Morning. Welcome to the third and last day of the 51st Annual JPMorgan TMC Conference. My name is Phil Cusick. I follow the communications and media space here. I wanna welcome Gunnar Wiedenfels, CFO of Warner Bros. Discovery. Thank you for coming. Morning, Phil. Nice to see you. Thank you for having us here. Congratulations on Max launching yesterday. Thank you. Do you wanna just talk about sort of the process there and what people should be expecting? Yeah, sure. First of all, very, very happy how the launch went yesterday. It's obviously a big priority for the company. If you think about it, one of the core theses of this combination between WarnerMedia and Discovery was to bring these two products together. The team has done an enormous amount of work over 12 months. Yesterday was the big day. It went very well. I was actually very surprised by the large number of subscribers that's already started watching on the new product, on Max. Very happy with the technical session metrics that are already on day one better than the prior product. No accidents, which is the most important point for an endeavor like that. It's day one, but so far so good, and we're very, very pleased with how that's gone. Again, thinking ahead here for the rest of the year and for the future of the company, this combined product opens up so much opportunity for us and we're gonna learn so much over the next few months in terms of changing viewer behaviors, the cross-pollination between the two content portfolios now being combined into one. Hopefully, lots of impact on churn and engagement in a positive way. Really a lot to be very excited about for the- Let's just dig into that for a second 'cause it's so important. I'm a Max customer. I'm gonna download a new app. What am I gonna notice that's different, and why does it matter to you? To me, what was most evident or most obvious when I first downloaded and opened the new Max app was the speed. I was actually on the tarmac yesterday on the way out here, downloaded a couple of episodes. That's one of my pet peeves, the download function in the prior product wasn't very reliable. Between, you know, the taxiway and the takeoff, I was able to download three episodes, and that was just using the cellular network, and I had it ready to watch. It actually worked on the flight up here. That's the biggest difference. You're gonna see a lot of improvements in terms of the technical stability and content discovery. The way we're serving this enormous broad portfolio of content with different lenses, as we call them, for you to filter through what you wanna see. Over time, as we learn more about viewer preferences and behaviors, also a better recommendation that's moving from a more manual curated approach to a combined manual and algorithmic approach. Trying to show people more of what's inside this rather than just the sort of small number of titles that have been watched for the most part. Right. And also to help them sort through this enormous amount of content. Yeah. Help me think about what you're most excited about over the next year? It's been a year since you closed the deal. Obviously, this was a big step. What else should we be expecting that's the big priorities of management for the next year? The most important point is we're continuing to execute every day. The launch yesterday was one big milestone, but we're knocking out milestones every day along this big plan that we put together in the first few months of or the foundation of Warner Bros. Discovery, and that's gonna be such an important factor. We've given guidance, obviously, for the year, financial guidance, our $11 billion to $11.5 billion and $500,000 EBITDA range and the, you know, one-third to one-half free cash flow conversion. We're on track for that. We're seeing the quarter develop nicely in line with that, and that's all more than anything else driven by our ability to continue implementing these initiatives that we put on a track a year ago and that are now, you know, being replicated elsewhere in the industry as well. We're just looking at a little bit of a head start here, and it's very, very encouraging to see that we're actually getting some financial results now that the Q1 was the Q1 for WBD, where we actually went back to profit growth. We've got another one coming up. I've given guidance to free cash flow growth. That's gonna be a big factor because we wanna be comfortably below four times leverage by the end of the year, and that's one of my big priorities. In addition to that, we're obviously hoping that the ad market continues to improve. I've said on the earnings call two or three weeks ago that we're seeing some very gradual improvements. We've continued to see that. It's not a full turn or a full recovery yet by any means, but, you know, there is some a little more optimism in the market now than maybe a month or two ago. We've got a lot of other exciting stuff coming down the pike here for the second half. We're very much looking forward to the film launches, The Flash in June and then Barbie in July. I told Andrew I'm really excited about Barbie. It's actually, you know, I'm not a great Barbie guy. The trailer is really interesting. It looks pretty funny, yeah. The tracking metrics are looking pretty good. I meant my kids. I meant my kids. Yeah. We're obviously continuing to generate impact from Hogwarts Legacy. Got Mortal Kombat coming in September on the games side. Again, as I said earlier, one of the big priorities is gonna be really studying what we're learning in terms of viewer behavior. And growth opportunities for the Max product. Since you mentioned it, let me go back to a couple of things you said. One, you said the quarter is developing as you expected to hit the $11 billion-$11.5 billion. You said advertising, you're starting to see things a little bit, people a little more confident. Is that any indication of how your upfront went last week? It's pretty early for that. It's early for the upfront, no doubt. What I say, we see a continuation of that improvement. We had two, you know, better weeks in terms of scatter booking. Again, it doesn't make a year, but as we said on the earnings call, it's a gradual improvement. Q1 was better than Q4. Q2 is looking a little better than Q1. Intra-quarter, I think we're seeing a positive trend. Again, doesn't make a turn yet, but there's, I think there's reason for some optimism. The upfront has obviously just started with presentations last week. We are in discussions with all the holding companies. We're actually in advanced discussions with some of them. As you would expect, discussions are very much sports-led. The uncertainty in the marketplace is a factor for this year's upfront, no doubt, but I'm pleased with the progress we're making as we go through these discussions. Okay. The other thing we saw coming out of the Q1 was an acceleration in the decline of the linear ecosystem. Clearly, Max is a solution for your entertainment divisions. How do you think about the rest of the company and your exposure to linear? Well, clearly, linear is an important part of our business, and I don't think anyone expects that business to be growing. If anything, I'd say sort of the consensus view is a gradual decline, and we'll do our best to manage that business. We've got a great team with Kathleen and Louise and Chris in the U.S., and then Gerhard Zeiler internationally. Very experienced teams with great skill sets when it comes to managing that kind of a business, which is finding the right balance between, you know, making the right investments, orchestrating content investments over a combined broad portfolio with 29 networks here in the U.S. There's a lot of opportunity to just fine-tune where we're spending, how we're windowing across networks and across the broader group. It's a big one Warner Bros. Discovery theme- Yeah. is how we manage windowing. We're not expecting any positive messages from the top-line perspective, but we have a lot of flexibility still in the cost structure so that we can continue managing that business for a lot of free cash flow for many, many years to come. Then to your point, how does that dovetail with the D2C growth opportunity? The way I look at our group is we've got a lot of built-in hedges between the studio, the linear platform, and the D2C platform. In an environment where cord cutting maybe accelerates a little more, you know, you should see some additional tailwinds on the D2C side, and vice versa. If there's more competition for content, we'll benefit on the studio side, et cetera. We have that benefit of a somewhat hedged portfolio. When it comes to the D2C space, I think we're really in the first innings. We launched the product. The basic thesis here is that we can get better engagement and a more satisfactory consumer experience with this combined portfolio, but we haven't even started talking about other potential opportunities. Again, one of the great things about our competitive position is we have essentially an entire bundle, right? We've got all kinds of content, unscripted, scripted, news, sports. Yeah. in a major way and across a global footprint. As JB and David said on the day of our launch announcement for the D2C platform, we have worked on our contractual flexibility. We have flexibility in most of our deals to start experimenting with windowing for sports as well. For news, it's obviously in our control. Again, we haven't made any final decisions, but we're obviously keeping a close eye on what's going on in the industry, and we're watching others that are breaking the traditional molds and starting to play with simulcast and different platforms a little bit. I view this as optionality, and if anything, a major opportunity for us when we decide to take a. to take a more aggressive position on the D2C platform with these. I know you're not gonna make news here on where you're gonna go. I'm just curious how you think about the comments from Brian Roberts last week, Bob Iger a couple weeks ago. Now, I would paraphrase Brian last week as saying, you know, "The world is going to streaming. Sports are going to streaming. We're just gonna get on board." It seems like there's gonna be an acceleration even from here. Does that give you more of a sense of urgency in terms of whether experimenting or taking some of those options? We've always had a very clear sense of urgency with everything we've done, and the team has worked really hard on creating as much optionality as possible, so we have the flexibility again in most of the key contracts and rights agreements. Again, I don't think we need to be at the leading edge of disruption here, but we're clearly monitoring what's going on. I believe that there will be an opportunity for an equilibrium where linear doesn't go away completely. Already today, there are more people outside of the traditional bundle than inside the traditional bundle. As an industry, we have to acknowledge that, and we have to find a way to service with any kinds of rights and any kinds of content, both of those populations. I think there is an equilibrium that will be beneficial, and we're thinking through all the different scenarios. Again, as David and JB said, there's a lot of planning going on how that could look for Warner Bros. Discovery. It's premature at this point. Yeah. talk about it more specifically. Yeah. Not, not surprising. You do have some great assets in Bleacher Report and House of Highlights, things like that. Are those potential tie-ins to TV over time? Well, they're very important assets from the perspective of our ability to create broad reach across demos. We already have enormous monthly active users on Bleacher Report. House of Highlights is a key brand. Also on the news side, by the way, with CNN.com, that's sometimes overlooked, you know, hundreds of millions. Yeah. People interact with the CNN brand globally on a regular basis. They're definitely part of it. Specifically from an ad sales perspective, it's important that we're able to integrate those audiences and go to the market with a complete coverage, being able to serve whatever our advertising partners need. Certainly the key value here is the younger demographics. Okay. Okay. Let's turn the page a little bit back to Max. You talked about the domestic rollout. How should we think about the international rollout, sort of progressing over time? Well, the team has obviously focused on the biggest market, the U.S. market. For now, we have already announced Latin America is going to launch later in the year. We've got some EMEA markets in 2024. We're going to be focusing on, you know, some fast follow implementation for all of the key markets in terms of additional features, and then we're going to continue or we're going to go back to the global rollout, but we're going to do that in a way, as we've said many times, without religion about, you know, any objective of being in every territory in the world or so. We're going to be very thoughtful about it, and we're prioritizing by market potential. As you've seen from some of the announcements that we've made, we don't necessarily have to be in every single market with our own and operated platform. In some areas, we're gonna be brutally rational about it. You know that you're gonna deploy a lot of capital. It's gonna take a couple of years to break even in a specific market. We'll assess that market potential for an owned and operated platform. In some markets, we may end up with a more of a licensing or a partnership or a JV model. We've started making some of those deals in some international markets. As a general point, you know, 2024, 2025, 2026, those years are gonna be very much characterized by international expansion and subscriber growth in international markets as more markets come online. Okay. You think about the U.S. Max product and trying to broaden the viewership within the product, driving that recommendation engine and things like that. How do you think about the relationship of price to hours viewed? You know, there's been a lot of discussion about Netflix, whether it's the ad-supported or the premium product and how many hours people are on that. What do you think needs to be viewership on Max to maintain a churn level that you can sort of really live with? Well, I think you just made the most important point of your question. There is a certain level of engagement that is a predictor of retention. Yeah. the inverse of churn. You wanna make sure that you continue engaging with people, ideally on a daily basis, and that's one of the things that discovery+ has had enormous daily engagement, was much more difficult to get for HBO Max. Again, the thesis is the combination of the two is gonna be a helper. What we're already seeing, and again, this is one day, but I was very pleased with the take up of the premium tier, which we just introduced yesterday. There was a lot of demand for that. I think that the tiering of these packages is gonna be incredibly important. If we look at both HBO Max and discovery+ as standalone products, we've probably underpriced the ad-free tier a little bit, so that the ARPU on the ad light version was actually sometimes higher than... in some markets, higher than the- Yeah. the ad-free version. I think there is room for upside. Again, pricing overall, my view is, the industry needs to continue to show an upward trend. We've talked about that a couple of times, collapsing all windows into one and then giving it all away for $9.99. Doesn't sound like a very smart business model, and I think we're continuing to see that trend. With the Max product, we've now increased the content that's available on the platform in an amazing way, and we're still selling it for essentially the same price point as before. I think we're very, very competitively priced. Over time, I would see some more steps. We've taken some price hikes in Latin America in the Q1. Internationally, I believe that we're still too low. That was still part of that initial HBO Max rollout of just land grabbing as many subscribers as possible. I think there are opportunities. The advertising funded opportunity, either as, you know, as an ad light tier on an SVOD platform or in the FAST space, I think has a lot of growth opportunity. Specifically for the former with the Max product, HBO is such an amazing and such a powerful brand and has never been exposed to advertising for decades. The view in the market is coming around, and I think advertising is accepted today as a legitimate form of monetization, even for very premium content. We've only just started. We've had some, you know, sponsorship deals. Mercedes-Benz is a brand that, you know, wants to be tied to that premium- Succession. HBO brand and Succession, right. We've started opening up some pre-rolls, but there's a lot more opportunity. It's nothing we push right now because of where the market is. We're in the very early innings when it comes to advertising, growth on the D2C platform. By the way, also in linear with finally the Nielsen monopoly falling apart and different alternative currencies coming to a level where they're actually transaction ready, there's a lot of opportunity for just better measurement, but better data-driven linear selling. I think that... Again, don't wanna take any... Don't want anyone to take away linear as a big revenue growth driver here, but with data-driven linear advertising, dynamic ad insertion on some of the virtual MVPD platforms, there is a lot of upside still to, you know, manage some of the declines in viewership. My kids always get mad at me cause I sign up for all the ad tier versions of streaming services. I say it's cause I, cause I wanna see the ads. It's really because I'm cheap. You know, 90 seconds of advertising, those kids have never lived in a world where there was 20 minutes an hour of advertising. Yeah. 90 seconds feels painful when you've lived without it for a while. It's really not that much. Where do you think the optimal level is for advertising on as these things become fully loaded over time? Definitely not 20 minutes. One hopes. probably a little more than today. I think if I look at what my kids say about advertising, they actually know most of the Liberty Mutual ads by heart. All of them. Progressive. All the insurance ads we know really well. Right. Right. I think it's an important point. To your point, it's not a foregone conclusion that advertising is accepted, but that's why the environment, the brand safe environment is so important. The quality of advertising and the dovetailing of the ad and the content is super important. I do think there is room for more, and I think people understand that, you know, nothing is for free, and there's a tiered structure in so many different products in the world, and I do think we have a lot more room on the advertising side. It's never gonna go back to the level on linear, but you know. Right. I'll hold you to that. I think what investors struggle with in the streaming world is we all started off paying $10 a month for streaming, and now HBO is, let's call it $20. For the top tier, yes. For the top tier Max is $20. Prices are certainly headed higher because every streaming service is going higher. I think what people struggle with is, are we really gonna be in a world where people pay for $4 or $5, $6, $7 of these things? Or does there need to be consolidation and sort of a rationalization in the space? How do you think about this? Having gone through a big deal, I know. Well, if I just look at it from a consumer perspective, from my consumer perspective, I agree with you. I find it annoying. You know, you wanna watch something, and you gotta figure out, oh, wait a minute, what, you know, what platform is it on? Do I have that subscription or not? Do I remember the login? On your remote, typing in your email address on the TV screen, etc. It's certainly. The unbundling comes at a price from the perspective of the user experience, or the viewer experience. I do think consumers would benefit from some form of rebundling, and I think a lot of people are thinking about that and there are a lot of different models how that could be set up. I think that's not an easy thing to pull off. There are so many questions on how exactly you would structure a product like that, how exactly you would structure the economics. It's very hard to get perfectly aligned interests in a setup like that. I do think it's compelling to think about some form of rebundling, but I don't think it's an easy thing to pull off, and I certainly don't expect anything to happen short term here. No, I think that's right. I think. You know, since you mentioned the deal from a consolidation perspective, again, same thing. I think there's clear rationale for more consolidation in the space. I don't think that we need anything. We put together a Discovery and WarnerMedia to form Warner Bros. Discovery because we are convinced that we have 100% of what it takes. We're covering all genres. We're in every territory in the world. We have an incredibly powerful content engine. We've got 100 million subscriber D2C platform and a cash machine in the linear world, which allows us to fund all the growth opportunities in consumer products, games, making more films again, expanding the D2C footprint. I think we have all it takes to get that out of the way. I also do think there's a lot of talk about consolidation. It's interesting once you start looking at the regulatory environment. You know It's very tough. I don't think a lot of the combinations are slam dunks from that perspective. Right. Spending a year and a half and not getting something done doesn't sound like fun. Right. Yeah. In terms of DTC, so we talked about churn coming down, ARPU probably going up, advertising coming in. You have a billion-dollar EBITDA goal, I think in 2025. Yeah from DTC. The trends look like that is pretty reasonable. Why is that not a pretty conservative number? I don't disagree with that logic. As I said on the earnings call, we could have probably done a full replanning of the D2C trajectory and come up with more specific or updated guidance. It would've been a weird time, to be honest, because we're just launching the product. So many drivers of that $1 billion are assumptions. Yeah. Many of those assumptions are gonna be back-tested over the next three, four months with actual data. You're 100% right. If you just look at the trajectory, we pulled forward the US breakeven and US profitability by a year. We're trending much better than what we had in the plan, when we put out that guidance about seven or eight months ago. It's going very well, but we also acknowledge that there's still a lot we don't know, where we have strong hypotheses, a lot of reason to believe and data evidence, but just not hard facts, and we're gonna gather those facts over the next three, four months, and then we'll come back to inform the market. What I will say is I have a lot more confidence in our ability to profitably grow subscribers than maybe 12 months ago. I have a lot more confidence in our ability to continue driving down churn just because we've seen it happen with just margin. These are evolutionary, not revolutionary steps. We've seen engagement come up. We've seen churn come down. It's small things but we're consistently and continuously chipping away at some of the key metrics. Again, some of the real, the really powerful impact of this combined content portfolio and a much, much better user experience in the sense of a technical functionality and reliability is only gonna start kicking in now. Yeah. I mean, discovery+ typically had fairly low churn- Yeah. A very reasonable price and a lot of engagement. HBO had that just hamster wheel of new content, new people coming in and leaving in 2021. Sort of 2022, we kind of gotten away from that. How, how much have you compressed churn between those two in the last year? Well, discovery+ has always had industry-leading churn rates really out of the gate. A lot of that is driven by the nature of the content. It's daily engagement. People love. Yeah. show brands, they're coming back, they're staying on for hours on end. The HBO Max churn, I think, is a function of two things. One is, and you know, we've said that publicly a couple of times, the user experience has just not been great. If you look at App Store ratings, we had a 3.3 star rating on the Apple iPhone iTunes Store, but there were no three-star ratings. There were only one-star ratings complaining about technical issues with the app, and there were five-star ratings praising Casey's content. We're eliminating the left side of this. Yeah. The one star, just the technical difficulties. The fact that, you know, in 2023 you're unable to download a show reliably, that's just not acceptable, and this is history now. That will make a big difference, I believe. We have already seen with other tweaks that we're able to bring the churn rates down. The second point, though, is, I wanna make sure that's understood as well. HBO content, by the nature of its tentpole lighthouse talk of town nature, will always bring in hundreds of thousands of subscribers in individual days when a new show drops, and then the second and third episode all of a sudden benefit from the word of mouth. You bring in massive amounts of subscribers who really come for that one show. It's not inconceivable to assume, and that's what we're seeing when the show ends, that a certain percentage of those subscribers leaves again because the show is over. That's what we want. To some extent, it's the nature of the content, and that's where we wanna combine the two portfolios and serve those subscribers some other content that engages them on a daily basis. That's the thesis, and we'll be able to report back a few months from now how well that's working, but I have a high level of confidence. All right. We'll be watching. Let's talk about the theatrical side a little bit. You said you've got Barbie coming and the other is... I'm blanking. Flash- Yeah. coming very soon. You know, there's been successful movies and not successful movies in the last year. What do you think is the common denominator and where is the theatrical, sort of world right now versus a year or two ago and then pre-COVID? Starting with the latter, theatrical world is upwards by a year, significantly still year-to-date, I think 26% below the pre-COVID levels, but it's continuing to recover. I think there is this disturbance of the COVID output, the direct to Max shift, which I think for the market obviously was a weird time, but much more so for Warner Bros., and that's still in the system. We're firing up the production. As we've said many times, 14 films this year where Mike and Pam are starting to develop. James and Peter are starting to develop for DC. What's coming to the market now in 2023 and to a large extent 2024 is still a part of the old slate, but they're putting their hands on it. I think what's gonna be helpful is a clear mission of what we're trying to do here. I think that was missing in the COVID years, then 2021 to some extent with this idea of just spending enormous amounts of money for films that are gonna end up on Max. There's also inevitably a little bit of a, "Okay, well, this might not be a theatrical release. Let's put it on Max." Right? I think there is... In essence, there were probably a couple of films greenlit that in a steady state normal environment you would have probably not done, but with this idea of, okay, it could be on the streaming platform, maybe people were a little more generous green lighting content. That's behind us. There's a very clear mission now. We're 100% committed to the theatrical window. What's different is the theatrical window is not a fixed mold anymore. Every title has a different number of days in the theater, depending. That's the flexibility we didn't have years ago, but it's now a great partnership with the, with the theaters, and we're jointly looking at what makes sense, what doesn't make sense. One benefit is the marketing investment gets much greater leverage over the initial theatrical window, home entertainment. Sort of overlapping windows rather than. Yes. Exactly. Segment. Even the streaming segment still gets a little bit of the initial buzz. I think it's actually. It's a productive environment. We're firing up the production engine, and, you know, it's gonna take a little while before, you know, Mike's and Pam's output, and Peter's and James' output is coming online. These are also obviously enormous downstream opportunities because, you know, the international licensing, again, home entertainment, et cetera, are all gonna benefit from greater volume again. I think this should be a built-in tailwind for the next three to five years until we get back to a steady state. We're very excited about the films that are coming out in the summer. The Flash. A lot of people who really know what they're talking about have said this is the best superhero film ever. Including your boss. I've watched it. I liked it. I don't know if that matters. Yeah. Again, Barbie certainly has the potential for a cultural phenomenon. Got a couple other films later in the year, Wonka, Dune Two. It's a good, you know, it's a good second half of the year. The first half of this year was obviously characterized by difficult prior year comms with The Batman in the Q1 of last year. Shazam Two that we had hoped would do a little better than it ended up doing. Lots of positive things coming in the second half and beyond. Okay. I wanna hit gaming really quick. Hogwarts was such a success, certainly in my house. mine. Yours. You know, we just need one that two people can do at the same time. That would be helpful. How does that change your view on the gaming business overall? What's your... What's the future of that? Well, it hasn't changed our view. I think it has reinforced our view. 'Cause remember, when we first announced the deal, I don't know how many, how much talk there was publicly and how many bankers called Bruce or David. Sellers. Yeah, yeah. Myself. "This is an easy one to delever," and we've just been very clear, "No." The whole idea here is this is not a conveyor belt of content into a streaming service as everybody was looking at media at the time, but we're deploying $20 billion in content spend, and we're monetizing that across as many platforms as possible. To us, an interactive element in gaming was always part of that portfolio approach. We did say we're gonna, you know, give ourselves a year and a half to look at whether that's right, better understand what the opportunity is. Hogwarts Legacy, I think, is a great testament to the value in having that interactive element to monetize one of the greatest IP libraries in the world. I do love the fact that, you know, I think it's 11 years since the last Harry Potter film, and we're coming out with the greatest game in Warner Bros. Games history on the basis of that IP. We're opening up a Harry Potter tour in Tokyo in June. It's small in the greater scheme of things, but the presales were already sold out for the first two or three months. There's so much power in that IP. You know, I think the success of this game goes to show how important it is to be able to use all those different platforms and cash registers to keep monetizing. Interestingly, The Last of Us shows that it also works the other way around. Unfortunately, we don't own The Last of Us games IP. Right. The fact that we were able, that Casey and the team were able to make a TV adaptation of that game and create such an enormous success goes to show that it's really. It's a cross-pollinating opportunity. We're incredibly happy about how this game has gone. We've got the Switch launch later in the year. That's gonna be hopefully another big bite at the Apple 'cause it's a large installed base, very family-focused, and I think that's gonna be a good fit for this game specifically. We've got Mortal Kombat coming out in September, Suicide Squad next year. There is a pipeline as well with a lot of investment and lots of at bats in that space. It's one of the exciting growth opportunities. That's great. A good place to leave it. Thanks, everybody. Thanks, Gunnar. Nice to see you.