Warner Bros. Discovery Inc (WBD) — Q3 2024 Earnings Call Transcript

Good morning, and thank you for joining us for Warner Bros. Discovery's Q3 earnings call. Joining me today is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games. 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 from our expectations. For additional information on factors that could affect these expectations, please see the company's filings with the US 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. In addition, we will discuss non-GAAP financial measures on this call. Reconciliation 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 section of our website. And with that, I'd like to turn the call over to David.

Good morning, everyone, and thank you for joining us. I want to start my remarks by providing a broad overview of where Warner Bros. Discovery is on our journey today and how we are moving the company forward with an ultimate focus on creating value for our shareholders. It is well-known that our environment is being reshaped by generational disruption, which is creating both challenges and opportunities. Where we are confronting challenges, we are addressing them directly and where we see opportunities, we are seizing them with discipline and determination. Right now, there are several important dynamics playing out in our business. First, we believe that many of the assets that comprise our business are currently undervalued, and we are working to both demonstrate their fundamental strength and enhance their value. Part of that effort has involved acting aggressively to reduce our expense base and lift our free cash flow conversion. To date, we have paid down more than $16 billion in debt, with our strongest cash generation quarter of this year still ahead. Our team is highly focused on identifying and advancing a range of initiatives that aim to enhance the value of our company. As these initiatives mature, I am confident our shareholders will both see and feel significant upside. Second, we are making strong progress in executing our strategy and creating what's next for Warner Bros. Discovery. Over the last two and a half years, we have invested meaningfully in new technologies and platforms, partnerships and creative talent and driven changes in our structure to accelerate growth. Today, those investments are delivering clear bottom-line results in our Direct-To-Consumer segment. We are making substantial progress at Max, where, as I will describe in more detail shortly, strong subscriber growth is driving increased revenue and profitability. And while we are encouraged by our progress, we have more work to do to deliver the kind of results we and you expect. But, to be clear, I can assure you, we are doing the work necessary to evaluate all steps operationally and strategically to improve performance and unlock shareholder value. As I have conveyed to our employees, there are three prongs of attack to deliver expected shareholder gains. First, deploying Max globally as a distribution and storytelling platform enabling it to achieve its full potential in both reach and profit. Second, optimizing our Networks business, including our US Linear Television business. And third, returning our studios to industry leadership. I will briefly address our performance and outlook in each of these areas and Gunnar will then share more financial details by segment. First, it has been a very important and successful quarter in Max's development and deployment. Anyone who has listened to one of our earnings calls over the last two years knows, Max is important to Warner Bros. Discovery. We possess and produce tremendous content—film, TV, news, and sports. Building a leading fully global Direct-To-Consumer platform to make that content available has been a clear strategic initiative. Getting Max right has required patience, discipline, and substantial investment. Today, those investments are delivering clear results, both in terms of subscriber-related revenue growth and bottom-line impact. At the beginning of the year, Max had only launched in the US. Nine months later, Max was available in 65 markets. We have added 13 million subscribers, thanks in part to 7.2 million additional subscribers in the third quarter alone and now have more than 110 million subscribers globally. Equally encouraging, we're beginning to see real acceleration in subscriber-related revenue growth and significant profitability growth. Overall, our Direct-To-Consumer revenue of $2.6 billion is up 9% year-over-year and EBITDA of $290 million is up more than 175% year-over-year. And in the fourth quarter, we will enjoy another quarter of strong revenue, profit, and subscriber growth. What's driving this success? First, of course, we have great content. While technological advancements have placed emphasis and attention on distribution, the history of entertainment shows great content always wins. We are also improving the cadence with which we put the content people most want to see in front of them. Beginning this past June with Season 2 of House of the Dragon, we are continuing now with The Penguin and extending forward with titles like Doom Prophecy, White Lotus, The Last of Us, and Peacemaker, just to name a few. Max is delivering 10 poll shows, new originals, and feature films on an even more consistent basis. Internationally, our success is being driven by delivering that beloved content, as well as new originals with local sports in most international markets and over 15 years of local language content, all on our streaming platform throughout Europe and Latin America in a way that few others can rival. The critical role Max played in being the home of the Olympics in many markets across Europe in Q3 is just one example. Even without the Olympics, we expect our momentum in driving Max subscriber growth to continue going forward. Later this month, Max will launch in seven markets across Southeast Asia, and next year, Max will launch in Australia and over a dozen other markets with more to come, including three of the biggest markets in Europe in 2026. Long-term, we believe our content will continue to provide us a meaningful competitive advantage and we are only scratching the surface of what we can achieve through added scale. Based on everything we are seeing, we are highly confident we are on track to meaningfully exceed our target of $1 billion in EBITDA in 2025. Next, I want to talk about our Networks business. While the challenges and headwinds we faced in our US Linear Television business are well-known, this is still an extraordinarily important part of our business. Linear TV is a core vehicle to deliver WBD storytelling to hundreds of millions of fans worldwide and the significant profits it generates help fund building the investments that will carry Warner Bros. Discovery into the future. The best evidence of the important role our Linear business continues to play for Warner Bros. Discovery is in the renewal agreement we struck with Charter Communications in September. This agreement was a victory for both companies and represents an innovative way to best serve customers as our industry continues to transform. In extending Charter's carriage of our Linear Networks, while also giving their subscribers ad-lite access to Max, our company struck a deal that’s mutually beneficial with a consumer win most of all. In your Q3 earnings communications, Charter discussed plans to lean more aggressively into its video products, which they attributed to providing enhanced value to their customers with increased access to streaming services like Max. We are optimistic this is a sign that these types of agreements will create more stability in our industry. Lastly, I want to address the work that obviously still needs to be done to return our Studios business to industry leadership. There have been some real bright spots in our Studios business. Our TV Studio is on track to have its most profitable year in scripted content in the last five years. It's currently making over 80 live-action scripted, unscripted, and animated series for nearly 20 platforms, including all the major US broadcast networks and teen US SVOD platforms. And on the Motion Picture side, our third quarter saw strong success with Beetlejuice. But even in an industry of hits and misses, we must acknowledge that our Studio's business must deliver more consistency. This applies to our Games business, which we recognize as substantially underperforming its potential right now. We have four strong and profitable game franchises with loyal global fans—Hogwarts Legacy, Mortal Kombat, Game of Thrones, and DC's Batman, which are focusing our development efforts on those core franchises with prudent studios to improve our success ratio. Inconsistency also remains an issue at our Motion Picture Studio, as reinforced recently by the disappointing results of Joker 2. For the past two years, we've been driving changes within our Motion Picture Studio to improve green light governance, and franchise management, which remains focal points going forward. This is a business translating operational changes into results takes time, but I believe we'll see those strategic shifts deliver improved outcomes in the coming years. Overall, we anticipate improved profit results for our Studios in Q4, thanks to what we expect will be another successful quarter for Warner Bros. TV. Gunnar will take you through some decisions we made in content licensing that have negatively impacted this year's financial results but present significant growth opportunities in the future. Over the next several years, we expect our gains in Motion Picture businesses to deliver more consistency, resume industry-leading performance, and contribute substantially to Warner Bros. Discovery's business success. Before I turn it to Gunnar to provide more details on our financial results, I want to offer a final thought on the power of what we are building. By leveraging our storytelling abilities with our abundance of beloved content and utilizing our distribution platforms, we can build a real differentiation that leads to growth. Look no further than The Penguin, which spotlights a well-known DC Comic character, building on the success of the Batman, was envisioned by HBO, with creative talents like Matt Reeves, Lauren LeFranc, and Colin Farrell, produced by Warner Bros. Television, distributed on HBO and Max to viewers all over the world, promoted across the Warner Bros. Discovery landscape, critically acclaimed, commercially successful stories like The Penguin that can shape culture, spark conversations and become appointment viewing, always win over time. When you look at our unique ability to create great content, distribute great content, and market great content, it reinforces why we are so well-positioned to stand apart from the path over the long term. So, I will conclude by saying two things are true. Our industry is experiencing generational disruption, presenting us with both challenges and opportunities. At the same time, our strategy is succeeding in important ways. When this period of extraordinary disruption settles, based on the momentum we are seeing in our Direct-To-Consumer segment, the work we've done to sustain our Linear TV business and what we're doing to return our Studios to peak performance, I remain confident that Warner Bros. Discovery will be one of the companies leading the global media industry into the future.

Thank you, David, and good morning, everyone. I'd like to begin my remarks with some comments on Direct-To-Consumer, where we are seeing strong momentum across key operating and financial metrics—net subscriber adds, subscriber-related revenues, and EBITDA. Reaching this inflection point has clearly been a priority, and I'm excited about the traction we've seen and enthused with what we expect for the quarters ahead. Over 7 million net adds and 50% D2C advertising growth drove double-digit subscriber-related revenue growth, and acceleration from 6% in Q2, leading to nearly $300 million in EBITDA. We expect similar levels of subscriber-related revenue growth and EBITDA contribution in the fourth quarter. Subscriber growth was driven by a combination of factors, including the Olympics in Europe, traction from recent international launches, momentum on bundles like the Disney Max Hulu offerings, and a more consistent and resonant content lineup. There will continue to be a variety of paths to scale Max, particularly as we expand our reach internationally. We clearly saw that this quarter. It is also clear that the many options to reach consumers directly—bundled, in partnership, or more traditional wholesale arrangements—will naturally have implications for certain KPIs. That said, the financial framework in which we are managing the D2C business has not changed. First, we will always be guided by a core focus on lifetime value relative to subscriber acquisition costs. Whether it's evaluating a specific market or the model employed to launch in a market, partnership, or direct retail. This means that we will make trade-off decisions between various distribution channels and operating models across markets. Some will have inherently lower ARPU, but lower upfront investments or better churn dynamics. Others may require higher levels of initial spend, but may have commensurately higher ARPU. We have and will continue to evaluate all subscriber options through this filter with the goal to maximize value creation. Second, we are focused on subscriber-related revenue that is subscription and advertising revenue as the best measure for the progress we are making in scaling the D2C business. Importantly, given the cadence of Max's rollout over the next 18 months or so in international markets and the launch of the lower-priced advertising-supported offering in many more markets, we expect ARPU to trend lower in the near term reflecting the growth of the Max ad-supported footprint from only one market up until this year to now, over 45 markets. However, we expect further strong subscriber-related revenue growth and EBITDA going forward, as well as enhanced retention, the cadence of which will reflect when, where, and how heavily we invest in subscriber acquisitions. Turning now to total company advertising, which declined 7% ex FX during the third quarter. The sequential step down was as expected and was in large part due to our seasonally slower sports schedule with Networks advertising down 13% ex FX. Additionally, while we've benefited modestly from the Olympics in Europe, our much larger US business was adversely impacted by the Olympics. D2C advertising, however, continued to grow at a nice pace—up over 50% ex FX behind healthy demand for Max in the US. Global ad-lite subscribers grew over 70% year-over-year with approximately 40% of global gross adds taking the ad-lite here in Q3. While the international contribution of D2C advertising is still quite small, we see opportunity ahead as we scale the subscriber base and drive modernization. Networks distribution revenue was down 7% ex FX and down 5% excluding the impact of the AT&T SportsNet. Our affiliate renewal pipeline is active, and we remain focused on working with our partners across the fluid distribution landscape. The recent Charter deal we’ve referenced is a great example of both the great value of our content to affiliate partners as much as to consumers and a greater flexibility in the industry to come up with forward-facing new deal structures with the potential to have a meaningful positive impact on the trajectory of our Linear and D2C business. We are seeing strong evidence of the great financial benefits of these new deal structures across our international footprint. As the long list of our International distribution renewals this year has shown, we have indeed enjoyed net growth in total revenue to Warner Bros Discovery across these partnerships as our concessions on the Linear side have been more than offset by strong gains at D2C. Turning to Studios, performance in the quarter was subpar relative to our internal expectations, notwithstanding the difficult comparisons with Barbie last year. Results were impacted by games for which we took another $100 million plus impairments due to the underperforming releases, primarily Multiverses this quarter, bringing total write-downs year-to-date to over $300 million in our games business, a key factor in this year's Studio profit decline. In Q4, we expect games to be flat to modestly better year-over-year as last year's launch of Hogwarts Legacy on the Switch platform in November is offset by lower costs. Film results performed relatively well in the quarter, largely driven by Beetlejuice. So, as noted, Barbie in the prior year and the bulk of the marketing spending for The Joker Folie à Deux ahead of this October release weighed on year-over-year trends. Despite Joker’s underperformance, which will indeed weigh on Q4 profitability, we currently forecast the Film business to perform more or less in line with Q4 of last year. As a reminder, we had three theatrical releases in the last two weeks of 2023, for which we've realized marketing spend with a relatively limited amount of revenue. We have only one release remaining in Q4, which is a modestly budgeted War Of The Rings animated movie, War Of The Rohirrim. Warner Bros. TV, on the other hand, is going from strength to strength. While TV did have a favorable year-over-year comp against the impact of the strike last year, the underlying performance remains robust within a marketplace and during some headwinds, we believe we're benefiting from a flight to quality. We expect this momentum to continue in Q4, and TV is expected to be up significantly year-over-year. All in, we expect Studio Q4 EBITDA to be up a few hundred million dollars year-over-year, depending on the timing of certain content licensing deals. As David noted, we are committed to improving overall performance and consistency of results with an eye towards re-establishing the Studio as an industry leader. In the near term, our film slate is one that I would characterize as more balanced, both creatively and financially and we sharpened our focus on budget discipline and accountability across all processes across green lighting, marketing, productions, and resource prioritization. I expect this will help enhance both top and bottom-line results. Further, I'd like to take a step back and discuss the role and impact of content licensing for our Studio business. As I've mentioned previously, we are continuously evaluating how to best monetize our content, be it on internal or external platforms. We make those decisions on a case-by-case basis and are informed by an increasing amount of data and intelligence collected across our business units. 2024 will be characterized by two factors. Number one, generally relatively lower rates for library licensing, and number two, a significant year-over-year increase in internal licensing to support the rollout and growth of our global D2C product. All the revenues that get eliminated at the WBD consolidated level. While these factors have no doubt burdened consolidated EBITDA and free cash flow in 2024 in a material way, they will clearly benefit our future financial performance. For the former, we see a return to more normalized availability level starting next year, for the latter, we know we have significantly added to a valuable asset base that will pay dividends in top and bottom-line performance of our D2C business for years to come. Finally, turning to free cash flow. We generated roughly $630 million in free cash flow. The nearly $1.4 billion year-over-year decline was largely due to higher net cash content spend as we lap last year's Q3 strike impacts and unfavorable Olympics-related working dynamics. Looking to Q4, while we expect another year-over-year increase in net cash content spend, free cash flow should again represent a healthy conversion of EBITDA. Net leverage at the end of Q3 was 4.2 times, a slight sequential increase and directionally in line with expectations given the seasonality of free cash flow and Olympics-related free cash flow headwinds. In the quarter, we repurchased and repaid nearly $900 million of debt and have about $300 million maturing next week. We continue to expect the delever year-over-year, albeit much more modestly than initially planned, in part due to the study of shortfalls and impairments. We will continue to use virtually all of our free cash flow to retire debt as we target 2.5 to 3 times growth leverage for the longer term. Lastly, I'd like to finish off where David began and that is to reemphasize the high degree of focus that we as a management team and the Board have been placing on driving shareholder value. We continue to focus on executing our strategy, and as part of this, examining every angle and possible path to realize the longer-term value creation opportunity we see ahead for Warner Bros. Discovery.

Thank you. So Gunnar and JB, I think you talked about the opportunities to continue to acquire subs at DTC if they remain attractive and you're not going to be shy about making those investments. And then, you've also qualitatively upgraded your expectation for DTC EBITDA and its ability to improve in 2025 to I think meaningfully above $1 billion now. So can you just talk about how those two things work together? It sounds like the investment is accelerating, but your EBITDA expectation is also accelerating. So we just love some more color on how we tie all that? And then, David and Gunnar, you've talked about reducing your expense base and you've done a lot of that on this journey. It seems like DTC is kind of through the cuts and back into growth mode. When do you think that Studios and Networks may sort of get through a period of efficiency and cost reduction to where you're talking more about maybe investments in growth in those business again. That’s the bottom line. Thank you.

Yeah, good morning, Steve. Let me take those two. So, one of the great things about the way the D2C business and our global rollout has been sequenced is that we are enjoying two things at the same time—growth from new markets and rollouts in new territories, which inevitably lead to investments initially and startup losses. But at the same time, we're benefiting from the majority of our business in established markets. That's why we have been able to get to this combination, as David called out in his prepared remarks for sub growth, revenue growth, and EBITDA growth at the same time. If you double-click into there, obviously, there are markets that are very profitable right now and others are still loss-making. But I'm very confident that we will be able to continue executing with that kind of a profile. In terms of your question on expense base. As you heard both talk about earlier for the Studio, we got to remember that this is a long-cycle business. A lot of the changes that we have put in place, while they have been as transformational as, for example, in the D2C space or Networks, it's going to take a little longer for the financial impact to become visible. What we are going to continue doing across all these segments is operate with a very clear focus and discipline when it comes to making sure that we invest the right amount and that we cut back where we don't see the returns.

Just to address this moment of growth that we're seeing on Max, it's a meaningful moment for us. We spent over two years building this platform. Max was losing several billion dollars. We've been focused on finding the right mix of content, local sports, local entertainment, together with a great content from Max and HBO, making sure that that lineup on Max and HBO was substantial. Finally launching it, and we didn't launch really until two-thirds through the first quarter. Seeing this kind of growth, while at the same time having sub growth and profit growth, it's a meaningful moment. JB, you are on the ground. We expect that very substantial growth to continue. We expect every quarter that we're going to be seeing revenue growth, profit growth, and subscriber growth really because the offering that we have is being very well received and it's demonstrated by the subscribers.

Yes. Steven, it's a material inflection point this quarter because, as David said, it's been a long road over the last two years preparing to get to this point. The most exciting part is this is still very early innings. We have over two years of growth ahead of us driven by a number of different growth vectors. The first and foremost, as David said, is our content line has gotten a lot stronger—more consistent, better cadence, helped by the fact that when we launched Max in the US, we were at a low point in our content release schedule just based on timing. The strikes we had to push that out last year. So ‘24 and well into ‘25 and ‘26 we have a much better content cadence and content strength as we look forward, bolstered by the fact that we've been investing in local content for decades in a lot of the biggest markets outside of the US. The international rollout is a huge driver. Just to remember that we are still in just over half of the addressable broadband markets around the world, excluding markets like China, Russia, and India, which are very low ARPU markets. That’s a huge driver. Third, we're in active conversations and we have great partnerships with distributors around the world who are pulling for this product and want to be with us. You've seen some of those as we've launched in markets like France, in Spain, and in Japan, and we're having very good conversations with distributors who want to help us accelerate the rollout of Max in very profitable and economically smart ways.

Hey, thank you for the questions. Post reaching your agreement with Charter in September, I’m interested to know if you've had discussions on similar structures with other distributors and whether you think that model is applicable elsewhere? And just following up on the Studio comments, you pointed out in the past that the theatrical slate is one that you largely inherited from the prior management. How should investors see the differences at this point? What's notable in terms of the approach the current team has brought? Thank you.

Thanks, David. Look, on the Studio side, we have an industry-leading TV production business that Channing Dungey runs. It's quite substantial. We have some of the best writers and directors, and we're seeing that even in a market that's down substantially, we're really growing with brands and content that is carried on almost every platform and generating real economic value. The Studio business is a long-cycle business we've talked about for a long time. I think we've made real progress in terms of our focus. We're going to start to see the lineup from James and Peter with the AOW rolling out of the first part of a five to ten-year plan on DC this summer with Superman. It's quite exciting what they have in store because I think DC has a lot of potential, and we've been working on that for two years. This year and next year, we'll start to see the films that they had from start to finish with the talent that they believed would generate the most value and growth opportunities for the company. We have been through some of the worst in the gaming business. We have four games that are really powerful and have a real constituency that loves them, and we're going to focus on those four primarily. I'm very encouraged by our ambition to get back to at least $3 billion and then start growing. There are a lot of building blocks with wind at our back to get there. So thank you. On Charter, we love Chris Winfrey's strategy—it's a strategy of embracing multi-channel to the home through the cable distributors while also providing a contemporary consumer experience. If you're in the home and you want to watch streaming, you can do it. If you want to watch traditional television or cable, you can do it. There's a lot of meaningful value in our distribution deals domestically and around the world. It was an innovative deal, and we hope other distributors will do it. We're in discussions with some that are quite interested in doing it, and we'll just have to see.

Thanks. Hey, good morning, guys. I have two. One is when you dig into the US subscriber number, and it's really - you count like it's 3 million. Look at where Netflix is. I know they are years ahead of you. What do you think has been a gating factor? What will be the factors that can help you close that gap over time? So where do you think you are underpenetrated and what are you doing about that? And then, internationally, David, there's definitely been some chatter that some of your competitors are thinking about partnering internationally. Would you be open to it? How do you see it given your strength internationally, the interest or potential in partnering with some other streaming competitors to get more scale? So how do you think about that philosophically? Thanks.

I'm going to have JB talk about the US subscriber piece. Look, for a very long time, I've been talking about bundling. Originally, bundling was a better consumer opportunity on the economic side. But what we've learned is it really needs to be a better product so that the consumer can come in and not just pay less for two or three products together but also navigate seamlessly between those products. We're seeing a lot of strength in this partnership with Disney and Hulu. It's early, but the subscriber growth is significant, and consumer satisfaction is quite high. We're doing that in a number of markets. I think getting into these markets with local sports, local entertainment, combined with the HBO and Max content, together with the relationships we have in each of these markets internationally, gives JB and our company a big advantage. JB just talk to that a little bit and then the US.

Yeah, I mean, as I look at the demand for Max as a product in every conversation we have with partners outside the US and in the US, it is very high and growing. I’d say particularly as it may seem like we're coming later to the market. The flip side is they've learned a lot over the last few years about some of the other products in the market and the specialty products that may have partnered with and ultimately decided they need something broader and higher quality. The flight to quality that Gunnar mentioned in his comments applies to the consumer where ultimately people are looking for a service that has a curated, higher quality experience, and Max delivers that in space. The demand from partners to find innovative ways to help us drive distribution is very high. It's key as we are seeing our international rollout accelerate, and it’s part of what's driving that growth. It ties back to your question on the US, Michael—realistically, I think there's two things. First, our mix is changing. We are growing on a retail and a hybrid basis where it's true that we're still facing the headwinds of wholesale declines, just like the Pay TV universe due to the legacy HBO model. While that bucket is continuing to drain, we're refilling it and in some cases, more than refilling it with retail stuff. The penetration gap, as you mentioned, is largely in lower-income, more price-sensitive households. Some $100,000 households, where the fact that they already have one or two other streaming services makes us in demand, but a harder proposition to finance. The solutions we look at are three things in particular: the ad-lite SKU is important to us and that's the best way to penetrate those more price-sensitive consumers. Secondly, the bundles you're seeing us do with companies like Disney and Hulu are showing very early, but good progress on how to grow with price-sensitive consumers. Lastly, partnerships that David mentioned previously with companies like Charter, with Door Dash, and others in the marketplace are helping us find new angles to reach those more price-sensitive customers.

Finally, Michael, I've been saying for a long time that this is an industry that really needs to consolidate meaningfully. It's really driven by the consumer experience. Consumers put on a TV set and see 16 apps. Each is doing different pricing and you see it with your phone, Googling where a show is or where a sport is. It's just not a sustainable experience. There should have been more meaningful consolidation. Many large players are recognizing the need to partner in order to enhance the consumer experience. That may happen through bundling, or it could lead to consolidation, particularly in an industry facing generational disruption. We may see different conditions that could positively affect this industry, with upcoming changes and opportunities for consolidation.

Hi, thanks for taking the question. I know you all don't usually comment on specific upcoming renewals. But I think you have a host of deals coming up for renewal with Comcast both domestically and abroad with their Sky division. What gives you confidence as you head into this global renewal with Comcast and Sky, especially without the NBA? Investors certainly view the renewal as critical to the sustainability of the cable network's cash flows. Just relating to your consolidation point a minute ago, David, I think the sustainability of those cable networks plays a lot into how people think about the potential of longer-term strategic maneuvers. Anything you could say to help us understand how you're thinking about that renewal would be great.

Thanks. We don't talk about timing or really about the specific deals. Brian and I have been in business together for almost 40 years. We've done—deals together domestically and with Sky in the UK, Germany, and Italy. We've done all kinds of deals on AdTech and advertising in order to create value for both companies. What I see for the future is that we have content that's highly valued, and it provides a significant portion of the value of the basic cable bundle. We're investing so much in providing unique content, and I think that's recognized by all distributors. I expect that we'll be doing a lot more together in the future.

Hi, a couple of questions. David, you touched on this, but there's been big news flow lately regarding the potential for M&A with the recent Republican shift politically being favorable for such activity. One of your competitors mentioned they were considering spinning out cable networks to focus on streaming, while another competitor cited discussions involving you. Given this backdrop, can you share your current views on the possibility of a sale or spin of some assets, acquiring other assets, or possibly rolling up cable networks? Also, JB, could you define what constitutes ad scale for DTC? Could you provide a benchmark for how you plan to achieve that and when?

Thanks, Jessica. I don't have much to add to the prepared remarks. But we believe strongly that the current stock price doesn't adequately reflect the underlying value of these great assets that we have. We're hard at work, and you're beginning to see it. We're seeing the results of executing operationally, both domestically and around the world, to drive significant transformation of this company and meaningful growth. As you would expect, we're always looking at ways to enhance shareholder value. That's our focus; that's our Board's focus every day, and that's what we're doing.

Jessica, on the ad side, the shortest way to answer is that we are again in the early innings of what we call 'at scale.' The levers are primarily driven by three things. First, the reach of our ad-supported SKU, and as David and Gunnar mentioned, we're in over 45 markets now, but that's still less than six months old. We believe we still have room to grow in the quarters ahead. Next, on the ad load side, we have a very light ad load compared to most of our competitors. There's room to grow in capacity. Finally, on the pricing and ad capability side, we're very early in terms of ad format innovation to try and drive more creative formats for partners and marketers. Those three levers will provide a great amount of scale. We're just in the early innings of the advertising revenue growth stream.

But we have seen that too much advertising can challenge consumer satisfaction and how much they enjoy the platform. That's one reason why we built a quality platform globally, ensuring that consumers aren't interrupted during shows like House of the Dragon or White Lotus. We think the quality of the experience is important.

Hi. Good morning. I have two questions if I could? First on pricing, can you discuss how much of a DTC revenue driver you anticipate price increases will be over the next couple of years? Can you talk about how much pricing power you think you have today and how important is growing engagement in order to sustain that going forward? And then just one on the cost side, Gunnar: could you talk about the opportunity to lower costs in the Linear Networks business next year in order to mitigate continued secular revenue declines in advertising and affiliates? Thank you.

Yeah. Thanks, Bryan. We've done two price rises in the US over the past two years. The premium nature of our product lends us to have a fair amount of room to continue to push price. We've been judicious about it, but every price rise we've done so far has seen churn lower than we projected, and retention continues to be strong. We've also seen progress on password sharing, which will be a form of price increase. You'll see more progress on that as we move ahead. Internationally, we've focused more judiciously on price and expect additional opportunity as we roll out more fully. Importantly, we’re seeing positive retention trends even at a slightly lower price point.

On the cost side, we'll continue to be disciplined and focused. We've taken billions of dollars out of our reported cost base over the past three years while operating in a high-inflation environment. We still have structural measures that will take longer to implement, but those will flow through over the next year and beyond. There's an exciting long-term opportunity in the content side as well. So far, it’s been a one-way street of companies supporting D2C with content, as that product scales.

We should expect the economic dynamics to change, along with the new product and library opportunities coming from D2C, with a focus on budget discipline and accountability across all processes.

Thanks. Good morning. I'm just finishing up that comment. As we think about the Studio, I think it’s poised for a bounce back profit-wise next year. If you gave us the write-downs on the games, are there any more possibly theatrical that you could quantify? Can you confirm if you think TV licensing still has healthy growth in ’25 versus ’24 after the post-strike snapbacks? Finally, David, returning to strategic considerations—everyone may agree your stock is trading like a company that's declining in earnings. I think some look at your company and say you've got growth businesses in the Studio and Streaming while you have declining businesses in Networks. Why not separate those? So my question to you is, you've talked about the benefits of 'One Discovery' since the merger. What are those benefits to owning all these businesses together? Or are you open to changing your mind and considering different options to unlock value?

You're absolutely right about the Studio’s bounce-back potential. We anticipate better results across all areas—Film, scripted production, and games. We're also committed to enhancing the long-term growth story for this company. Regarding the One WBD point, especially in content, we see the benefits of this integrated approach every day. The Penguin example illustrates our progress. We are at the early stages, but running WBD as one integrated company has generated significant returns.

Thank you, everybody. That concludes our formal remarks today and we appreciate you taking the time to join us.