Warner Bros. Discovery Inc (WBD) — Q3 2025 Earnings Call Transcript

Good morning, and thank you for joining us for our Q3 earnings call. Joining me today from Warner Bros. Discovery's management is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games. This morning, we issued our Q3 earnings release, shareholder letter and trending schedule, and these materials can be found on our website at www.wbd.com. Today's 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 statements about the benefits of the separation transaction we announced in June, including future financial and operating results, the separate company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations from Warner Bros. Discovery's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current 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. I will turn the call over to David for some brief remarks, after which we will take your questions. Though before doing so, I would kindly request that analysts limit their questions to topics related to our Q3 results and related business and financial topics. As noted in our shareholder letter, management will not be taking questions regarding our recent announcement of the Board's evaluation of strategic alternatives for Warner Bros. Discovery. And with that, I'll turn it over to David.

Good morning, everyone, and thank you for joining us. When we formed Warner Bros. Discovery in April of 2022, 3.5 years ago, our focus was on taking an incredible foundation of assets, world-class production capabilities, a century's worth of beloved storytelling franchises and IP and a roster of some of the most iconic brands in media and build them back up and transform Warner Bros. Discovery to thrive and win in the modern entertainment business. We built a creative culture that's attracting the best talent, and Warner Bros. Discovery is now where creatives want to be. Transforming and rebuilding Warner Bros. Discovery has been hard work. It has taken time and investment and the process has not been without setbacks. But as you could see from our third quarter results, we're delivering on our promise and Warner Bros. Discovery is back, global and stronger than ever. As we've said consistently, our transformation and rebuild has been guided by 3 principles: First, returning our studios to industry leadership. When we brought Warner Bros. Discovery together, our Motion Picture Group had half a dozen or fewer movies on its slate and was stuck in last place. We were determined to invest in the motion picture business and to rebuild and regain our place as the leading motion picture studio. 3.5 years later, we're there. Right now, we're leading the 2025 box office domestically, we're leading it internationally, and we're leading it globally. Not only are we in first place, but we are the only film studio to have crossed $4 billion in 2025 box office revenue thus far. And we've done it with a significant amount of original stories. That leadership was on full display in the third quarter. In Q3 alone, we successfully launched a new era for the DC Studios, Superman. We showed our exceptional horror genre expertise yet again, with Weapons and The Conjuring: Last Rites, which have together grossed more than $750 million in ticket sales. And we reinforced our commitment to producing great original works by great filmmakers with Paul Thomas Anderson's One Battle After Another. As we look ahead, '26 and '27 will be a robust and strong slate of motion pictures. I'm excited to announce that we are adding a new Gremlins film that will be released in theaters on November 19, 2027. Steven Spielberg returns to executive produce for Amblin Entertainment, and Chris Columbus is coming back to both direct and produce. We're also leading the industry in making television. Warner Bros. Television was recently recognized with 14 Emmy awards, including outstanding drama series for The Pitt, and 9 Emmy wins for The Penguin. And WBTV remains Hollywood's leading supplier of television to both streaming and network platforms. Based on our results to date, we expect our studios to meaningfully exceed $2.4 billion in EBITDA this year, and we are making strong progress toward our $3 billion EBITDA goal. Our second guiding principle has been to scale HBO Max globally. 4 years ago, HBO Max was a subscale streaming service that was primarily available in the U.S. We had a vision for HBO to be a global offering with broader and more local content, including sports in some regions, and that HBO could serve as a long-term profit engine. We are committed to that global vision. Today, HBO Max is available in more than 100 countries. We've added more than 30 million new streaming subscribers in 3 years. Our Streaming segment will contribute more than $1.3 billion in EBITDA to our bottom line this year versus losing $2.5 billion 3 years ago. And we still have launches in some of the biggest markets in the world, like Germany, Italy, the U.K. and Ireland coming in 2026. By the end of next year, we will have more than 150 million total streaming subscribers. We're delivering those results by investing hard and continuing to distinguish our offering through quality. I said in the beginning of this journey, it's not how much, it's how good. And that belief continues to guide everything we do. HBO really embodies that standard. And Casey and the team have done a superb job. Our successes earlier in the year with series like The Pitt, The White Lotus and The Last of Us, carried forward into Q3 with shows like Task and Gilded Age, both of which have averaged more than 10 million viewers per episode. HBO was recognized with 30 Emmy Awards this summer, tied for the most of any network or platform. Just recently, HBO debuted It: Welcome to Derry, to a resounding audience response. The series premiere was the third most watched in HBO history behind only The Last of Us and House of the Dragon and has been watched by almost 15 million viewers in its first week. This is further evidence that in its long history, HBO has never delivered a steadier, more consistent pipeline of titles that subscribers circle in their calendars to watch. In Q3, we also saw movies like Sinners, Final Destination: Bloodlines and Superman arrive on HBO Max and drive strong engagement. With Weapons now also available and The Conjuring: Last Rites and One Battle After Another on their way in Q4, we will end 2025 with more Warner Bros. pay-one movies in HBO Max's top 20 titles than ever before. After years of development, the balance of content we envision for HBO Max with Warner Bros. extensive TV library, HBO Original Series and Warner Bros. pay-one movies, a 1, 2, 3 combination that's very powerful. It has finally come into full form. The value proposition for subscribers is only growing stronger. Having rebuilt Warner Bros. to the #1 studio in the world is proving to be a big win, not just in the box office, but across HBO Max, where our great films are driving record engagement and growth globally well after their theatrical window. Finally, our third principle has been to optimize our linear networks. The headwinds facing the linear television business are well understood. But for all that's been said about the disruption confronting these businesses, not enough has been said about their resilience. Networks like TNT, TBS, CNN, Discovery, TLC, HGTV, Food Network and many others continue to be indispensable to tens of millions of subscribers worldwide, which is why our networks remain such a powerful cash flow contributor. As our Global Networks investment is extending their brands digitally, we see a long and profitable runway ahead. Through it all, we've also dramatically reduced our debt, with our net leverage ratio now down to 3.3x our EBITDA, including paying down $1 billion from our bridge loan facility in the third quarter. Thanks to the work we've done, we're on track to create 2 strong, well-capitalized businesses that can each create significant long-term shareholder value. The team is hard at work, both on the separation transaction and on following the Board's direction to evaluate strategic alternatives. You've all seen media reports as to potential interested parties, and I won't comment on anything specific. But it's fair to say that we have an active process underway. When you look at our films like Superman, Weapons and One Battle After Another, the global reach of HBO Max and the diversity of our networks offerings, we've managed to bring the best, most treasured traditions of Warner Bros. forward into a new era of entertainment and new media landscape. I'm thrilled with our progress in Q3, and welcome your questions.

I have two questions, if that’s alright. One is about the library and the other is regarding sports. David, could you provide us with more details? You briefly mentioned the library, and I want to know how you’ve grown both organically and through multiple acquisitions over the last few decades. You have a wealth of content with both quality and quantity. How do you approach exploring the deep catalog? Additionally, can you share some insights into what’s available in Discovery Global Networks, or the soon-to-be-named Discovery Global Networks, particularly within Cartoon Network, Discovery, and so on, since you don’t discuss that often? Moving on to sports, the release mentions a stand-alone sports streaming app being launched. Could you share your thoughts on the current state of the sports portfolio? Are there assets that you believe are undervalued? Do you see opportunities to enhance the portfolio?

Jessica, it's Gunnar. I’ll address those two questions with a focus on Discovery Global moving forward. Starting with the sports aspect, we are very optimistic about our current sports portfolio. We are beginning to see significant benefits from transitioning away from the NBA and towards other rights we acquired as replacements. Next year, this shift is expected to provide hundreds of millions of dollars in benefits. The team has effectively restructured our portfolio. Nonetheless, we will continue to follow the same disciplined strategy. Sports will remain an essential component of our strategy moving forward, just as it was for Warner Bros. Discovery. I believe there will be more opportunities as we look ahead over the next three to five years. We are making important strides in developing our stand-alone sports streaming app, which will be crucial for the U.S. market as HBO Max concludes its use of our streaming rights in the spin-off situation. The team is making great progress, setting us up to offer a compelling stand-alone product, which will also enable us to partner and bundle with our own offerings and others available in the market.

As we've stated before, it will be working differently in the U.S. and outside the U.S. Outside the U.S., all of the sports content will be available to HBO Max, and we'll be offering it on HBO Max or as an add-on. There's some sports that will only be on HBO Max. And we have found that all of our movies and scripted series together with local content and local sport is a very compelling offering outside the U.S. and it's a driver of real growth, and it's quite differentiated. Here in the U.S., we didn't find that we were so robust in our storytelling that we didn't find that these sports were providing enough value for us in terms of incremental subs. There was some engagement. But the view is, for us, that HBO Max is much stronger as a motion picture and storytelling product, not dependent on rental sports. And so I think it works out very well, and we will be able to take advantage of that with this new app.

Right. And then on the library, Jessica, you're right. I mean, we're looking at tens of thousands of hours of beloved content that we're reaching more than 1 billion people with everywhere in the world. This is going to be one of the focus areas for the future Discovery Global leadership team to revitalize some of those content brands with different focus areas in different parts of the globe. We are adding thousands of hours every year to that library, a lot of which comes from our strong free-to-air presence outside of the U.S. And that is going to be one of the big strengths as we set sales with Discovery Global, and we will be fully focused on figuring out the best way to monetize not only the fresh content, but also the enormous library with less exclusivity for HBO Max.

JB, you should discuss that all the content you deemed valuable both domestically and globally will continue. You should just address that.

Yes. I mean, we'll continue, Jessica, to have access on HBO Max to kind of what we call the best of the Discovery Global assets that continue to be a healthy engagement contributor to HBO Max. And so the good news is even in the separation, we'll continue to have access to that domestically. We'll have access to that internationally, including obviously, a lot of the free-to-air content that is bigger and broader, particularly in Europe from some of our free-to-air channels and networks across that market. So the good news is HBO Max will continue to have access to the content that it has seen, and our subscribers have seen to be valued even in the separation.

And that will be the case if, in fact, HBO Max goes ahead and splits as planned or if Warner is acquired as Warner. And obviously, if the company is acquired in whole, then they'll have access to everything.

So maybe a couple of questions on the streaming side. So Gunnar, on the Discovery side, when you think about the CNN streaming app or the TNT Sports app, it feels like the process over the last few years has been for streaming apps to consolidate. And this feels a little bit of a reversal of that process where different genres are basically disintegrating into different apps, which comes with its own operating costs and so on. So I just wanted to get the thought process behind that instead of maybe leaning more into licensing some of these rights and monetizing it in a more, I guess, cost-light manner. So some thoughts on that would be useful. And then on the linear side, the decline rate when it comes to linear distribution seems to be a little different from your peers in the sense that your 2% affiliate increases are a little lower than what most of your peers seem to be talking about and the subscriber rate decline rates also seem to be higher. Is this because of some kind of a reset? And does this become a comp benefit as you go into next year and beyond, which starts to benefit you?

Let me begin with CNN, and then Gunnar can take over the other topics. Mark Thompson has quietly assembled a strong team, including a significant group from the New York Times, where he successfully transformed it into a digital business. The CNN product is the first of many, and it is quite compelling, designed to stand alone. This doesn't exclude the possibility of it being bundled with other products. It is available on Max and HBO Max, catering to those who seek news. This proposition is now in the U.S., and soon it will be available worldwide for subscription, allowing access to CNN Live. People will be able to stay informed no matter where they are, especially during significant global events. CNN is a trusted source that is broadcasted in the offices of leaders around the world. Mark and Alex have developed a product centered on the belief that everyone needs reliable information from trusted journalists on the ground. This will be an excellent everyday product, offering a rich array of news beyond just live coverage or multiple live feeds. In a world filled with AI and various perspectives, having access to CNN anytime and anywhere is invaluable. We are optimistic about this as an independent product that can achieve significant scale and fulfill an important societal role. It is starting off very well and could potentially be packaged with a variety of other services.

Kannan, I want to emphasize that these should not be viewed as entirely separate products and technology stacks. JB and the team have developed an exceptional platform over the years. To some degree, these are just different applications of essentially the same product platform, resulting in minimal additional operating costs. From a consumer standpoint, think of it as modules that can be activated together. In nearly every market where we've tested news and sports, we've found greater commercial success by offering sports as an add-on instead of making it widely available in a fully bundled or integrated product. That's the reasoning behind this approach. Regarding the distribution decline rates, it is indeed true that we are navigating a transition period in 2025. We've provided more flexibility in the recent renewals just as others in the industry have, and I believe we are already beginning to see some benefits. Looking at Charter's consistent reporting of their video subscribers shows a positive trend for the industry. I genuinely believe we are on the right path as an industry and company, and I expect to see a slightly better trajectory for us in the near to mid-term.

Can you share more on your confidence to gain global scale with HBO Max ahead of your next wave of international launches? And any updated thoughts on how HBO Max's scale is able to best compete with the other larger SVOD platforms and how that will translate into streaming revenue growth maybe accelerating next year? And then shifting over just to your content spending and budgets as you think about next year. Can you just help us think about the right balance of investing in new IP versus leaning into your franchises? Where do you think you create the most amount of value, clearly seeing the momentum in the studio, thinking about DC Comics here versus new IP that you've created across the platforms?

Okay. Thanks. JB and Casey have really established a very unique product with the largest motion picture and TV library together with the robust original content together with Motion Picture. And as you go outside the U.S., local sport and local content, all adding up to a market position of highest quality streaming service, which is, as you go around the world, is in all of the surveys is how we are seeing. And we're starting to see that there's a real advantage in us having a differentiated view within the marketplace as being high quality. We think it gives us opportunity for real growth. It also gives us an opportunity over time with economics. And we're starting to be seen in a meaningful way and known with HBO Max as a brand, and that acceleration is beginning. JB, why don't you take them through what you're seeing on the ground?

Yes, Robert, regarding scaling, our confidence stems from data points we've observed, especially from the Australian launch this year, where our content has been available through a license partner for years. We know how successful that content has been in those markets. We have performance data that supports our strong confidence, especially in the three major European markets: the U.K., Germany, and Italy, regarding what our content can achieve once it transitions from license agreements to our standalone HBO Max service. Additionally, the key is our content. We're excited about the quality of the slate we have coming in 2026, which will build into 2027 and launch with a decade of Harry Potter. We're feeling more optimistic than ever about both the quality and increasing volume of our content, which includes both U.S.-originated material and local original productions in select markets. As David mentioned, consumers globally are not demanding more content; rather, many feel overwhelmed by the abundance available. We believe that over the last 12 to 24 months, we've successfully differentiated our offering, focusing on quality, and this is starting to resonate in the market. Each hit produced by Casey and the team shows significant growth not only in absolute terms but also week over week, with shows like The Pitt and Last of Us gaining traction. Our marketing and content enhancements reinforce our belief that we can achieve continued penetration and growth as we scale. The total of 150 million subscribers that David referred to includes many we have secured through partnerships, giving us good visibility into revenue and subscriber growth. We're eager to pursue this opportunity. We expect that 2026 will be the most significant growth year we've experienced in a long time for HBO Max.

I have two questions. David, looking at the performance of Mike, Pam, Channing, and the team over the past couple of years, particularly this year at the studio, it's very promising. You have a $3 billion EBITDA goal at the studio. Could you explain the path to reaching that level of profitability by 2025, which we haven't seen from Warner Bros. in the past? And Gunnar, if you want to chime in, could you discuss any tax implications related to the structural changes mentioned in the strategic review press release, particularly the potential sale of Warner Bros. and the spin-off of Discovery Global? Is there a risk to the tax-free nature of the separation that remains Plan A as you continue your process? It would be helpful for us to understand how this works.

Ben, let me start with the second question. The answer is no, I don't want to provide any more color on that process. And David, do you want to start with the $3 billion ambition?

Yes, absolutely. Our goal is to reach $3 billion, followed by establishing a robust growth rate from that point, which we are confident we can achieve. It all begins with leveraging our significant advantages, such as our extensive intellectual property and the talent within our company. We're entering into new horror film ventures at a competitive price, in addition to upcoming comedies that will also be reasonably priced. Furthermore, our collaboration with James and Peter on the DC universe is off to a fantastic start, highlighted by the progress on Superman. Supergirl and Clayface have already been filmed, and the script for the next Superman has been completed. We're also thrilled about Batman 2 with Matt Reeves. Our Warner Animation team, led by Bill Damaschke, is executing a strong four-part strategy that involves using both major and mini tentpole properties like Lord of the Rings, Batman, Superman, and Wonder Woman, as well as classic titles such as Gremlins, Goonies, and Practical Magic, alongside original content. With a disciplined approach, we believe this strategy is solid. Our content has historically been underutilized; for instance, Superman hasn't been seen for 13 years, Harry Potter for 14 years, and it’s been over a decade since Lord of the Rings was last featured—Peter Jackson is actively working on that film, set to release in 2027. We are enthusiastic about exploring both our original content and our vast library, which is the largest TV and motion picture collection globally and contributes significantly to our studio’s revenue. We have been careful in our decisions regarding content sales, particularly with HBO, as we believe our premium content like The Wire and Game of Thrones offers unparalleled quality that viewers can't find elsewhere. Channing's team is at its strongest ever, boasting over 70 top-tier writers and directors and more than 80 shows currently in production, even as many others in the industry face reductions in spending. Our studio has never been in a better position, and we are celebrating a surge of Emmy nominations and wins. Additionally, we are expanding our experiences with Harry Potter in Shanghai and planning further Harry Potter venues globally, while building a new team dedicated to maximizing the merchandising potential of our IP—something we've recognized needs improvement compared to Disney’s success in that area. Overall, we are very optimistic; we have the leading TV studio, strong momentum in the motion picture business—Richard Brenner at New Line has delivered an outstanding year, and we are eager about the next two years ahead, especially with the upcoming launch of Cat in the Hat with Bill Damaschke. The true backbone of our success is our extensive library and Channing’s established reputation as a premier producer in television, which is enhancing our internal content utilization and delivering tangible value.

And David, maybe just 2 more points on that last point because I think it's important for people to understand. We have pretty significantly shifted from external monetization of our library to internal monetization of our library. And that means that we have, over the past few years, pretty significantly eliminated intercompany profits. Those profits are sitting on the balance sheet or waiting to bleed back into the business. In other words, it's going to support our profitability going forward since we're now at a much more steady state across those roughly $5 billion of content licensing. The second point is Channing, I think, has also with her team, done a phenomenal job managing the transition from a broadcast-focused production system to an SVOD-focused system. It has an immediate short-term benefit of obviously sort of the cost-plus model has had the disadvantage of licensing terms being longer, but we're also on the backside of that. Over the next 3 to 5 years, a lot of those early streaming shows are going to come back and replenish the library and sort of reinvigorate that sales business as well. So Channing has done a phenomenal job and set us up, I think, for another big cycle of strong growth.

David, I was wondering if you could talk a little bit about HBO and its content process. You were just speaking a lot to Ben's question about the value of IP at Warner Bros. and how much value you've done in mining that. And I think what makes HBO unique is not mineable IP, but this ability to kind of reinvent with new originals all the time. So if we think about HBO either as something that you'll own or maybe someone else could own in the future, what is really unique to it that can't be found anywhere else and separates it from other streaming services from a content development standpoint? And then, Gunnar, just on sports. I mean, you talked about meeting some opportunity in sports over the next 3 to 5 years and how important it is to linear. Do you think that those opportunities will exist with rights that come available to market? Or do you think you may need to think somewhat inorganically as well about ensuring that, that business has sufficient sports rights?

I'll take that last one right quick. I was primarily thinking about opportunities coming up in the market on an organic basis, Steve.

Let me discuss HBO, as this business is centered around storytelling, which relies heavily on the best creatives both on and off the screen. It all begins with the script, but it’s also about collaborating with top talents to craft outstanding stories. If you consider the impressive track record of Casey Bloys, Amy Gravitt, Franny, Sarah Aubrey, Nina Rosenstein, Nancy, Lisa, and others, this team has been united for nearly 15 to 20 years. They are passionate about their work, dedicating each day to securing the most compelling narratives, and their enthusiasm attracts collaborators. At HBO, when working alongside Casey, Amy, Franny, and Sarah, we advocate for our series globally, believing in their value and striving to make them accessible to everyone. The tradition of airing these stories on specific nights fosters a genuine community dialogue around them. This approach, although it may seem old-fashioned, remains incredibly impactful, whether it’s with Gilded Age or Task or White Lotus, spanning 8 to 12 weeks, or The Pitt for 15 weeks. These narratives create a platform for collective conversation. Selecting the most intriguing stories and cherishing their presentation on HBO adds to our appeal; many top creators want to partner with us, which allows us to acquire high-quality content at a lower cost. Ultimately, it’s all about Casey, Amy, Franny, and Sarah—they and their teams are extraordinary. Even with our documentaries, we see significant viewership; often, people might not be fans of the subject but will watch because it’s an HBO documentary, and they are pleasantly surprised. Our commitment to quality storytelling is truly represented by HBO. With the addition of Channing and his team, we have strengthened our production capabilities. Previously, Warner Bros. did not create content for HBO, but now the collaboration between Casey and Channing, particularly on projects like Harry Potter, The Pitt, and The Penguin, has elevated our output. We are now the largest and most prestigious producer of television and films worldwide, and we are efficiently ensuring that this exceptional content reaches Casey and is refined before it airs.

I want to look at ARPU trends in the streaming. There's been a lot of moving pieces there. But can you walk us through a little bit about how you see that playing out domestically and internationally? And then I want to circle back to the earlier question about the monetization of IP. I think last quarter, you mentioned moved up from $0.22 to $0.30 versus like Disney doing $1. Can you lay out some of the items that you think you can achieve there? Because that might be part of the valuation gap, if you will, as far as where the unseen increased value in Paramount or other people might be missing as far as what you can really achieve even on your own.

Yes, it's JB. Regarding the ARPU streaming aspect, in the short term, as we mentioned during the second quarter call in the summer, we expect some pressure on U.S. ARPU over the next three quarters due to two main factors. The first factor is the adjustment back to market rates from an affiliated party transaction that started in the latter part of the second quarter this year and will impact the second quarter of next year. We are confident that ARPU will start to grow again in the latter half of 2026 in the U.S. The second factor affecting ARPU dynamics both internationally and domestically stems from being about 12 to 18 months into the rollout of our ad-supported SKU, which has predominantly been in the U.S. for a couple of years but started rolling out internationally in 2024. This rollout naturally causes some ARPU pressure as we increase the share of this lower-priced distribution SKU among our total subscriber base. In terms of monetization, particularly with advertising, we are being very careful because we position ourselves as a premium service and want to maintain our premium pricing in the market. The good news is we are seeing strong pricing globally, and we are committed to preserving that premium rather than focusing solely on volume. Over time, as we improve fill rates, especially internationally, we expect to see a positive trend in ARPU internationally. Additionally, we have a regular cadence of scheduled price increases, including a recent one in the U.S., which will also be applied internationally. The combination of better ad monetization, price hikes, and strict measures against password sharing, which includes both add-on members and new subscriptions, will contribute to further ARPU growth. It may be somewhat unsettled for the next couple of quarters due to these factors, but we anticipate returning to healthy growth in 2026.

On franchise management and the opportunities available, the most significant development is that we now have a dedicated team to oversee the coordination of all activities related to our key content franchises across the company. While not every franchise is included, we are focusing on the most important ones to effectively utilize those brands and their content. A prime example is how well we have managed the Harry Potter franchise, showcasing the benefits of full coordination among licensing, consumer products, experiences, and soon a series, alongside the films. This has always been a strong point for us. The team is now diligently working to prioritize the next set of franchises. A case in point is DC, where Peter Safran and James Gunn are applying a completely new integrated approach to storytelling. They are systematically coordinating which stories will be adapted for theaters, serialized formats, or gaming, and they are considering consumer product opportunities even during production. Looking ahead, the team is assessing potential priority franchises like Game of Thrones, Hanna-Barbera, and Looney Tunes. This represents a fundamentally different strategy compared to our past practices. Previously, when Warner Bros. Discovery was formed, there were significant gaps in communication, leading to the consumer products team often learning about movie release date changes through the news, which disrupted their planning. We have implemented numerous process changes and brought in new talent, which I believe will yield substantial benefits for years to come.