can they build their own platform that they have enough local content.
David Zaslav: One of the things that we're seeing now is we've been talking about bundling for two and a half years, but many of the really high quality local players.
David Zaslav: <unk> have come to US now after two years or two and a half years and aligned on this on our strategy of better together, so whether it's global in in Brazil with Televisa.
David Zaslav: In Mexico.
David Zaslav: For.
David Zaslav: All across Europe players coming to us and I expect that that's going to happen there'll be a few global players.
David Zaslav: There may be some consolidation in getting there.
David Zaslav: The consolidation may simply come with bundles and the bundles.
David Zaslav: As opposed to just being an economic bundle will be a consumer friendly bundle, where you can move between content from one to another.
David Zaslav: And I think we're going to be a very very attractive player.
David Zaslav: We're already having a number of discussions and we'll just have to assess how strong we are alone and who and when we need.
David Zaslav: In the end, we'll always do what's right. We're a public company, we're always going to do what's right for shareholders, but J b. This this idea of bundling because this is something we're attacking regularly yeah. I mean I think at the end as David says there are two forms of re aggregation. There's a structural one which is what David talked about and then.
David Zaslav: There is a commercial one which is the bundling strategy and we've seen great success with it obviously here in the U S with Disney.
David Zaslav: Seeing it both drive.
Speaker Change: The acquisition as well as significantly reduced churn and to the earlier question that Robert had about diversity. The reality is the industry has gone from a model in the 2010 to 2020 period of everybody trying to do everything.
Speaker Change: And frankly, a glut of content in an overspend to a much more rational spend where we've got it all back to doing what we are really good at.
Speaker Change: And providing consumers access to all that goodness true through with the bundles and so I think that is a commercial path to getting a lot of the value.
Speaker Change: And we're seeing it happened already and as David said the good news is people are seeing that and it's gaining a bit of a momentum across the world not just with global players, but frankly with the regional and local players as well and so we think that's an exciting new growth vector for us as well and sports will be a pressure point.
Speaker Change: Regional players are becoming more and more dependent on sports and rental sports and the ability to really build a long term platform on short ton of sports rights has not been a good story in the past and it's unlikely to be a good story in the future.
Speaker Change: And then can add on.
Speaker Change: On your financial follow up look as you saw on the letter. We're we're not intending to give consolidated financial guidance. This year as as we as we did in the prior year as well, but we have a lot.
Speaker Change: And I'll just recap some of the points, we put in there and give some additional content. So the context, starting with with <unk> you saw the $1 $3 billion.
Speaker Change: EBITDA target very achievable from our perspective, and importantly, having gone through a $3 billion swing over two and a half years here on profitability I do think we have now earned the flexibility here to to make trade off decisions get behind whats really working fuel.
Speaker Change: Further growth or optimized for.
Speaker Change: Our profitability, where we don't see those opportunities. So I think that's a pretty specific.
Speaker Change: The guidance that you can model on the studio side Youre right. We do have a lower comp in 2024, and we talked about the limited avails for content licensing.
Speaker Change: In the prior year, that's obviously getting better we have a humming TV production business, which we which we expect to continue growing and improving in profitability. Chinese team is already doing a phenomenal job and then.
Speaker Change: You may have seen the restructuring of the games unit that JV has implemented towards the end of last year. So with that we should be in a much better position in 2025 as well and then I also believe that our film slate.
Speaker Change: A greater balance and as we've discussed multiple times, we should be.
Speaker Change: The process, we have implemented we should be doing better financially.
Speaker Change: Both and success in the inevitable.
Speaker Change: Mrs that you have to expect with a hit driven business as well so in a nutshell studios certainly very significantly better and EBITDA. This year then.
Speaker Change: And then in the prior year and then the third point, obviously is the network business and like I don't want to.
Speaker Change: Create the wrong impression here that business continues to face challenges.
Speaker Change: <unk>.
Speaker Change: We have seen a weaker AD sales result in Q4 than what we had hoped for and what we had expected frankly, we didn't expect a ton of political advertising about CNN.
Speaker Change: We had hoped for a greater benefit from from the elections, which which didnt come in now going into the first quarter, we see some mild positive signals from the AD market, it's not a sea.
Speaker Change: <unk> change, but we're seeing less upfront cancellations than in the prior year, we're seeing scatter CPM up moderately but we also acknowledge that we have some work to do in terms of our and then Europe portfolio ratings and delivery channel has taken over that business as an additional responsibility has put the team in place there are a lot of cash.
Speaker Change: The initiatives that are underway. Some some new shows bailing out loud of TLC team that's delivered.
Speaker Change: Deliberate so many hits in the past is doing very well and then I think that I'm. Most excited about is that chatting with her vast knowledge of the deep library at Warner Brothers, and HBO is going to implement a strategy with much more efficiently utilizing.
Speaker Change: Those libraries that that's always been one of the core ideas from a synergy perspective here. So hopefully you won't be seeing some some progress there as well so.
Speaker Change: And then I.
Speaker Change: Called out on the.
Speaker Change: On the affiliate side. The fact that we're going to we're expecting to continue to see sub declines probably too early to expect a leveling off or a significant moderation slightly lower rate increases than in the past, we do have a great sports portfolio.
Speaker Change: And again I am.
Speaker Change: Very very happy with how that sport strategy has it has been implemented over the past year.
Speaker Change: Yes.
Speaker Change: And but that does mean that where we're seeing some incremental expense in 2025 importantly expense that will come back out in 2026, because remember we have a half a season of the NBA. This year and that was a significant chunk of expense in 2025 is only sop.
Speaker Change: <unk> a little bit on the expense side from having that expense plus the cost of the new rights. So we will see a very significant improvement as we come out of the year into into 2026 other than that we will continue to be very very focused on cost.
Speaker Change: It continues to be a priority for the team.
Speaker Change: No.
Speaker Change: Albeit obviously you know from a from a basis of a cost structure. That's already been improved very significantly over the past few years and then last <unk>.
Speaker Change: Comment I'll make is on the international side, we continue to see trends in the linear market that are there.
Speaker Change: Much better than than domestically.
Speaker Change: No not in the aggregate growing but a much more.
Speaker Change: Moderate.
Speaker Change: Our pressure there even though the current geopolitical environment, we have to acknowledge that there is some some uncertainty there as well so.
Speaker Change: That's the reason why we're not out here with a firm hard.
Speaker Change: Number for that business or the company in the aggregate.
Speaker Change: But look were making phenomenal progress in the transformation of our business.
Speaker Change: The intention here is obviously to.
Speaker Change: To have those lines cross and we see so much opportunity in DTC in the studio businesses.
Speaker Change: And we have no doubt that we're going across the lines at some point, but I'm not putting a time stamp on it.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Your next question comes from could gun morale with Evercore ISI. Your line is now open.
Speaker Change: Good morning, and thanks for taking my question I wanted to ask about free cash flow and the balance sheet. I know you. Just mentioned that you are not providing explicit consolidated guidance and walk through the moving pieces and the uncertainty ahead. So forgive me for the follow up but any chance you could expand on the free cash flow outlook for the year, particularly with the moving pieces across.
Speaker Change: Working capital and I ask in part to get a better sense of where net leverage can move two from three eight times today, because it seems like we could see a healthy year of deleveraging ahead, but I can't really tell with EBITDA commentary. So would appreciate your perspective. Thank you.
Speaker Change: Sure.
Speaker Change: It took them.
Speaker Change: Free cash flow has been one of our top priorities from a financial perspective.
Speaker Change: Important metrics and we have really changed the entire company's mentality. Here. This was this was not a fact anyone looked at three years ago, and we have a pretty well oiled machine now.
Speaker Change: That's one of the reasons why we continue to put up these strong cash conversion rates, even even with some top line pressures, especially on the on the linear side.
Speaker Change: The balance sheet I think is in very good shape by the end of this quarter, we will have a pay down $19 billion of debt since since closing the transaction.
Speaker Change: And we will continue to be Super Super focused on this at the same time I also want to reiterate that I'm not worried about any any maturities I view, our capital structure is a real asset.
Speaker Change: The terms that we locked in.
Speaker Change: Between the rates and the maturity profile are an absolute strategic asset for this for this company. So we will continue to focus on bringing that down further I continue to believe that two and a half to three times leverage target for this company, but it's not the be all and all and I'll be all I think that is.
Speaker Change: Target of this company and.
Speaker Change: Specifically for free cash flow.
Speaker Change: In 2025 again, we're going to continue to focus on it.
Speaker Change: Looking through some individual building blocks.
Speaker Change: We want to continue growing content investments.
Speaker Change: Albeit with continued improvement of our ROI against those investments.
Speaker Change: Evidence about everyday.
Speaker Change: Moving further through the the free cash flow walk.
Speaker Change: Working capital was.
Speaker Change: It will be.
Speaker Change: It will be strong again in 2025, we did have a good result in 24, even though that was a drag of almost $500 million from paying down some of our securitization facility Opportunistically, which I don't expect to happen in 2025 will obviously benefit from lower debt load and responding.
Speaker Change: Interest.
Speaker Change: Payments, we are going to see a little more capex as we expand our production footprint predominantly in and leaves them expanding our capacity.
Speaker Change: There and.
Speaker Change: Restructuring expenses were going to continue to come down but to your point.
Speaker Change: Yeah absolute dollar amount in the end is going to is going to be mostly driven by the by the resulting final EBITA number of course.
Speaker Change: Very helpful. Thanks Gunnar.
Speaker Change: Next question.
Your next question comes from Rich Greenfield with light Chad.
Speaker Change: <unk> is now open.
Rich Greenfield: Thanks for taking the questions Ive got a few but hopefully they're quick given your comments about sports cost at penalized 25 until the NDA and depth in the first half.
How should we think about the next sports cost savings for 'twenty six versus 25.
Disney is also.
Rich Greenfield: Goes to Jb's commentary Disney's dropping a whole bunch of sports, you're probably going to have half the UFC available all of that one.
Speaker Change: Sunday Night Baseball is obviously now available, but it doesn't given you're renting sports comment should investors assume that you don't have interest in any of those sports right at the moment and then just finally to follow up on the earlier question on your new affiliate deals.
Speaker Change: You get any type of minimum penetration guarantees for Max when you included as a wholesale as part of these packages I know you used to get minimum penetration for your cable networks I'm curious how that works for DTC.
Speaker Change: Thanks Rich.
Speaker Change: Look we like sports.
Speaker Change: We're very disciplined and more opportunistic so were where money good on almost all of our sports in this company.
Speaker Change: And we.
Speaker Change: We've worked very hard to build or to build our free cash flow, our EBIT to pay down debt and I think the critical element for us as we look at our streaming service is the quality content. The movies the series the churning and Casey does that's the leading that that's the leading edge of what consumers and our.
Speaker Change: Our library.
Speaker Change: That's the leading edge of the value equation.
Speaker Change: And we own that so when we launch Harry Potter.
Speaker Change: In a year.
Speaker Change: Or a little over a year, we will have 10 consecutive years of Harry Potter and be able to amortize that globally around around the world that kind of investment also pays off in merchandising in our.
Speaker Change: Smaller theme oriented.
Speaker Change: Parks and so our focus is let's really spend economics, and where we can get the best return so.
Speaker Change: There are sports rights that are that we can look at Opportunistically and say, we can make a real return up.
Speaker Change: But we are.
Speaker Change: We don't need any more sports anywhere in the world in order to to support our business, we would buy sports in order to do if we think it would enhance our business.
Speaker Change: It's going to get more difficult some of those prices being paid.
Speaker Change: And some of the competitors are opting to go to sports instead of doing what we do because what we do is long cycle it's hard.
Speaker Change: And.
Speaker Change: It's not easy to do what what what Channing, and Casey and Mike and Pam and James Gunn does so when I see a real.
Speaker Change: Push.
Two to pay a lot more for sports to get effective.
Speaker Change: Guaranteed audiences or an audience that you can really model versus building it on great IP like Batman out of the Penguin or I think that's a good thing for us because that's where we're going to really.
Speaker Change: Really build the value and that's what we build our brand around and then rich on the on the penetration carriage commitment question.
Speaker Change: Couple of things one is its not a one size fits all and globally, we have a variety of different models in play the sector.
Speaker Change: It is obviously, we're doing a soft and hard bundles.
Speaker Change: One of those obviously theres no penetration or carriage commit.
Speaker Change: Commitments at the heart of all of those Theres plenty that do have carriage.
Speaker Change: Penetration commitments.
Speaker Change: And then there's others that don't so it's really kind of a mixed bag. It's hard to say, it's one one particular model, but we certainly do in <unk>.
In a variety of cases do have obligations and commitments and Thats part of what we obviously the reasons. We pursue them is that we do have.
Speaker Change: Carriage commitments likely.
Speaker Change: Like we've done in the U K with Sky like we've done in other markets across the world, where the partners agreement distributor to a.
Speaker Change: A fixed number of their subscriber base so.
Speaker Change: How much is in 'twenty, David I'll, just add one.
Speaker Change: One last thing on the sports side to be specific we will see several hundred millions of dollars of sports expense come out.
Speaker Change: <unk> thousand 26 to be fair, there will be some associated AD revenues as well, but this should be a sort of certainly.
Speaker Change: Certainly a few hundred million dollar improvement in 2020 over 25.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Mike King with Goldman Sachs. Your line is now open.
Mike King: Hey, good morning, Thank you for the question.
Mike King: Two related to DTC.
Mike King: It was encouraging to hear about the 150 million plus subscriber target by the end of 2026.
Mike King: Of that roughly 35 million subscriber growth over the next two years any thoughts on.
Speaker Change: How much is domestic versus international it sounds like.
Mike King: The comments around the.
Mike King: The international launches.
Mike King: And the hard bundles it seems like it's more international but just wanted to get your thoughts around that.
Mike King: And the related.
Mike King: Our food pressures because of these growth drivers.
Mike King: Is that more of a comment around <unk> potentially being flattish from here or.
Mike King: Could we actually see our food down a little bit before normalizing and returning to growth. Thank you.
Mike King: The U S is a pretty mature market.
Mike King: We think that there's still some growth.
Mike King: Given the quality of our service.
Mike King: And we're fighting for that allowed the growth may come from price.
Mike King: We play around with.
Mike King: The quality of what we're providing versus the cost of what we're providing as well as.
Mike King: How many people in our home can use the service and that'll be rolling out but.
Mike King: This idea of a global media company, and a global screamer and being able to scale.
Mike King: Is that is that that's the point that we're pushing on right now on an open door and Thats, where we think when we look around.
Speaker Change: A lot of there's not a lot of players playing that game. So JV, yeah, I mean, I think like a large a large proportion of the growth will come from international just because again as David mentioned.
Mike King: We've got a.
Mike King: Material footprint outside the U S that were not even reaching yet and so that international growth will come from launching in new markets as well as penetration growth.
Mike King: So that's the.
Mike King: The answer on the first question on the <unk> question.
Mike King: You will see some deterioration in the <unk> in the near term.
Mike King: But again.
Mike King: It's it's at this point are in excess of our expansion, particularly given that you think about things like our AD light.
Mike King: Prior to about 15 months ago. It was only available in one market. It's now available in over 45 markets.
Mike King: That's taken time is as we go with a lower priced.
Mike King: <unk> or <unk>.
Mike King: In some of these markets.
Mike King: And build up the <unk>.
Mike King: Advertising revenue stream that will take some time as we launch in international markets in Asia, which is a region that has generally lower ARPA as youll see some obviously continued pressure that comes from that.
Mike King: And then as we do recognize that trying to get the product in the hands of more people more quickly as a priority.
Mike King: As we do these attractive.
Mike King: A hard bundled deals, but where we do give up a little bit more.
Mike King: On on pricing to get immediate scale and distribution.
Mike King: That will as well so you will see that pressure go on but we will continue to manage the business smartly in terms of.
Mike King: Looking at our subscriber acquisition cost.
Mike King: And balancing that with the right LTV profile and we think there's a lot of room still to lean into that equation based on the numbers we're seeing so.
Mike King: And medium to long term, we're very confident we can get back to ARPA growth. Even after this expansion period here over the next sort of 12 to 18 months.
Speaker Change: Great. Thanks, David Thanks JB.
Speaker Change: Your next question comes from Ben Swinburne with Morgan Stanley. Your line is now open.
Speaker Change: Thanks, Good morning, and thanks for the shareholder letter I think it's helpful.
Speaker Change: Three I'm sorry.
Speaker Change: Long term.
Speaker Change: I guess, you wouldn't come guidance, but long term goals that you guys have talked about either in the letter this morning.
Speaker Change: One for each segment I was hoping you could talk a little bit more about it in networks. There is a comment that you think you can stabilize segment revenues over the next few years following the mvpds agreements that that would be certainly.
Exceeding the market's expectations I'd love to hear a little more about that outlook the.
Speaker Change: The 20% margins at DTC.
Speaker Change: Any timeline that you'd want to share with us at this point I think it'll be probably.
Speaker Change: Around 10, plus for 25.
Speaker Change: And then David the $3 billion plus of student EBITDA, you know, obviously last year was tough, but even the prior year you were kind of in the mid to low twos. So.
Speaker Change: How can you help us gain confidence across those three metrics all of which I think would be what would drive healthy value for your stock and upside to expectations. Thanks, a lot yes.
Speaker Change: Okay. Ben Thank you let me, let me take them one by one on the network side I want to make sure the comments are understood.
Speaker Change: We're not we're not we're not.
Speaker Change: Expecting sort of revenue stability is sort of zero growth or a decline right. What we're talking about is.
Speaker Change: Stabilizing our position within the industry trends and certainly we do hope that some of the some of the movement that we've now seen in recent affiliate renewals over time will have a positive impact on the.
Speaker Change: On the industry overall overall, but don't take this as sort of guiding to flat revenue from from linear, but I do think our hand today much better than it was maybe six to nine months ago.
Speaker Change: On the DTC side, the 20% margin.
Speaker Change: Our target.
Speaker Change: It's one of those that are.
Speaker Change: We're going to manage I have no doubt that we're going to be able to hit and exceed those margins, but we're not going to be managing towards our margin goal. It will be it will be wrong as JB laid out we're looking at lifetime value relative to Sac.
Now have a profitable business and we will use the flexibility to make the trade off decisions I'd much rather have stronger growth in 'twenty five 'twenty six 'twenty seven.
Speaker Change: Maybe at the expense of a little bit of.
Speaker Change: Our EBITDA margin.
Speaker Change: Does it builds longer term asset value hitting a margin goal a year early or late really doesn't it doesn't help any any any of us.
Speaker Change: First and foremost shareholders are going to benefit from the asset value, we're building, but again the margin target itself.
Speaker Change: <unk> is very well in hand.
Speaker Change: Based on our plants and then on the studio side again, let's go back to what we discussed during the third quarter earnings call I laid out some of the points that impacted 2024.
Speaker Change: Among others.
Speaker Change: A year that had a very very low number of of avails and hour and hour content Library, we know that 2025 and.
Speaker Change: All of the years in the near future are going to have.
Speaker Change: A much better profile. So there is that as a major part of the profitability of our studio.
Speaker Change: The film and television production drives the.
Speaker Change: Replenishment.
Speaker Change: Off the.
Speaker Change: Of the library.
Speaker Change: Availability dates are a major factor. The other point is I don't think we're going to see a year.
Speaker Change: Like 2024 again when it comes to what happened in the games business. This was a real outlier to the negative after it may be a bit of an outlier on the positive in 2023, but based on the restructuring that J P is implemented I think we are in.
Speaker Change: In a much better place and remember we have made real changes when it comes to managing our franchises when it comes to driving the ancillary revenue is in the consumer product segment.
Speaker Change: <unk> tourism retail all of those things are now coordinated.
Speaker Change: From the moment of Greenlight as opposed to being an afterthought preview.
Speaker Change: Previously and those.
Those are real margin opportunities for every for every dollar we spend so again I think we're going to see a real step up in EBITDA in 2025, but.
David Zaslav: When David talks about getting the studio to $3 billion. That's not that's not an end state. That's that's that's sort of fixing where we are right now and then growing from there and we believe the studio has enormous potential beyond that.
Speaker Change: Thanks Peter.
Speaker Change: Okay.
Speaker Change: Our last question comes from John Hodulik with UBS. Your line is now open.
John Hodulik: Great. Thanks for taking the question, maybe just a quick one on skinny sports bundles. Despite the wind down of a venue it looks like sort of this distribution model is going to proliferate.
David Zaslav: Proliferate you have Directv Comcast it sounds like what's coming from Salobo, just maybe David Whats your initial thoughts on these bundles.
David Zaslav: Terms of do you think that youre going to see meaningful adoption and drive any sort of meaningful change in either cord cutting or sort of affiliate transit at Warner Bros.
David Zaslav: I think part of it is going to depend on the.
David Zaslav: The consumer value proposition the idea of aggregating sports together and offering it on a contemporary platform.
David Zaslav: Instead of thinking about channels, you can think about sports and go there and see it is very compelling. It was one of the reasons that we did.
David Zaslav: We were driving behind venue. So some of these bundles. If you look at them as a contemporary platforms that just provide a better consumer experience is as positive, but it really depends on the value equation. If it's very close to the price of the overall bundle we've seen over the years is that even though.
David Zaslav: Consumers.
David Zaslav: Thanks.
David Zaslav: This is what they choose when they do get the choice unless its significantly less expensive they opt for the bigger bundle, where they could see a wealth of other quality content and so.
David Zaslav: I think ultimately everything we're doing is going to be driven by providing a better consumer experience and everything we do here is driven by that and it's one of the reasons why we're so optimistic.
David Zaslav: When you put the TV set on and you see 18.
David Zaslav: 18 apps and U S.
Three people watching TV at the same time have their phones out googling, whereas show is where sport is it it's not a good consumer experience and the value creation over the last 50 years, almost always follows a better consumer experience.
David Zaslav: And that's what we're doing with Disney that's what we're doing with Verizon when we're together with Netflix that's what we're doing on our own by having local support local content together with the best quality TV and motion picture content and that's why I think that will be.
David Zaslav: An aggregation in a meaningful way behind a couple of the bigger global players because consumers at some point theyre going to say this is too cumbersome and too challenging and I just wanted to put the T V on or I want to go to my phone or whatever device I go to and be able to see the content that I love without having to come in and out of products and without googling with them.
David Zaslav: Saar so.
David Zaslav: I think that's going to be the the wind at the back of this industry.
David Zaslav: <unk>.
David Zaslav: I think everyone's going to have to get on board with that because consumers are going to demand it.
David Zaslav: I will go.
Speaker Change: Alright, Thanks, Dave.
Speaker Change: There are no further questions at this time, ladies and gentlemen. This concludes your conference call for today, we thank you for participating and I say you. Please disconnect your lines.
Speaker Change: [noise].