Ladies and gentlemen, thank you for standing by and welcome to the Discovery, Inc. Fourth Quarter 2021 earnings conference call. At this time, all lines are in a listen-only mode. At the conclusion of the speaker's presentation, there will be a question-and-answer session. Also, please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may begin. Good morning and welcome to Discovery's Q4 earnings call. With me today is David Zaslav, our President and CEO, Gunnar Wiedenfels, our CFO, and JB Perrette, President and CEO of Discovery Streaming and International. Before we start, I'd like to remind you that today's conference call 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 include comments regarding the company's future business plans, prospects, and financial performance, as well as statements concerning the expected timing, completion, and effects of the previously announced transaction between the company and AT&T relating to the WarnerMedia business. These statements are made based on management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see our Form 10-K for the year ended December 31st, 2021 that we expect to file post this call and our subsequent filings made with the U.S. Securities and Exchange Commission. With that, I'm pleased to turn the call over to David. Good morning, everyone, and thank you all for joining us today during this incredibly exciting time for our company. Our fourth quarter capped off a strong 2021 as we near the finish line of our transaction with AT&T to create the world's most dynamic media entertainment company, Warner Bros. Discovery. Upon close, Warner Bros. Discovery will stand on incredibly solid footing, creatively and financially. This is a real company, and we expect to deliver meaningful free cash flow over the near and long term. At Discovery standalone, we ended the year with $4 billion of cash and generated substantial free cash flow this year, over $2.4 billion, even after absorbing over $1 billion of losses from our next generation investments. Our free cash flow will grow meaningfully from here. As a company, when we come together, we will stand on firm footing and look to benefit from both a very balanced business model and from the cost synergy tailwinds we expect to result from our merger, supporting our expected reduction in gross leverage to 3x or below within thir years, starting from 4.5x or lower net debt to EBITDA when we stand up the new company. Our vision for Warner Bros. Discovery is simple. We believe the companies with the most appealing and most complete menu of IP and content stand to achieve success. I believe Warner Bros. Discovery has the most attractive content in the business. From Batman, Superman, Wonder Woman, Harry Potter, Game of Thrones, Euphoria, 90 Day Fiancé, Hanna-Barbera, Looney Tunes, to the Food Network, HGTV, Discovery, HBO, and great personalities like Martha, Chip and Joanna Gaines, Guy Fieri, the Property Brothers, and Oprah. Plus CNN, the premier global news network with real resources and news gathering services all over the world. Sports with Eurosport, the Olympics, NBA, NCAA March Madness, Major League Baseball, and the National Hockey League, making us a global leader in sports alongside a wealth of local content all over the world, content that we've produced and garnered for the last 20-plus years. Taken together, we will have a broad menu of content to super serve every demo and every family member. Who would ever wanna leave? When we bring all of our global content together, we will have one of the most compelling offerings in the marketplace and at a great value to customers. This was the premise and the vision that John and I shared when we put this deal together nearly a year ago. Initially, we planned to see how all these existing and complementary content pieces fit together, how well our package of content nourishes and enriches consumers, and what it does to churn and growth. From there, we can evaluate areas where we'll need to spend to fill in for our offering. Together, we already spend aggressively across all demos and genres, and we'll have an even greater ability to do so as a merged company. Now we have the resources, we plan on being careful and judicious. Our goal is to compete with the leading streaming services, not to win the spending war. Whether breaking new franchises or reimagining and refreshing existing ones, we will have a truly scaled and diverse content engine with IP ownership across a highly monetizable collection of IP. Perhaps most importantly, we are not solely dependent on one business model as we reach across multiple platforms and touch points. Every leg of the stool, from linear to direct-to-consumer to content production and monetization. As one of the leading content arms dealers in the industry, Warner Bros. Television is formidable. As a company, we will also be uniquely positioned to better serve advertisers and distributors globally. Said another way, we can monetize across any number of different cash registers. Consider that Warner Bros. Television has over 100 active series being sold to over 20 platforms and outlets. It's a content maker and content owner, generating significant revenue, free cash flow, and most importantly, optionality. There's not a lot of content makers out there, certainly not of the scale and of quality that Warner Bros. Television is in the marketplace today, and particularly at a time when the demand for quality television production has never been stronger. An important distinction when considering the asset mix of this company. A very real, very balanced, and very complete company. We have a lot of muscle memory from the Scripps merger, which enabled us to thoroughly reexamine how we conduct our business, and we took that opportunity to better align our management, operations, and processes during a time of pronounced industry disruption and change. I believe that this same dynamic exists with the opportunity ahead for Warner Bros. Discovery. Turning briefly to the quarter, I'd like to call out a few highlights while Gunnar will take you through in more detail the puts and the takes. First, on the advertising side, underlying demand across our networks and channels has been resilient. Overall, 2021 global advertising revenue increased 10% over 2020, with growth from both domestic and the international segments. In fact, international segment advertising revenue increased 23% in 2021, excluding the Summer Olympic Games, finishing the year on a strong note with growth across all regions. Here in the U.S., I'm pleased with our solid end to the year. Despite a marketplace that has endured some headwinds across COVID and supply chain issues, helped in part by our outperformance against an industry-wide strong 2021, 2022 upfront. At the same time, we've been very pleased with the results of our recently renegotiating distribution deals in the U.S. The team has done an excellent job continuing to demonstrate to affiliates that our portfolio is a great value, and they've clearly seen that reflected in our numbers this year. Within direct-to-consumer, discovery+ continues to perform very well. We end the year with 22 million total subscribers, passing peak investment loss levels supported by consistent and continued strong KPIs, advertiser interest, and overall monetization efforts. As previously discussed, we've thoughtfully and tactically managed our rollout and will continue to do so while sharpening our focus and gaining perspective for the next leg of our direct-to-consumer journey with WarnerMedia and HBO. Worth noting, we achieved a significant milestone this past quarter, having replatformed our discovery+ tech stack across Europe, bringing it onto a single platform consistent with the U.S. We achieved this important migration quite seamlessly, enabling a more feature-rich and personalized consumer experience. These efforts should ultimately drive better consumer engagement, higher retention, and ultimately lower churn, further supporting the trend we've enjoyed over the last few quarters. This replatforming also enables the rolling out of an ad light tier to discovery+ in select international regions. Something, as you know, that was not contemplated when we launched at the end of 2020, and which we expect will figure meaningfully in our eventual merged offering. The opportunity here is large, and we look to best practices from the U.S. We expect to launch the U.K. in March, with additional countries in Europe having been identified to follow thereafter. As part of our global content strategy, we do believe premium entertainment, news, and sports offers an attractive service in many markets, and we are excited about the innovative deal with BT in the U.K., where, as we announced a few weeks ago, we are in final exclusive negotiations to create a rich, extensive portfolio of sports content in that very important U.K. market. We will combine our Eurosport U.K. portfolio with BT Sport, bringing together key matches from the Premier League and all of the UEFA Champions League, Premiership Rugby, Olympic Games, Cycling Grand Tours, and Grand Slam Tennis. This will create a more compelling and simplified sport offering in the U.K. and Ireland, while also advancing our broader strategy of bringing sport and entertainment to more consumers with discovery+. Staying with sports for a moment and fresh off the Winter Games from Beijing. Despite the many challenges and obstacles, we were very pleased with the event marked by healthy growth in subscriber additions, streaming minutes, and total viewers across our combined portfolio. Though perhaps most importantly, in building upon the momentum from the Summer Games in Japan, it reinforced the value of delivering a much richer product experience that combines entertainment and sports in Europe, with strong appeal for the whole household. This enabled us to bring new and different viewers to the Olympics, as well as to introduce more sports viewers to our entertainment content, which greatly improves retention and lifetime value. Lastly, one closing thought before I turn it over to Gunnar. Depending on how soon we can complete the closing of our merger, this earnings could be our last as a standalone Discovery. For me personally, it has been the honor of a lifetime to run this very special company over the last 15 years, alongside such an extraordinary group of leaders, employees, and board members. Folks that I've gotten to work with and learn from, like John Malone, the Newhouse and Miron family, and the guy that started this all out of a garage with a crazy idea that Discovery could change the world, my great friend, John Hendricks. Having accomplished so much and to have had such a blast along the way, I often remark, this job is such a blessing of a lifetime, and we're all so lucky to be in this business and to get to do what we do. I could not be prouder of what we've achieved together, but recognize that our most exciting days and biggest tests are ahead of us, and we absolutely can't wait to share the next leg of this journey with all of you. To close, I truly want to thank those of you that have joined us quarter in and quarter out during this first very formative chapter of Discovery's corporate journey. We believe the next chapter will be even more rewarding and fulfilling. With that, I'd like to turn it over to Gunnar. Thank you, David. I'd like to start by echoing David's comments. This was indeed an exceptional year for Discovery, and one in which I believe we made significant strides across our financial, operational and strategic priorities. Speaking to our financial accomplishments, I am proud of our continued focus on transformation and efficiency during continued disruption in our industry. Notwithstanding over $1 billion of losses from our investment initiatives in 2021, we finished the year with over $2.4 billion of free cash flow, the 64% conversion of Adjusted OIBDA. The true testament to both the resiliency of our core networks as well as overall balance of our global portfolio of assets. Moreover, we ended the year with $4 billion of cash on our balance sheet and net leverage of 3.0x, both of which have continued to improve thus far in 2022. Based on our current momentum, I remain very confident with our projected net leverage at closing of 4.5x or better, and reiterate that our long-term target leverage range for Warner Bros. Discovery remains 2.5x-3x, which we intend to achieve within 24 months from close, and possibly sooner. Now turning to the quarter, let me briefly provide some color on Q4 results, for which from a high level, underlying trends are more or less consistent with those of the last few quarters. In the U.S., Q4 advertising was up 5% year-over-year, largely driven by strong pricing in linear and further supported by continued traction in the ad light tier of discovery+. As I mentioned on our last call, and not surprisingly, we have seen hints of softness in the scatter market due to supply chain disruptions and some category softness around COVID. Visibility remains limited as supply chain issues persist and we currently see low- to mid-single-digit growth in Q1. U.S. distribution revenues increased 17%, helped by discovery+ and higher linear affiliate rates, more than offsetting declines in linear pay TV subscriber numbers of around 4% for our fully distributed portfolio. Turning to international, which I will discuss on a constant currency basis. Starting with advertising, momentum is quite a bit stronger than here in the U.S., increasing a healthy 12% in the fourth quarter, benefiting from robust performance in all regions. We continue to enjoy pricing upside resulting from healthy demand across EMEA, particularly in the U.K., Poland and the Netherlands. While Latin America continues to recover nicely, also helped by share gains in key markets like Mexico and overall healthy demand. We are at the very early stages of rolling out an international ad light tier for discovery+, first in the U.K. and Ireland in March, with additional markets in EMEA to follow, enabled by the international replatforming which David previously alluded to. We are enthusiastic about the incremental consumer-focused feature enhancements which we expect will drive better engagement, resulting in continued churn reduction and monetization upside. Distribution revenue increased 5% during Q4 as ongoing affiliate fee pressures in certain EMEA markets have been more than offset by the growth in discovery+ subscribers with strength in key markets like the U.K., the Nordics, Poland and Brazil. On the expense side, total Q4 operating expenses increased 9%. Cost of revenues decreased 4%, helped in part by a more normalized sports schedule in Europe, partially offset by continued investment in content for discovery+. SG&A increased 29% due to overall marketing spend to support discovery+ subscriber growth and new market launches. Lastly, operating expenses in our core linear business decreased in the low single-digit range for the year, in line with our guidance. To that end, I'm very proud of the efforts across the company to support continued efficiency and overall cost management. Adjusted OIBDA for the quarter was up 15% to over $1.1 billion and was down only 8% for the year to $3.8 billion, which taken in the context of an incremental $600 million investment in next-gen initiatives and a roughly $200 million loss for the Olympics, I am extremely proud of our results. I do want to take a minute to call out both the criticality and the resiliency of our core linear networks business. We continue to invest and support these important brands and franchises, while at the same time look to drive operational efficiency across the globe as we maximize their contribution to free cash flow and to fund our continued investments in direct to consumer. Now turning to some housekeeping items and a couple of items to consider for the quarter as you update your models. First, U.S. other revenue was up $74 million during the quarter due to a non-recurring, non-cash item, which flowed 100% to Adjusted OIBDA and which was a +$0.08 per share impact. Second, we recognized a -$0.13 per share non-cash loss from the $15 billion of notional interest rate hedges that we implemented in the third quarter to mitigate interest rate risk for future debt issuances to finance the cash portion of the WarnerMedia transaction. As I mentioned on the last earnings call, we are required to report the changes in fair market value on our income statement as the derivatives do not qualify as hedges for accounting purposes, which could result in some additional variability to our net income until the WarnerMedia transaction closes. Third, Group Nine Media signed an agreement to merge with Vox Media in December 2021. As a result of the transaction, which closed earlier this week, and the estimated value of our ownership in the new company, we recognized a $0.10 per share non-cash impairment charge. Finally, the impact of PPA amortization during the fourth quarter was $0.51 per share. This is higher than in prior quarters as we reassess the useful lives and amortization method for all the purchased customer relationship intangibles. While the useful lives of these intangible assets did not change, we decided to take a more conservative position and accelerate amortization to better align with expected cash flow. As a result of this, our Q4 D&A expense increased by nearly $200 million. Adjusted for all of the above, EPS would have been $0.73 per diluted share. Our full year effective book tax rate was 16%. Our cash tax rate was 25% for the year, excluding PPA amortization. For 2022, we expect our tax rate to be in the mid-20% range, while our cash tax rate is expected to be in the low- to mid-20% range, excluding PPA for Discovery standalone. Based on our planned rates, we expect FX to have a roughly $90 million-$100 million negative year-over-year impact on revenues and a negative $5 million-$10 million impact on Adjusted OIBDA in 2022, inclusive of the existing hedges. A quick update on where we currently stand in the transaction process. We have already satisfied most of the conditions to close. Unconditional clearance from the European Commission, the expiration of the HSR waiting period, clearance from all other key international markets, and a favorable private letter ruling from the IRS for AT&T. We also filed our final merger proxy earlier this month and have scheduled our stockholder meeting for March eleventh. Following the vote, and assuming the deal is approved by our shareholders, this puts us on a clear track to close in early Q2. That will be a wonderful achievement that reflects our best case estimates from a year ago. I am encouraged by the continuing operating and financial momentum at Discovery during what has undoubtedly been a hectic year. We could not be more excited to get going on integrating the two companies, as well as delivering the promises we have made to you, including $3 billion plus of cost synergies and driving significant free cash flow to deleverage the company down to our target leverage range within 24 months. Having recently conducted some high-level meetings across our respective companies, I think it's fair to say that both the Discovery and Warner teams are eager to begin collaborating in earnest to build one of the most dynamic media entertainment companies in the world. Now with that, I'd like to turn the call over to the operator. David, JB, and I will be happy to take your questions. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please limit yourself to one question and one follow-up. For additional question, please reenter the queue. One moment for your first question. Your first question comes from the line of Robert Fishman with MoffettNathanson. Your line's open. You may now ask your question. Okay. Go ahead, Gunnar. JB. JB. Yeah, I can take it, Michael. It's an immaterial proportion of our financials. It's about 1% of profits that we're generating in the affected region here. J.B., if you could just comment. Yeah. more broadly. I would say in the Ukrainian market itself, obviously, it's absolutely de minimis, is the short answer. In Russia, specifically, as you may have remembered a couple years ago, when the regulatory regime changed in that country and we were obligated to restructure our agreements to actually be represented by a local player, we did that and to become into compliance with the local regulations. We already have a deal structure in place that is partnered with a local Russian entity. For the time being, based on obviously this is a very dynamic situation, based on everything that we've been able to study up until literally real time this morning, we don't see any impact. We're gonna continue to track it and see. As Gunnar said, even if you include the Russian market, it's still a very immaterial in respect to the total Discovery company. It relates to the larger European footprint, obviously, for markets that are important to us, like Poland, like some of the Eastern European markets which are the most likely to be affected, again, for the time being, we haven't seen any impact. We're pacing very nicely for the first quarter, but that is a situation that is gonna continue to evolve, and we'll continue to track it. Okay. For Gunnar, just following up on the change in amortization policy. Can you discuss if you're also re-examining the changing viewing behavior habits and how that might impact any of your content amortization included in EBITDA? Michael, it was in a review of our accounting methodology here. Remember, this is purchase price allocation that we took on with the acquisition of Scripps. You know, obviously, we review these on a regular basis. We obviously also spend a lot of time thinking about purchase price allocation for, you know, the upcoming WarnerMedia deal. You know, as such, this is non-cash. It's what we paid for Scripps. I just generally like to take as conservative as possible a position here. You know, there's no benefit from having these intangibles on the balance sheet. So what's gonna happen is you saw a $200 million impact in the fourth quarter, but again, we're not changing the amortization period. We're just front loading the rate of amortization. This is gonna just increase the amortization of these positions for the next, you know, two, three years and then decrease the amortization in the outer years, huh. Just one point, coming off of Gunnar's point about Scripps. I just wanted to mention that if you look at our company today and how we came together with Warner, none of that would've been possible, in my view, without the business that Ken Lowe built. When I say Ken Lowe built, I mean, as a real entrepreneur, came up with the idea for those channels at a time when broadcasters were dominant and everyone thought a home channel didn't make a lot of sense, but home and food and the personalities and understanding brand and building a great culture and a fantastic business. When we came together, that really gave us tremendous strength and diversity in non-fiction. It also gave us more confidence to go to the market with discovery+ and a much broader menu and bouquet. That transaction and the opportunity to work with Ken over these many years for all of us has just enriched the company and positioned us to be able to do the Warner deal and positions us, I think, to be more successful because that content has worked really well around the world. Thanks, Robert. Next question. Great. Thank you. Actually, hold on, Robert. I didn't properly answer your question, because you were also focused on content amortization. That's something we also obviously confirm on a quarterly basis, and there was no changes to these policies, you know, last year. Again, you've got the linear world, the potential of further exploitation of content in the digital world. Those are sort of, you know, balancing each other out right now. We haven't made any changes there and didn't see any need for that. Got it. Thank you. Your next question comes from the line of Doug Mitchelson with Credit Suisse. Your line's open. Oh, thanks so much. You know, David and Gunnar, would you just talk about your confidence level in the $14 billion EBITDA and $8 billion free cash flow guidance for 2023, and if that confidence is, you know, evolved at all and why? Then I guess the follow-up to that is should we look at that level of guidance, $14 billion and $8 billion, as suggesting, you know, you don't see a need to ramp content spending, you know, rapidly, which a lot of folks are worried about? You know, that looks like a guidance that would suggest you're just gonna continue along the path that HBO already had planned for their content spending ramp. Any correlation between that guidance and your intentions regarding content spending would be helpful. Thank you. Sure. Let me start here. Number one, yes, full confidence in the guidance that we gave, you know, when we announced this deal. Again, as you know, we're in an approval process here, so you know, we have done some more work, but you know, are eager to you know, get into the detailed planning of these synergies after closing. But again, everything we've learned so far has, if anything, given me more confidence in our ability to generate these numbers. When it comes to content investments, you know, we received that question a lot over the past couple of weeks, understandably, given what's been going on in the ecosystem. A couple of things here. Number one, we have in our numbers baked in a very significant increase in content spending, and we have put zero synergies against that. Number two is we are currently spending at a peak level, or at least the highest level that we have seen in the history of this company. We spent more than $4 billion for content in 2021 at Discovery alone, and obviously also on the WarnerMedia side, you know, they've seen increases in spend. We are definitely spending enough from my perspective. The key question is gonna be, you know, how much is going to be enough going forward? We have plenty of room in our business case. I will also say, as David said in his opening remarks here, this is for us, it's not about winning the spending war. You know, money doesn't score goals as the European soccer analogy would be. We will have a greatly complementary portfolio of content focus areas between discovery+ and HBO Max. As a matter of fact, you know, we're gonna be covering all four quadrants like no one else, and that could actually drive to content efficiency that we haven't been able to get as two standalone companies. At discovery+ we have invested in content in areas that's slightly outside of our lane in order to broaden the appeal. Certainly everybody has noticed the efforts on the HBO Max side to get more female, et cetera, with investments that might not be sort of in, perfectly in the wheelhouse. I actually have hope that we might be getting away with a little less content spend, but we certainly have taken a conservative approach and put in a very significant room for increases. I don't know, David or JD. Yeah. Look, I think we start with the premise that the idea for this transaction was we have a library as big as Netflix with content that people love in the U.S., local content around the world, in the entertainment and nonfiction space and in sport. That when we bring that together with HBO and the best TV library in the world, in my view, and motion picture library, the first question is, how well does that do? We have a very low churn product in the U.S. Our churn is getting better in Europe as we've made it broader. When we put these two together, you know, I think it's the broadest, most compelling offering of content available. It appeals to, from people very... from the kids that are very young to with Looney Tunes and Hanna-Barbera and Harry Potter to the DC content to the content that older people and every generation loves. We see that there's also a different viewing pattern between what's going on at HBO Max and with discovery+. A lot of our content is viewed throughout the day. The first question is, how do we do when we come together? What happens to churn? What happens to growth? As I said, we are a real company. What I mean by that is we're gonna be generating $8 billion or more in free cash flow. We have plenty of money to spend. That already assumes that we're gonna spend more money on content, but we're not gonna just spend to have more content on the platform. The key to these platforms, which is true of free-to-air channels and cable channels, is you spend enough that you could nourish an audience, that they wanna spend time with you, and that they feel that you're the place that they wanna be and you're important. Low churn, high usage by many people in the family. We're gonna be very careful about looking at how we do, and we believe there's a chance that we're gonna do quite well. We also have very low cost content, and that we're not gonna have to increase investment significantly, that our bouquet will be differentiated and compelling. We do have the resources if we see that spending more will get us more growth and lower churn and good economics on ARPU. We'll be very careful because we have a real company that's generating real value. Thank you. Your next question comes from the line of Philip Cusick with JPMorgan. Your line's open. Hi, guys. Thank you. I wonder if you can talk about, just remind us how you think these days, David, of cost savings and synergies in Warner. Compare the difficulty and size of the opportunity versus those in the Scripps deal. Anything changing there as you've gotten more into it? Thanks. Gunnar, why don't you, we've been side by side on this for the last several months, and Yeah. The good news is that we've been digging in with Anne and with the team, and when we've been able to kind of confirm a lot of what we thought. Why don't you, Yeah. As the general here, just take Philip through. Philip, you know, the short answer here is we're fully aware of the fact that this is much larger, and it's going to be much more complicated and complex than what we dealt with when we brought Scripps and Discovery together. That said, you know, all the work that we have done, again, as I said in my earlier response here, if anything, you know, I've gotten more excited about the opportunity. We've had first very high-level meetings with the WarnerMedia side as well, that are going very well. Remember, we have a couple of, you know, unique points here in the consolidation. One is that a lot of the cost saving is actually going to come out of cost avoidance. Right now we're running two completely separate direct-to-consumer technology stacks and marketing operations. We're spending, you know, roughly $6 billion for technology and marketing between HBO Max and discovery+. Clearly, you know, once we have successfully migrated those technology stacks into one, there is gonna be tremendous opportunity to reduce costs. The second point here is that for both plans, we have anticipated very significant investment increases, which, you know, one of those ramps is gonna go away as well. That could easily make up for, you know, for half of the total cost synergy potential here. Then we have the linear portfolios with which, you know, I think we've on both sides have a lot of experience and, you know, I've been encouraging people to go back and look at how, you know, the efficiency change when we combine Scripps and Discovery. There's just a lot of very straightforward opportunity there. What I do wanna point out as well is, again, I think what we're gonna see is that we're probably gonna broaden the scope of potential initiatives once we close the deal. You know, I feel very good about our ability to get at these numbers. The other point is that we haven't assumed any revenue synergy. The ability to come to market with, in the U.S., the broad bouquet of content means that we can service advertisers and distributors much more effectively. Forgive me if I'm premature on this, but there's been a lot of headlines about CNN+ ramping up. Seems like there's a lot of business model overlap there with discovery+. Anything you can add about that? We will, in the near term, sit down and have a real business plan discussion with the people at CNN and CNN+. We haven't had that yet. We haven't seen it. I've been watching a lot of CNN. This is where you see the difference between a news service that has meaningful resources globally, news gathering resources, the biggest and largest group of global journalists of any media company, maybe with the exception of the BBC. Here we are waking up this morning with a war, and CNN is going to multiple correspondents and journalists risking their lives in Ukraine, in Poland, in Russia, on the ground. There's no organization, news organization in the world that looks like CNN, that can do what CNN does. I think it becomes very clear as you go around the world and you look at other news channels where people are sitting behind desks and giving their opinion about what's going on. There's a news network that's on the ground with journalists in bulletproof vests and helmets that are doing what journalists do best, which is fight to tell the truth in dangerous places so that we, you know, we all can be safe, and we can assess what's going on and what's dangerous in the world. It's a proud moment for us to watch what's going on there. Because of this deal has not closed yet, it's that CNN is being run by AT&T. We're in the beginning process of getting the details on what they're doing. It's worth saying, if I can just add one thing on the synergies, Philip. The other opportunity that is significant is the Warner International basic channels business is about 10 times the size of revenue of what Scripps was. I think also, the opportunity on the channels integration on international will also be much more significant than it was in the Scripps business. Thank you again. Your next question comes from the line of Jessica Reif Ehrlich with Bank of America. Your line's open. You may now ask your question. All right. Thank you. Good morning, everyone. You're on the cusp of closing the deal, and the hard part is obviously in front of you, given the, you know, the changes you need to implement. Where should we expect to see early results in revenue and costs, and maybe specifically the upfronts in May? Seems like you'll close before then. The old WarnerMedia or Warner Bros. traditionally had silos between entertainment, news, and sports. Do you expect to go to market with all segments under one sales force? If yes, like, what are the pros and cons of doing that? My follow-up, I'll just ask now. You called out the Olympics performance, which is clearly very different than the U.S. experience. Can you talk a little bit about the lessons learned from the first two Olympics and expectations for Paris in 2024? Sure. Well, first, we've been focusing really on cost. After we close and we get into the business, we'll have a chance to think about revenue opportunities. Our number one priority has been focusing on cost and analyzing opportunities within synergy that reflect the $3 billion. We can get more into the synergies, Gunnar, but I just wanted to speak to the Olympics and then pass it to JB. We have focused very hard throughout Europe with all sports in really driving local recognition of athletes. Who are the local athletes? What's at stake for them? Where did they come from? Why do you care? What we've learned over the years with our three sports channels and with our direct-to-consumer business is it's not just the love of the sport It's the love of the athletes, and that when you see eight skiers lined up, you wanna know the backstory. That has really worked for us across sport. JB and Andrew and the team spent months promoting local athletes with the objective that if you went down a main street in any country and you said, "Who are you looking forward to seeing in the Olympics?" The objective was that you'd be able to name between five and 10 people. I think that had a lot to do in terms of execution with what we saw with viewership across Europe. JB? Yeah. Look, I think, Jessica, we've learned a couple things. The focus, as David said, I'd say on the production side has been very much focused on content and storytelling on local heroes and athletes. I think also, we've understood in this digital and social age that people wanna see more authentic representations of the athletes' lives. We've also introduced things like family cams and showing, particularly in this virtual world of the last two games where a lot of the families have not been able to be on site, showing how their families and friends are rooting for them back home and bringing that and making it a more intimate, authentic experience of the full representation of the support crew that supports these athletes. Lastly, or the last two things I'd say, we've also continued to build out the best set of experts in terms of on-air talent in the business by far. People know to come to us because we have the best set of on-air talent that oftentimes are medalists themselves, Olympians themselves. Lastly, we've really continued to invest in innovative technology to bring the games and the stories to life in different and innovative ways that are not gimmicky, but ultimately really bringing the storytelling to life, augmented reality being one. We've done little simple things like our announcers being on camera and having you know feeds from our announcers who have obviously a lot of passion as they're watching their national games. We've continued to innovate on the technology, which has helped bring the games to life in a different way. We're incredibly proud of what our team has done, as David said, in a very difficult situation, and we're very pleased that both in terms of our linear ratings being comparable to what we saw four years ago in Pyeongchang, despite the ad levels in that period being down double-digit, that our experience was very different than others, obviously, in the last both these games and the Tokyo games, for that matter. Gunnar, Jessica was asking about a little more on cost synergy. I think you covered a lot of it, but any other thoughts? No, I mean, I think the one thing I would add, Jessica, to your point about the timing, look, we wanna hit the ground running. We have stood up integration management offices both on the WarnerMedia side and on the Discovery side. You know, we've got a you know full teams in flight working on setting up these work streams, et cetera. That said, we're still operating as two independent companies right now. There's you know very limited interaction you know regarding actual savings measures. With that said, you know, what I would want you to expect is sort of an initial wave of savings after closing, which, you know, a lot of it is gonna be straightforward, early quick wins. Then, you know, we'll get to work on detailing out the longer term, you know, structure and set up. That's the reason why we had focused our communication on 2023, 'cause 2022 was always gonna be a little noisy. We're coming together, you know, a third into the year, et cetera. 2023 is, for me, sort of the year, sort of for the full on, you know, synergy capture here. You know, our objective is to get the deal closed, and implement these work streams on cost and then sit down and look at the opportunity to serve advertisers more effectively and efficiently. We'll have the upfront, hopefully, we'll be closed before the upfront. It looks like that'll probably be the case. Then we'll be able to start to put together an upfront strategy. Great. Thank you. Your next question comes from the line of Michael Morris with Guggenheim. Your line's open. You may now ask your question. Great. Thank you. Good morning, guys. Two questions for me. First, David, you spoke about Warner Bros. TV, and historically, that's been a somewhat unique business in its size, but also, you know, selling outside of the company. You know, you referenced that being something you sort of expect going forward. In recent times, it feels like companies are trying to pull more content back in. Perhaps in situations where they've sold externally, they've been disappointed with that decision. Maybe you could just talk about the balance there, given the size of the business, but also the interest in fueling your own platform. My second question, maybe for Gunnar, is really on the long-term margin structure for the business, and thinking about the streaming industry more broadly. The guidance that you guys have given sort of implies a high 20s% EBITDA margin, which is, you know, below the historical cable business, but it's definitely at the high end of the streaming business. I guess the question is really how do you see that converging over time, but also when you think of a sort of scaled streaming business globally, what does its margin structure look like over the long term? Thanks, guys. Thanks, Michael. I have been for many years in deep envy of Warner Bros. TV. Having spent 18 years at NBC, Must See TV, and Jack Welch would often remind the heads of entertainment of this, that it was really Warner Bros. TV, that all those shows were produced by Warner Bros. The business that Channing is running right now is generating significant revenue. In some ways, it's doing two things. It's probably the best and largest producer of quality content, TV content in the world. We're in that business. We have a business called All3, as many of you know, where we're 50/50 with Liberty Global, with 35 production companies. That business has gotten. Jane Turton runs it a lot better because there are multiple bidders for quality content. When you look at Warner Bros. TV, it's, you know, it's a very, very compelling business. In a market where there aren't many makers, and as you said, you know, even the smaller makers are saying, just "Let me just make for myself." I look at that business and I see tremendous optionality and something that's really rare to have a maker of the scale of Warner Bros. Television with some of the greatest television producers in the world. Greg Berlanti, Chuck Lorre, you know, the most prolific working at Warner Bros. gives us great optionality. We can produce more content for HBO and HBO Max, or we can produce more content to generate more free cash flow and profit by taking advantage as an arms dealer of something that's very rare, the ability to provide great content to Apple or to the broadcasters or to other providers. We'll get in there and figure it out, but in the end, you know, when I say this is a balanced company, this is a big piece of it, that we have a big production entity here that makes a lot of money, and we have the ability to ramp that up to make more money in an environment where there's lots of need, or we have an ability to ramp that up and provide more for ourselves, which also provides some economic efficiency. It's a great asset. We're looking forward to learning more about it and leaning into it. On the margin side, Mike, a couple of points here. If you take a step back and look at the pure math, and if we look at a long term horizon here and sort of, you know, the ten-year projections that you saw in our S-4, you know, I think it's reasonable to assume sort of, you know, slightly declining margins on the linear side. Then we have all talked about D2C, you know, reaching the peak investment point. discovery+, as you know, has peaked in 2021 from a investment loss perspective. HBO Max is guided to peak from that perspective in 2022. There will be a very significant margin improvement in those businesses. You know, David described the macro tailwind for the TV studio. That should be a positive as well. If you take, you know, these underlying trends by business and then factor in that there's probably gonna be a mix change with D2C obviously growing significantly faster, then I think that gives you a feeling, you know, for how we got to this margin level and to those levels that you see in the S-4. We have said when we launched discovery+ that we were confident to be able to get to a 20% margin at scale. That's where Netflix is roughly today. The point that I want you to take away as well is I do think, and I've said many times, from today's perspective, I think we're gonna do better than that 20% number. That is because we are, you know, very uniquely positioned. You know, the combined company is gonna be very uniquely positioned. We're making the content. We can decide flexibly where the greatest value is. We've got multiple bites at the apple when it comes to monetizing the investment on our platforms. Again, we've talked about that so much. You know, we're virtually using every available revenue stream. You know, in a way we're sometimes double or triple dipping, you know, monetizing content in our U.S. linear environment, TV everywhere, Discovery+ on the international side, basic pay. In certain markets, we've been very successful launching free-to-air on top. Almost every dollar that JB spends on content is used both on Discovery+ International and the linear platforms. That's a huge advantage. Also the fact that we're getting subscription distribution and advertising revenues. I think we will always have an advantage with that global footprint when it comes to monetizing the IP investment. Again, as we also said several times, we're not gonna be, you know, in a race here, you know, to win the spending war or to win a certain subscriber numbers. We're managing our business for the long term shareholder value, and to nourish, you know, all platforms at the same time. Look, I've always felt one of the great strengths of Discovery is that we were a free cash flow machine, and we were laser focused on that metric as being a real metric that represents the quality of a company. When we look at 2023 and that $8 billion, that gives us a lot of strength, but we're not going to just say, let's pour everything into the direct to consumer business. There is a level of investment that makes sense for that business, and that's how we're gonna attack it. We'll be looking to monetize our IP to grow from the value of the overall company to build shareholder value, and we have an ability to do that uniquely as a global company in ways that most companies can't. Thank you. Your next question comes from the line of Brandon Nispel with KeyBanc Capital Markets. Your line's open. You may now ask your question. Awesome. Two separate questions if I could please. One, on the linear advertising side. Your trends in advertising are significantly different than the company that you're merging with. So I was hoping you could help us understand your plans for really turning around the Turner portion. And maybe it goes back to some of Jessica's questions, but how should we think about, you know, Discovery's linear advertising growth, particularly in the U.S. for 2022? Then just separately on streaming, could you talk about churn for discovery+, how do you measure it? How do we think about monthly churn rates? And really, you know, what should we be looking for churn on that service going forward, particularly as you sort of layer in HBO content? Thanks. Well, we can start with the second one maybe, Brandon. I think on the Discovery+ churn numbers, I think we obviously don't talk about specific numbers, but I can tell you this, which is David has alluded to, I sort of separate the U.S. and international. The U.S., one of the greatest things we've experienced over the course of the last year is that compared to you know the best in class in the market that our numbers are not quite there yet, but looking very competitive with some of the best in market. That's the reality. Only 12 months out of the gate when our product and all the elements of our product, both in terms of engagement and retention capabilities, I would say right now is still not certainly even on par with some of the best in market yet. We feel great about where we are 1 year out being, you know, in the same zip code as some of the best in market. Internationally, I think we've been much more challenged, candidly, historically. As David said, part of the issue was that our platform wasn't as sophisticated because it came from a legacy, you know, pre-discovery+ launch in the U.S. front end that didn't have nearly the tools for personalization, profiles, really basic things that we couldn't enable. By completing that re-platforming at the end of last year, we came out of 2021 with record lows on churn internationally. Still higher than the U.S., but the great news is the trend we saw towards the end of the year and into the first quarter is very promising. A big part of that we think is gonna continue to improve by just having the product features that have been available in the U.S. now available to us outside the U.S. As the proposition and the product features continue to improve over the course of the next couple months, we think there's opportunity for those numbers to come even lower. Hopefully that gives you a little bit of a flavor. The only thing I'll add is that we went to market over the years with this idea that we could build super fan niche businesses. We tried to do that with cycling, and we tried to do that with tennis. We separated sports from the nonfiction and entertainment offering. One of the things, aside from the quality of the platform, is that we learned, and this is good, every time we have a challenge, the question is, what could we do differently that'll improve the experience for the consumer. A broader menu of content is more people in the home using it, longer length of view in the aggregate, lower churn. The experience over the last few years is, as we add to the offering, the broader the offering, the lower the churn and the more satisfied the consumers are. That's something that leads us to, you know, to the conclusion that bringing this whole thing together is gonna be very compelling. There's a number of markets in Europe where we're the leading broadcaster, so we have all the entertainment, we have the nonfiction, we have the sport. In some markets, we also have news. Our churn numbers are looking, you know, very encouraging. That's one of the things that has led us to be so optimistic about the fact that the strategic attack of putting it all together will provide a broad menu that'll provide growth, lower churn, and better customer satisfaction. Okay. Yeah, on the advertising point, I mean, you know, obviously you'll understand we can't talk about sort of, you know, specific plans here for the combined company, but I do wanna give you a couple of general points and then one deal specific point. So number one, just generally speaking, there's no doubt that ratings across the industry are under pressure, so, you know, we have less inventory. We've continued to grow for a number of reasons. I have every reason to believe that we're going to continue to grow with this lineup. Number one, we don't have to go through the details again, but cable has always been under-monetized in a major way. David has been talking about this for years. We're finally seeing some real traction as people sort of sharpen their pencils. It's just a great deal to spend, you know, 30% less than on broadcast on our networks, and we can still double our CPM. We've talked about that a lot, targeting even in the linear space, dynamic ad insertion at this point has, you know, passed the point of just pilots and testing. There's an opportunity there. Finally, as we look at digital, with eyeballs sort of moving out of a linear ecosystem into a direct-to-consumer ecosystem, we're getting, as we laid out in our presentation when we launched discovery+, up to 3x CPMs because we're covering more demos and age groups and get better targeting, et cetera, et cetera. There's a lot of monetization opportunity left in that traditional business. The deal specific point that I do wanna make is, you know, what we learned when we combined Discovery and Scripps is, and if you go back and look at the number in virtually every market globally, we were able to get much better ratings out of the existing content output because we were optimizing, suddenly we were able to optimize across a portfolio of networks. JB was able to launch new networks and reprogram certain networks internationally. You know, we did very significant programming changes across the combined Scripps and Discovery portfolio in the U.S. We were able, if you look at the ratings trends, to outperform the industry on a global basis for several years following that combination. I think that's a general theme, which, you know, I would hope to get some traction out of when we combine these two kind of fantastic portfolios as well. I really feel very positively about the ad sales side, you know, with the caveat that obviously, you know, no one is expecting any viewership growth in this day and age. Yeah. Great. Thank you for taking the questions. Your next question comes from the line of Jason Bazinet with Citi. Your line's now open. You may ask your question. You guys have such a great track record in international markets. I just have an international DTC question. If you asked the buy side a year ago how big the opportunity was, they would have said, you know, 800 million or 1 billion households. If you ask the buy side now, they'd give you a number that's like a third of that because some of the bigger players are seeing decelerating net adds. I know you guys, you know, have sports and news and a wide array of content, but what's your view of what that number is and what will it take to sort of deepen penetration outside the U.S.? Thanks. Thanks, Jason. Look, I think that there's a certain number of people who pay $14 or $15 for television. You know, you can model out country by country, and there's different cultures and different willingness to pay for content in different markets, what that aggregates to. But the way that we see it is we'll have an ad-free product where we'll be competing in that space, but then we'll have an ad light product that we're gonna be very successful with that is much less expensive. What is the market for a product much less expensive that has limited commercials but is very broad and has a compelling menu of IP, and is available on every platform? You know, how does that broaden the market? When we take a look inside of D+, and we haven't been able to look inside of HBO Max, and we don't know exactly what they're doing with their library, but, you know, Warner has the largest TV and motion picture library. They have half of the MGM motion picture library. We have a huge library. I really see, and we as a company see three funnels. Our objective is to reach everybody. There's a certain percentage of people that'll be willing to pay $15 for a premium service with no commercials. We'll have a lower priced product that'll attract a broader view of people with limited commercials, and we've seen a lot of success with ARPUs equal or greater to the higher fee. Then finally, as we get more sophisticated, we'll see that there's a substantial portion of content that we own, movies, TV, this is true for Discovery right now, that's not being used that much on the premium service. You know, eventually, we should be using all that. Now we may be using that on channels, but ultimately, you know, you could see a subscription-only service, an ad light service, and then a free digital service so that everybody can go to. It, you know, might be vanilla labeled, but putting in a lot of the content so that there's a load of people that'll never pay for television, but they can go to and view this content, and that'll be advertiser supported. In the long range, I think there are a number of players that are very tied to this idea of subscription only. As a company, we probably have the most content, the most diverse content, the most content in language around the world. Our ambition is that, let's work really hard to drive the aggregate product in subscription and ad light, and then let's take a look at who we're not getting and what content we have that could serve them in advertiser only. Eventually, I think there will be a digital broadcast, global broadcast network. It'll have very different content than the subscription or ad light, but there'll be people that do not wanna pay, and they'll wanna watch content. Who has more content than Warner Bros. Discovery? Figuring out how to do that will be, you know, one of the strategic initiatives that we have in place. As David said, look, that strategy is not just a theory. That's the same strategy that led us in Europe to get into free to air over the last 10 years, where pay TV was penetrated up to, in certain markets, only 20%-30%. 60%-70% of the market was never gonna be interested in paying for television. With David's vision at the time, the group went out and started launching free to air, and we ended up developing a whole new audience segment, you know, at 20, in some cases, 30% margin businesses in the free to air. That model may eventually migrate to kind of what we call free to view, as it moves to digital. We think that's another alternative, way, but we wanna go after every customer segment, with slightly different product offerings in each one, and we'll have the content depth and breadth to be able to do it when you look at the combined company. You know, that broadcast model, we called it broadcast, but we didn't have news, we didn't have sports. In many cases, for a couple of years, we didn't have any original content. We just used library content and, you know, for instance, you know, in Italy, we had the number one broadcast channel for women, which within six months of launching it and our cost was de minimis. Jason, if I could add, just add one point from the perspective of just, you know, achieving long-term sustainable growth. You know, remember that while the international markets have lower ARPU and you're probably gonna see some of that impact over time as international subs sort of increase in the mix here for us, it's a multiple relative to what we're getting, you know, in the linear world on a per sub basis. We're also able to address a much broader part of a much larger share of the total population. Some of the markets in the traditional pay ecosystem were limited to, you know, 15, 20, 25% of the market. That's why you're seeing us continuing to grow through this transition. Super helpful answer. Thank you. Your last question comes from the line of Kutgun Maral with RBC Capital. Your line's open, you may now ask your question. Good morning, and thanks for taking the questions. David, you said in your prepared remarks that your goal is to compete against leading streaming services and not to win the spending war. As you know, a lot of the leading streaming services are ramping their spend levels more and more. On your end, I think, Gunnar, you've even hinted at the fact that there may even be some content spend efficiencies than you previously expected. I don't mean to belabor the point, but it's just top of mind for so many investors. I'd love to get your perspectives on what gives you confidence that the DTC spend levels embedded in your targets remain appropriate in what seems like an increasingly competitive streaming landscape. I guess at the core, I'm just trying to better understand how much of an internal priority there is to hit the 14 billion in EBITDA and drive significant free cash flow versus maybe some flexibility for incremental streaming investments to better position the company to become a longer-term leader in the space. Thanks. Thanks. When you take a look at the premise of this deal, the reason that we have a feeling, but we don't really know in the end exactly what we're gonna need to do, and that's why I think having the free cash flow and the optionality and the ability to monetize across platforms is important. Having said that, look, we wanna compete against Disney and Netflix, but we're not a very different company than the two of them. Those are two great companies. You know, Disney has a group of people around the world that absolutely love their product, and they're doing very well. Netflix has a very broad appeal product, and Ted and Reed are doing a wonderful job building out that brand. They have built the road of getting people comfortable buying content and consuming it on all devices. We will have a very compelling offering, so someone could have Netflix, and they'll go there to watch, but we have very identifiable IP, which is much broader. We're much broader than Disney, and we have much more identifiable IP. If you look at what Casey is doing with HBO, so you know, he has Euphoria right now. He just had Succession. He has the period drama- Gilded Age The Gilded Age, going right now. Would HBO be doing a lot better if it had three more really successful scripted series at this moment? You know, it's not clear that they would be. You know, it's sort of the example of if you took Food Network and you said that we do 600 hours on Food Network, and we make, and we nourish an audience, and they're happy, and they like it, and they feel like that's their place, and we make $400 million, as an example. If we decided to do another 400 hours of content, then maybe the audience would be a little bit happier, but now we'd make no money. When you put Euphoria on and then that audience could then watch 90 Day Fiancé and they could watch Fixer Upper, that there's a real balance of content here that we can go to. There's a lot of nourishment in our library together with a lot of shock and awe in the Warner library. The shock and awe together with the nourishment and the great personalities, we think is you know a really compelling menu. It's a great recipe that we think we can lean into. We're gonna spend more on content, but you're not gonna see us come in and go, "All right, we're spending $5 billion more." The first thing we're gonna see is we have so much rich content and so much nourishment, as well as, you know, so much content that's compatible or reaches different audiences that they don't reach, that the excitement is gonna be when we come together. Let's take this car out for a ride. Let's see how this does. We're gonna continue to spend, but don't expect us to come out and go, you know, $2 billion more and off we go. No, we're gonna be measured, we're gonna be smart, and we're gonna be careful. We're gonna invest in the streaming platform, but that's not our only game. Our game is to create a business that generates sustainable growth, that's global in nature, that generates a lot of free cash flow. We're quite confident in the numbers that we've given you. If something changes in the next year and a half that we think there's a substantial amount of opportunity for long-term growth and long-term economics, we'll come back to you with it, but we're quite comfortable. Gunnar? No, I think you said it all, David. To the point about priorities, our priority is on making the right decisions and leaving no opportunity untouched. We will make those decisions, as David said, in the interest of sort of long-term, you know, value for the firm here and, you know, long-term sustainable growth. You know, that's all I can say. We will definitely, you know, touch every opportunity. That's perfect. Thank you both. Thank you. That concludes Discovery, Inc. fourth quarter 2021 earnings conference call. You may now disconnect.