Okay. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm really excited to welcome to our TMT conference from Warner Bros. Discovery, Gunnar Wiedenfels, CFO. Gunnar, thanks for coming. Yeah, thank you. I'm excited to be here. Great to have you. We are almost one year in to the merger with WarnerMedia, and I often think of you as maybe the hardest working guy in media. Can you talk about what you guys have been working on over the past year bringing these two companies together and really the opportunity that you still see ahead for the combined entity? Yeah. No, the 11-month point is actually an interesting one 'cause David and I were talking the other day, we probably put two to three years'- worth of work into 10 months. Like when they show the pictures of the president before and after. Oh my God. look, I mean, there's no doubt it was a challenging year, starting with the geopolitical backdrop, market environment in the second half, and then obviously our very unique merger-related tasks that we had to work through. I'm incredibly proud of how we got out of the year. I mean, in this tough market environment, we hit our numbers, generated two and a half billion dollars of cash in the fourth quarter, which has been, you know, one of the most important points of this combination, this enormous opportunity from cash generation short-term, and longer term sustainable growth. That's a very important point that we put on the board. We're, we're on a tear creatively, both when it comes to the production side with, you know, Shrinking, Ted Lasso coming back, Abbott Elementary, Night Court, and so on and so forth. For HBO Max, I mean, The Last of Us, just a juggernaut in the game space. We got Hogwarts Legacy on track to be the biggest Warner Bros. game launch ever. Lots of things going very, very well. I'm very pleased with how the entire team is coming together. We talked about, you know, this $3 billion synergy bogey raised the expectation to $3.5 billion, recently raised it to $4 billion, got a lot more in the hopper. The entire company is getting behind that. Then, most importantly, from a culture perspective, which, as you all know, is one of the most critical pieces of a merger and a post-merger integration program, and that's gelling very, very well, both on David's leadership team and in the broader company. We're really all, you know, getting behind that one Warner Bros. Discovery mindset, and we can talk more about what that means 'cause it's the thread that goes through the entire company here. I think we're off to a great year, 2023. Lots, lots on the to-do list, but certainly a position now where we're reaping the benefits of all the hard work of last year. Let's, let's talk about the to-do list a little bit. David talked about 2023, described it as the year of building after last year, the year of restructuring. What are you building in that context? What are the key investment priorities for you in the company this year? Well, we're investing mostly on the D2C side and on the studio side, and we're really getting the benefits of some of the tough decisions that we made very early last year. If we just go through business by business, we've got a lot of growth opportunity here, starting with the film business, where we're looking at a slate of 12 releases, doubling last year's number. Channing Dungey is in the market on air with, you know, more than 100 shows for the TV production side, including a number of real, you know, recent hits that I just mentioned. The Warner Bros. Games business is off to a great start with Hogwarts Legacy, which, you know, I think is sometimes. That business is a little misunderstood or underestimated. I mean, Hogwarts Legacy could be the foundation for a decade worth of, you know, returns on that investment. That's a great start, and we have five more games in the hopper for this year. Again, a significant step up from prior year. On the D2C side, obviously, you know, hundreds of people in Warner Bros. Discovery are, you know, heads down working on that launch of the product, the combined product in the second quarter this year. That's on track, and it's an absolutely critical milestone because for the first time, we're gonna be able to, you know, come out with a combined product, all of our great content in one place with a, with a, state-of-the-art, user experience. That should be a big, big milestone. JB is gonna talk on 12 April 2023 about you know, some more of the detail around, you know, packaging, pricing, go-to-market branding, et cetera. A lot of very interesting and promising opportunities. That's the press event that you guys have talked about? Yes. [crosstalk] Okay. Correct. Okay. You also on the call talked about three strategic pillars. I wanted to maybe frame the rest of our conversation around these, Gunnar. You know, the best storytelling, the broadest audience, and working as one company. maybe we'll take them in order. You talked about storytelling. I mean, that's clearly a creative endeavor, right? You'd like them all make hits, not that simple. Yeah. What enables Warner Bros. Discovery to be successful around creativity, particularly in an environment that is crowded, which I think you guys used that word, from a competitive point of view, but also in an area where you're spending less money probably than the company was going to spend, you know, sort of pre-merger? Less capital, highly competitive market, yet you guys are obviously confident in your ability to execute there. Yeah. I wanna actually start with the last one, spending less money. I wanna clarify something. I view this as having shaved off that excess. We didn't abandon anything that made any sense strategically or financially. Okay. That is obviously something that I think over time, while we got a lot of criticism, especially in the press at the time, you know, at this point, I think, a lot of our peers and others in the industry have kind of, you know, made similar decisions. We haven't abandoned anything that made sense, and we're very committed to continuing to invest. To your point about how we think about the best storytelling, a couple of points here. Number one, you know, when we first announced this deal, we made a big point of the fact that this is a storytelling company. Among those three pillars, this is really first and foremost, and it's the most important one. We're first and foremost a storytelling company. There's no packages, no web storage, no phones, tied to it. We're in the media and in the storytelling business, and that really resonates so well. you know, since we closed the deal, there's not one, talent relationship or deal that I could point to that's, that has, suffered in any way. if anything, it's the opposite. David was talking about a revolving door the other day because people come to the lot. People wanna be part of this. That takes me to the second point. I think the different approach that we're now taking in managing this company can, cannot be overemphasized. We are managing Warner Bros. Discovery as one company. you know, people can come in, and there's a discussion around films, there's a discussion around TV, and we're working together. We're jointly working on finding out what the best option is for anyone who wants to work with us, and that's a great opportunity. Our creative leadership team is collaborating at a level that I think just wasn't there in the past, and that resonates in the creative community in a major way. Makes sense. You also talk about the broadest audience, which I can't help but think about, and you sure can push back on this, that that is a stark contrast from the sort of streaming-first strategy that has kind of dominated the industry over the last few years. It would seem, and I think your investors probably are looking for this, that this is an earnings positive to distribute your content more broadly, which also sounds like monetize it more broadly rather than putting everything on HBO Max. Could you talk about sort of the earnings impact, kind of near term and long term from this, second pillar around distributing content for the broadest audience? No, you're 100% right. It's a, it's a huge positive. If you just look at the past couple of quarters for Warner Bros. Discovery, you already see the implications. I mean, we reduced streaming losses by more than $500 million, you know, year-over-year and significantly sequentially as well. We guided to, you know, give or take, a break-even quarter for Q1 of 2024, it makes perfect sense. Look, I mean, the way I look at this streaming exuberance over, you know, the past decade maybe, it was fueled by zero-cost capital. Yeah. You know, there's a reason why for decades the entire industry has looked at a number of exploitation windows, adequately priced to optimize the return on investment, and we're returning to that. As a matter of fact, one of the things coming out of this conference for me was a bit of a positive notion around the theatrical windows, you know, some of the openings that have worked very well. You know, we know the value of that and, you know, we're seeing it in our numbers. We're seeing the difference that it makes to open a film in theaters and then getting the benefits on all the downstream windows. One of my priorities is to set the company up in a way that you know, harness all the data that we're generating across these various distribution platforms to come up with the best decisions. It's also one of the areas where this one WBD mindset is so visible. We're sitting down, and we're talking about how a film is doing in theaters and whether it makes sense to leave it there for a couple of extra weeks, by the way, a flexibility that the industry didn't have before COVID, or whether we move it over to HBO Max earlier. It's great to see how the entire leadership team is aligned behind it because we know we wanna do the best for the combined company and not for some particular business unit specific metrics. Yeah. I just wanna be clear, we're in the second inning there. I mean, we have so much work to do to. You know, WarnerMedia was really operated in these business unit silos. Everybody has their own systems, et cetera. We're making some progress, but it's still a way to go to get this combined, harmonized, data platform, but we're making great progress. You mentioned getting streaming losses down and breakeven. Clearly there's been cost benefits to the pivot, when I think about broadest audience, I'm also thinking about revenue opportunities as well. Do you see those? 100%. 100%. Again, the part of that is tied to the tiering of a product. David has been very vocal about, you know, a step into the FAST market as well. We wanna be serving all consumer segments in the way that they desire to be served, and I have no doubt that there is a revenue opportunity. We also talk about the fact that in an environment where I think that's true for every streaming service, right? You have an 80/20 rule, right? You know, 20% of the content is driving 80% of the viewership. This idea of everything has to be exclusive on my platform financially is nonsense. Right. Right. We're gonna change that and take all that together, you know, starting from the studio, where we have enormous enormously talented creative teams, a library, tent-pole IP, franchises that have been underutilized and under-monetized, and then over all the distribution platforms that we have. I have no doubt that we're gonna be the best place to get, you know, sustained high returns on every dollar of content spend that we make. Gunnar, the obvious pushback from a cynic would be the industry is swinging back towards legacy distribution models because it needs to generate earnings and may be prioritizing deleveraging. Yes, earnings go up, but the multiple goes down because you're sort of pivoting away from streaming, and streaming is the future. What's your response to that pushback to what's we're seeing at Warner and [crosstalk] It couldn't be further away from the truth because nobody is swinging back to anything. We're just starting to put some rational decision-making into managing one arguably very, very important distribution platform in streaming. That needs to be managed as one business, in addition to all the other models. Again, the way I look at it is I wanna make sure that we have the creative relationships and the creative firepower to be generating, you know, the best stories in the world and that we have a commercial machinery that allows us to extract the best returns for that content from whatever platform is available. Again, by no way, in no way are we saying, you know, we're gonna pivot back to linear. We know what the trends are in the industry, but we wanna use all cash registers that are available to us to get the highest return on every dollar spent and that's what we're focusing on. Streaming is incredibly important. I have no doubt that with the combined product that we're launching for the first time all of this powerful IP on one platform we're gonna see better churn, we're gonna see better engagement and we're gonna see a revenue inflection once that's in the market. I wanna get into the segments, but I wanna make sure we hit the last pillar, which is one company. David said it twice on the earnings call. I know if I didn't bring it up we'd be missing something. I was actually thinking, I think you're the third owner of the Time Warner assets at this conference that we've had over the past several years. It sounds kind of soft, but it's truly important. What does it mean to shareholders and investors in WBD you're operating as one company? It's not soft. It's arguably, again almost a year in the single most important change and I think the single most important value driver. Again, forget about the fact that, you know, every business unit has their own ERP systems, processes, et cetera. That's all what we refer to as below deck. You know, my team is gonna clean that up, put it in one system, you know, much better efficiency, command and control, et cetera. What really matters is, t hat's actually something that I've heard from so many people on the WarnerMedia side, they're really embracing the decisiveness, the speed to decision-making and the fact that we're, you know, not only talking about one Warner Bros. Discovery but that we're actually making decisions in the spirit of optimizing for the entire company. That was a bit of a conceptual theme, and really came to life I think for a number of people when we had our senior leadership summit, leadership summit in L.A. earlier in the year where, you know, we looked at a number of very specific use cases and I think it clicked for many people. We've got a new process to harness our entire media firepower behind company priorities be that, you know, House of the Dragon or Black Adam or other launches. It, it is reflected in the way we talk about windowing, it is reflected, in the way, we make decisions between, you know, TV production, HBO, the networks, and so on. It's, it's a, it's a very, very important point and I think it's gonna, it's gonna help us, you know, optimize the growth opportunity, coming out of, this combined company with a specific focus on franchises and that's an area where I think we've got the largest opportunity and I think managing Warner Bros. Discovery as one company is one of the most important building blocks to, better utilization of the franchise IP that we have. Okay. All right, let's talk about synergies and free cash flow. You've raised your synergy targets from this deal and you're up to $4 billion. I think you recently raised by $1 billion. Maybe tell us a little bit about where you're finding additional opportunity. You also highlighted on the earnings call sort of a $5 billion maybe stretch goal or however you would describe it. help us think through these opportunities and- Yeah. Look, you know, I don't wanna spend too much time on it 'cause it's really the one thing that I really don't lose any sleep on. It's a machinery that's up and running. It's driven by a muscle memory almost for many people on that team with, y ou know, we literally had that team still running from the Scripps Discovery integration so we came into this with a lot of learnings and as I said muscle memory. You know, $5 billion is the amount of synergy value that we have in the system that we're tracking on a week-by-week basis and I'm just taking, w hen I brought up the number I'm not, y ou know, there's not like one new initiative that all of a sudden brings the opportunity up. It's just a growing level of confidence in our ability to deliver against these initiatives that are in the system. When I talk about an initiative it means an idea that has a fully detailed milestone plan and an owner, you know, a timeline cost to achieve and a savings or a revenue opportunity against it even though we don't count revenue in our numbers. It's going very well and I view this as a continuous improvement program. We are still generating new ideas that are coming into the top of the funnel as we deliver on what else is there. I feel very, very good about our ability to drive that. How are you feeling about the free cash flow conversion guidance you've laid out for us over the longer term? Very good. Look, I mean, you know, as you know, with the market environment and some of the changes last year, you know, we're the numbers are a little lower than we had than what we had originally anticipated for this year. That's no secret. Nothing has changed in terms of our overall conviction here and of our overall plans. We continue to see a 60% conversion rate long term for the company. I'm very comfortable with the, you know, a third to 50% conversion in the short term and, you know, we see EBITDA growth opportunities. We see a more balanced relationship between content amortization and cash spend. We see cost to achieve and integration expenses coming down. We see interest coming down. you know, as I said on the earnings call we're gonna be well below four times by the end of this year and that's obviously gonna, you know, have an impact on future cash generation. I do think that there are many additional bites at the apple. WarnerMedia was never managed with a cash focus, we're going through a lot of, you know, process changes, starting very early in the process. you know, sort of integrating a cash thinking into the original design of contract templates, et cetera, as opposed to, you know, how many people look at it, cash management as, you know, making calls at the end of the year to collect. There's a lot of opportunity. Okay, great. Let's talk direct to consumer. We obviously have this new product coming to market relatively soon in the U.S. I was pushing you on the earnings call about overall direct-to-consumer revenue growth. I know you have long-term targets, EBITDA, and you're gonna manage expenses, but it seems like revenue growth re-accelerating is pretty key. Talk to us about the drivers of that and your confidence around, you know, getting the revenues where you need them to be to hit the billion-dollar EBITDA in 2025. Yeah. Look, we have confidence in the value of that product. As I said earlier today, the relaunch or the launch of a combined product is absolutely critical because for the first time, we're gonna be able to put all the content together. We believe that that's gonna have positive impacts on engagement, on churn, on subscriber acquisition. All the way through that entire value driver tree, we believe we'll see improvements. You know, one thing to always keep in mind is that when we talk about our HBO subscribers, it always has that linear premium HBO number built in, which obviously is subject to some similar trends as everything else in the cable universe. On a net basis, as I said before, we're looking at revenue inflection for the product, and the team is making fantastic progress. The 12 April 2023 launch event is gonna give you a lot more detail on a number of the go-to-market decisions. That's one of our big priorities for this year. Should we have any expectation that we'll see a relatively, you know, immediate impact to revenue when you roll out this new product? You also have some Discovery+ customers, I believe- Right that you have to sort of work through, right? Yeah. I don't wanna get too specific, Ben, because you're right. There is the transition, and that's also an area that the team is very focused on a very granular basis, going through all the different cohorts of subscribers on one platform versus the other, wholesale versus retail, activated, not activated, et cetera. We have detailed transition plans for each of these groups. Needless to say, every interaction with a subscriber from the perspective of, you know, transitioning a product is not only an opportunity, but also some risk. We have a lot of experience with successfully managing that, both on the legacy WarnerMedia and on the legacy Discovery side. The last thing that I've been closer to was the Eurosport to Discovery+ transition in Europe, which was extremely well managed. A completely negligible amount of or number of subscribers that we lost in the process. Obviously, this is a big one, close to 100 million subscribers, the team is very, very focused on it and we'll update the market more as we go through that process. Okay. last question on D2C. There has been maybe a little less today, but a lot of enthusiasm about ad-supported streaming. What's been the experience so far with HBO Max and its ad tier in terms of customer interest and advertiser monetization potential? Look, I think, you know, beyond, you know, subscription pricing, which we've talked about before, is a driver of growth, advertising monetization clearly is up there as well. I think we're very well positioned. We got a lot more inventory coming to the market. We've gradually opened up the HBO Max ad light tier for advertising. You know, we're seeing advertiser interest specifically in sponsoring opportunities. But it's early days, and again, the big longer term upside opportunity here is getting more scale on those platforms, because that drives better targeting opportunities, better pricing, et cetera. It definitely is one of the key drivers for us. You know, both Discovery+ and HBO Max have been pretty early in leaning into that advertising opportunity, and we continue to see that work. There's a lot of incremental value coming out of what I would call the ad ARPU on top of the subscription ARPU. Okay. Let's talk about the business that really pays the bills for you guys at the moment, so to speak, which is the networks business. Yeah. Lots of industry headwinds people are well aware of, but how are you and David thinking about these assets over a longer period of time? Like, what's sort of the strategic focus for the Turner networks and CNN? Maybe talk about the role of sports in making sure these networks can, at a minimum defend the revenue base. Yeah. Look, I mean, the positioning is very clear. You said it. They're paying the bills. It's a classic cash cow business, we're supportive and we're investing behind it, but with a very clear view on free cash flow and ROI. I think there is a lot of opportunity. We've gone through this conceptually many times. In fairness, we've delivered that when we combined Scripps and Discovery. Kathleen Finch, like no one else, has been able to harness the power of that portfolio, she's going through that process right now as well. It's early days, she put a team in place of hands-on doers, development-focused executives who are managing this portfolio. We're tapping into the content library, the large content library that we inherited with this combination. The objective is to put together a cross-portfolio programming strategy that will put us in a position to get back to outperforming the industry as we did after combining Scripps and Discovery. On the monetization side, we're gonna continue to be very focused on the value of our inventory. You know, the upfront last year was focused on price. You could argue that in a way, that hurt us a little bit on the short end as the scatter market went away in the second half of the year. I have no doubt that we're very, very well positioned for when the market comes back, and we are still under-monetizing on the ad sales side. From an affiliate perspective, I think we're in a good position. We have seen some great success as we renewed deals in the fourth quarter. We have a really compelling portfolio, essentially covering the entire spectrum of genres. I think we're gonna be in a very good position. You mentioned the most important swing factor, the market. It needs to come back. We've just talked about that two weeks ago, and I don't wanna give an update today, partly because we have a bond in the market that's priced but not sold. I gotta be very careful on anything, you know. That was my next question. Yeah. No comment. [crosstalk] How important is the NBA, and are you confident you can retain it in a way that you can manage from a financial point of view? Look, I wanna take a step back here, and talk about sport, sports more broadly. Sports are an incredibly important part of our strategy and will be. Already was for the two legacy companies and even more so on a combined basis with a very strong footprint in Latin America and Europe and the U.S. I think we bring a lot to the table for the leagues. We have a great portfolio of rights. I think we are a very uniquely positioned, very strong partner. I'm happy with the rights portfolio that we have with the NBA, NHL, NCAA, et cetera. The one thing that's not gonna change is we will make rational deals. We're, it's not always black and white in terms of what the value is, but we do the work and we come up with a very solid view of what the value of a certain right is to the company, and we're not gonna. You're not gonna see us do any vanity deals or buying performance, which, you know, happens a lot in the sports space. We know what the value is, and we know what we're willing to pay, and we're willing, we know what we're not willing to pay. That said, you know, I think for the NBA specifically, it's a great relationship. It's worked very well for everyone involved. I think we bring a ton to the table, 18 years of Inside the NBA. We got Bleacher Report, House of Highlights. You know, in the future, you could talk about all kinds of expansions into the digital space. I know the NBA values that, and, you know, got that exclusivity in the negotiation window, that the split with Disney works very well as well. Yeah, we'll see. Okay. We've, unfortunately left 90 seconds for, one of the more exciting parts of your company which is the Studio. Good. In short order, I wanna make sure we give you a chance to talk about the big changes that have been made at the DC Studio. You've sort of reorganized that business. There's a lot of excitement. Flash has been mentioned a lot over the first few days of this conference as you're screening it at CinemaCon. What do you, what should we think about as the growth algorithm for Warner Bros. Studio and what do you guys have there? Well, I already mentioned earlier, you know, some of the numbers in terms of increases in releases, but just very, very briefly, DC, I think an enormous opportunity, and I think two important building blocks are in place now. The leadership team, you know, with Peter and James is breathing comics for as long as he's been alive, essentially. A great creative leader here. The second building block that's in place is the one company approach because I think you can only manage a franchise if everything is coordinated, and the team is working together extremely well. There is an enormous level of collaboration and joint decision-making around, you know, what should work hand in hand across the franchise. If you take Harry Potter as an example or the Wizarding World, you know, the fact that we are enjoying this massive success with Hogwarts Legacy launch, you know, 11 years, I think 12 years after the last film came out shows that there is so much opportunity and we're only just starting to expand that. You got the new Harry Potter tour coming up in Tokyo in middle of the year. I mean, long story short, I think this one company approach, great leadership in the individual business units, but coordinated, franchise management is probably one of the biggest opportunities this company has. When are we gonna get the Lord of the Rings movie, or are you gonna hide behind the Bond deal on that one too? Just kidding. No, I mean. That was also a big announcement. Yeah. Yeah, look, I mean, it goes to the point. David made a promise, quote-unquote, very early on to sort of revitalize some of that iconic tentpole IP. Again, I think we're starting to make progress. It's exciting to see how many, you know, how people are coming in and out at the lot and how, the creative community is embracing this opportunity to work with us. That is, that's gonna bear fruit over time. That's great. Any last comments before we wrap- up? Oh, look, I mean, as you, the way you opened, it was a tough year last year. Happy with what we achieved. Much, much better to be sitting here this year with a little bit of tailwind from all the tough decisions that we made. You know, the balance is really shifting towards the opportunity growth and building as we laid out two weeks ago. Okay, Gunnar, thank you very much. Thank you.[crosstalk] Thanks, everybody.