Ladies and gentlemen, welcome to the Warner Bros. Discovery Inc. Q1 2023 Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session. Additionally, please be advised that today's conference call is being recorded. I would like to hand the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may now begin. Good morning and welcome to Warner Bros. Discovery's Q1 Earnings Call. With me today is David Zaslav, President and CEO, Gunnar Wiedenfels, our CFO, and JB Perrette, CEO and President, Global Streaming and Games. 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. 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 factors that could affect these expectations, please see the company's filings with the US Securities and Exchange Commission, including, but not limited to, the company's most recent annual report on Form 10-K and its reports on Form 10-Q and Form 8-K. A copy of our Q1 earnings release trending schedule and accompanying slide deck is available on our website at ir.wbd.com. With that, I am pleased to turn the call over to David. Hello everyone, thank you for joining us. We've had a very busy and productive year thus far, and while we have lots more to do and more to attack, and we are aggressively doing just that, the diversified nature of our company continues to provide a strong foundation that enables us to weather challenging environments like the one we're in and still generate meaningful free cash flow. We expected the marketplace to be challenged. With clear eyes, we remain confident in our strategy and our ability to generate free cash flow and end this year below 4 x levered with our streaming service as a tailwind. Gunnar will take you through the specifics, but for some perspective, on a trailing 12-month basis, we generated $2.1 billion in free cash flow even after absorbing $1.2 billion in cash restructuring and merger related costs. Turning to the quarter, while Q1 is seasonally our weakest and we saw challenging revenue headwinds, mainly on the linear TV and studio sides, we are on track to achieve this year's financial targets. We see a number of positive proof points emerging across our businesses with direct to consumer, perhaps the most prominent. We have strong command and control of our DTC business. We made a meaningful turn this quarter, generating $50 million in EBITDA and adding 1.6 million new subscribers. We feel really good about the trajectory we are on. We now expect our U.S. DTC business to not only break even ahead of schedule, but to be profitable for the year 2023. This year, a year ahead of our guidance. It's worth noting HBO Max and discovery+ are still only available to less than half of the global streaming market. There is significant runway ahead of us and we are attacking this opportunity. Max launches here in the U.S. on May 23rd, with Latin America to follow later this year and markets in EMEA and APAC in 2024. The service looks terrific and is a broad and compelling offering for everyone in the family. We anticipate having a healthy pipeline of our new content added to Max monthly. Recognizing that one of the real advantages we have as a company is the strength and depth of our franchises, including Harry Potter for a decade, Game of Thrones, and DC. We are delivering on our commitment to reinvigorate the best of them with new, exciting stories for fans around the world. While at launch, the Max offering will feature the full range of entertainment, this is really just the beginning. We are actively working on options to expand our lineup to include news and sports, acknowledging that this live programming has the power to keep consumers coming back for more and staying longer. We look forward to sharing further details with you in the months ahead. As part of our marketing campaign, under our one company strategy, we are taking full advantage of the range of available media assets company-wide to include our U.S. cable networks and our popular digital outlets like Bleacher Report and CNN.com. We're planning to roll out Max in most key markets around the world. In an effort to reach the broadest possible audience, and in keeping with our second strategic pillar to monetize our content in the most financially advantageous ways, we are also going to continue pursuing other licensing and output deals in markets where either that makes better strategic and financial sense or where HBO Max isn't currently available, often with paths to eventually launch Max when we're ready. Our recent deals in Canada and India, for example, are very lucrative with no expenses against them. We already own that content. How we serve consumers is important. The wealth of our media assets, brands, and IP, and our ability to deliver diverse, high quality content that viewers want to watch and will pay for is what truly differentiates us and makes the opportunity we have to drive real value so compelling. It's the reason we brought these two companies together. This year, we celebrate Warner Bros. 100th anniversary. This studio has historically been the crown jewel of the industry, and we are working hard to rebuild it to its former glory. We're driving meaningful creative momentum with more and more of the most talented storytellers in the business choosing to partner with us. On the film side, after a very challenging year at the box office, we are excited and optimistic about the slate of movies coming, including Dune: Part Two, Barbie, and DC's Blue Beetle, and The Flash. We screened The Flash at CinemaCon last week, and early reactions have been overwhelmingly positive. We are committed not just to expanding the size of our film slate next year, but even more important, we are committed to making great high quality films that have an impact. As I've said many times, we believe it's not about how much, it's about how good. One of the real strengths of our company is the diversity of our storytelling. In this centennial year, we're especially excited to be reinvigorating our feature animation business, which has a long history and a wealth of great IP. Bill Damaschke, the former head of DreamWorks Animation, has taken the helm of our film animation group and is hard at work together with Mike and Pam, developing a new slate. While at DreamWorks, Bill oversaw hit productions including Madagascar, Kung Fu Panda, How to Train Your Dragon, and The Croods, and is a great addition to our all-star team. On the interactive side, we're also seeing continuing momentum in our gaming business. Hogwarts Legacy has amassed more than $1 billion in retail sales and over 15 million units sold worldwide to date. Today, the team is launching the game on the PlayStation 4 and Xbox One platforms. This is our fifth $1 billion-plus gaming franchise alongside Mortal Kombat, Game of Thrones, our LEGO Games, and DC. There's lots more games coming, including Hogwarts Legacy on Switch later this year. Another area we're very focused is ad sales. While our results for Q1 continue to reflect the current soft ad market, we are optimistic for a gradual improvement and an eventual upturn in the H2 of the year. In a couple of weeks, we'll host our upfront. Last year's upfront was right on the heels of closing of our merger. Since then, we've refined our sales organization and our approach, and the team is executing against what we believe is a strong strategy. We are also advantaged by the diversity and strength of our ad-supported platforms. In particular, sports and streaming are two key areas for this year's market, we are extremely well-positioned in both. Looking ahead to the next couple of months, we'll host the NBA Eastern Conference Finals in a few weeks. Given the four teams in the mix, it's shaping up to be a great series. In June, we've got the Stanley Cup Finals on TNT. The first time ever that one of the four major professional team sports will air its final series solely on a cable network. We're very excited about that. On the direct-to-consumer side, we now have more than 15 foundational advertising partners purely on HBO originals, something you couldn't buy just three months ago and a truly unique offering for brands. The Mercedes-Benz title sponsorship of Succession is a good example and a first of its kind opportunity. The combination of impactful campaigns and a limited ad-watching experience for consumers, on average, ad-supported subscribers will see one to two minutes of ads per hour, represents a real win-win for all involved. When you consider the quality of the service, the attractive price point, and the limited amount of advertising, it simply can't be beat. We're also providing huge value to advertisers by creating these Sunday night buzzy shows like Euphoria, Game of Thrones, The Last of Us, and of course, Succession. These shared experiences enable advertisers to build the desired reach quickly. This is expected to be a big year for news as well, with the presidential cycle kicking off soon. We anticipate real growth out of CNN, and we'll be selling heavily into the upfront for town halls, primaries, and conventions. Needless to say, we've got a lot of irons in the fire, and this busy year is looking to get even busier. We're driving leverage down, generating free cash flow, and continuing to build a sustainable business for the long term. As the macro environment begins to improve, we believe given the efficiencies we've put in place, command and control, and our diversified portfolio of media assets, storytelling IP, and talent. We are strongly positioned to achieve even higher free cash flow and EBITDA heights and ultimately meaningfully grow shareholder value. Now I'll turn it over to Gunnar, and he'll take you through the financials and the specifics of the quarter and what's ahead. Gunnar? Thank you, David. Good morning. On balance, I'm very pleased with where we are and very encouraged by the progress of our priority initiatives, which are all moving forward as planned. We generated 12% constant currency EBITDA growth this quarter, a strong starting point for the year and also the Q1 of EBITDA growth since closing the merger. I remain confident in our guidance of adjusted EBITDA in the range of low to mid-$11 billion and one third to one half conversion to free cash flow, with net leverage at the end of 2023 comfortably below 4x. As always, there are a number of moving pieces. This quarter is no exception. I'd like to address the key puts and takes impacting our results and outlook. Starting with D2C. As we enter this next leg of the journey, kicking off with the launch of Max on May 23rd, we're already very pleased with the traction we are seeing, having generated $50 million of EBITDA this quarter. Perhaps more importantly, we're continuing to see improvements across key operating KPIs, such as in our retention metrics. We also added 1.6 million subscribers globally, in part due to the strong creative success of The Last of Us. We've driven a healthy amount of lasting efficiency improvements across this business through the initial phase of D2C integration. In fact, D2C operating expenses were down over $760 million or 24%, excluding FX, on a pro forma basis in the Q1. All of this now provides much greater clarity on the path forward to establishing a sustainable platform set up for dynamic and profitable growth for years to come. As we relaunch here in the U.S. and plan additional launches later in 2023 and into 2024, we'll continue to be guided by a focus on prudent and rational investment. Additionally, we've benefited from greater insight into the efficiency and effectiveness of our marketing efforts over the last 12 months, and we've seen that we can do more with less. As JB noted during our precedent, we will undertake the largest marketing campaign in the company's history to support the launch of Max. This was, of course, anticipated in our internal budget and guidance. We will continue to focus on driving efficiencies throughout our D2C non-content cost structure as we launch Max around the world and get more and more of our digital products on a common platform. As such, we expect the D2C segment to continue to show improvement with peak EBITDA losses for the year in the Q2. When I say peak, I'm talking around $300 million or so. In fact, we are tracking ahead of our profitability target and now expect to be profitable in the U.S. on a full year basis this year. That is a full year ahead of our original plan of breakeven in 2024. I remain ever confident in our outlook of generating $1 billion or more of profitability in 2025 globally. Finally, I'd like to remind you about the approximately 4 million overlapping subscribers between HBO Max and discovery+, consistent with what we outlined for you last summer. While we intend to keep discovery+ going as a standalone product, we expect a large portion of these 4 million subscribers will likely churn off discovery+. The exact cadence, of course, being unclear at this time. We do expect a fair amount of it to happen in the first few months after launch. Turning briefly to the other segments of our portfolio, starting with the advertising market. As expected, we did see a modest sequential improvement in Q1 when adjusting for the Olympics. We do see this underlying trend continuing into Q2 on a like-for-like basis. That is, after accounting for the NCAA Men's Final Four last year and the Stanley Cup Finals this year, which combined will account for a net 200 basis points headwind to global networks advertising revenue. While we see this as encouraging, visibility remains limited and the improvement is gradual. Though the market remains challenged, we are cautiously optimistic, particularly coming into the upfront, which will take place over the next couple of months. With discussions ongoing, we will soon have a much better handle on Q4 and the 2023/2024 season. We see a particularly strong advertising opportunity on Max, both with respect to the more traditional ads on shows like Friends and Big Bang Theory, as well as the very impactful and high-profile opportunity on Max originals. You will hear lots more about this at our upfront presentation in a few weeks. Recall, this really only kicked off in February and we're moving slowly and deliberately ensuring a high quality, rich advertising experience. We see significant further upside for this product line, particularly when the advertising market improves. Briefly on our international markets. On the whole, they continue to perform relatively better, led by key markets like Poland, the Nordics, and Italy, with the U.K., Germany, and Brazil on the weaker side. As in the U.S., there is limited visibility. In the studio segment, there are a number of moving pieces that will be helpful to unpack. Obviously, Hogwarts Legacy was the key driver here, having performed amazingly well. It is thus far the best-selling game across the industry with over $1 billion in retail sales, it is on track to be a top game for all of 2023. Studio's results were, however, negatively impacted by disappointing box office performance, this was exacerbated by a very difficult comparison against the success of The Batman last year. Similarly, TV licensing revenues declined year-over-year against certain large deals in Q1 of 2022. As David mentioned, we're coming up on the 2023 summer slate and early reviews and tracking for The Flash, premiering June 16th, and Barbie on July 21st look very promising. Both titles have enjoyed major buzz, we are leaning in. Keep that in mind for the Q2 when the studio segment will see the expense associated with these marketing campaigns, while the revenue opportunity largely impacts Q3 and beyond. Now let me provide some color on free cash flow, our financial North Star, as you know. As a reminder, free cash flow of - $930 million Q1 of this year is not comparable to the + $238 million reported last year, as the latter represented Discovery as a standalone company. While our Q1 free cash flow was negative, as guided to on our Q4 earnings call, we have made significant progress with strong improvement versus the underlying trends in the prior year when WarnerMedia had heavily negative free cash flows. A few additional key factors to keep in mind. First, Q1 for both legacy companies has always been the seasonally weakest quarter, in part due to the cadence of the production schedule over the year and the timing of certain payments, such as for sports rights. Q1 and Q3 carry the additional burden of the semiannual coupon payments, in large part for our merger bonds, an impact of over $800 million included in our Q1 free cash flow. Q1 also contains significant and expected cash out from restructuring and integration costs, close to $500 million during the quarter. Given the quarterly puts and takes, I'd like to point to the trailing 12 months free cash flow to give you a better sense of the true run rate. Our trailing 12 months free cash flow is now at $2.1 billion with a very clear path to our guidance range. The key drivers for the balance of the year are, number one, expected adjusted EBITDA growth, back-end loaded this year as transformation initiatives continue to unfold and hopefully with a little help from the ad market backdrop. Even though I should say I have confidence in our guidance range, even if ad sales don't fully recover in H2 against the much year, easier prior year comp. Second, seasonally positive change in working capital versus the drag in Q1. Third, a significantly narrowing gap between cash content spend and amortization as our D2C business absorbs sequentially higher amortization expenses and we deploy content cash with a more and more rigorous focus on ROI. Finally, the cash benefit from key transformation initiatives will be back-loaded over the year, while cash out for restructuring and integration will be more front-loaded. In fact, our trailing 12 months free cash flow number at the end of Q1 contains $1.2 billion of restructuring and merger-related cash costs in this line item. We expect that these factors will contribute to a higher conversion rate in the H2 of the year and likely again with a disproportionate amount in Q4, not unlike our nearly 100% conversion rate in the Q4 of last year. Looking ahead to the Q2, we are expecting to see a significant positive swing from -$900 million in Q1 to around +$900 million for a roughly cash neutral, maybe positive H1 free cash flow overall. This will support further debt reduction this quarter on our way to sub 4 x leverage. Separately, as you will see in our 10-Q, we temporarily drew down $750 million in our revolver in April to accommodate the intra-quarter timing of certain sports rights payments. I expect this to be fully paid down by the end of this month. To sum up my discussion of free cash flow, the level of transparency into and focus on free cash flow and its drivers has changed dramatically over the past 12 months. We are in a strong position to capture this tremendous value opportunity over the course of 2023 and beyond. In closing, as we lap the one-year mark since closing the merger, candidly, it feels like three. I do come back to the statement I made a few months ago that we've turned a corner at WBD. I continue to view the structural heavy lift as more behind us than in front of us. I see more and more opportunity with every day I am spending with the iconic brands and the massive global footprint of this combined company. With billions in efficiency gains already in implementation, we really are still in the early innings of unlocking the full potential of Warner Bros. Discovery. We remain as well positioned as any to lean into the many avenues of growth in front of us. With that, I'd like to turn the call back to the operator. David, JB, and I will take your questions. Thank you. We will now begin the question and answer session. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. Your first question comes from the line of Doug Mitchelson with Credit Suisse. Please go ahead. Oh, thanks so much for taking the question. David and JB, I think, you know, most interesting, how would you define success for the launch of Max or the relaunch of Max as you want to define it? I think there was a lot of discussion in terms of, you know, choosing Max as a brand and the need to build that or rebuild that. David, you mentioned actively trying to include news and sports in the lineup. I'm just curious whether it's engagement, whether it's subscribers, whether it's ultimate profitability. You know, how should investors think about what to expect from Max in the coming quarters? Gunnar, you know, I think you made some strong statements in your prepared remarks, but obviously a lot of investor focus on free cash flow generation and balance sheet here. I guess the just general question is what's your level of confidence in the balance sheet targets over the next couple of years, and what gives you that confidence, especially with the year being back-end weighted? Thanks so much. Thanks, Doug. We're excited about the 23rd. Look, we've turned the corner on our streaming business. We had a different view of it. We've focused on it very hard, we built what we think will be a very strong independent business, it starts with profitability. We made $50 million this quarter. Our U.S. streaming business will be profitable for the year, we have real scale. You know, and when you run a business, you're looking for growth, which we're going to get in the streaming business, we're driving to get throughout the company. There are a number of areas where we think that we know that as the economy improves, we'll see real growth. The key here is, our U.S. streaming business is no longer a bleeder. You know, it's hard to run a business when you have a big bleeder. Getting this business under control, focusing on what people love to watch, how do we create content that people love? Now as we launch Max, we'll be able to nourish and delight subscribers with the greatness of HBO, which on Sunday nights is really a cultural moment, whether it's White Lotus, House of the Dragon, The Last of Us, Succession, and then put it together with Discovery, which has, you know, the Discovery content, which has been really strong for us. Number one, we want an easy, smooth transition. That's why we're not doing anything with pricing. We focused very hard on letting everybody know how to make that transition. Right now, we have a really good hand. Let's make the transition. We got technology that's far superior in terms of delivering the platform itself and how it can work against all this great content. Let's do a smooth transition. Have people discover the quality content, the diversity of content, and the quality of the platform itself, which will only accelerate growth. JB? I think, Doug, you know, just to add on to David, I think in the very near term, migration success is one key metric. Are you getting the customers who are on HBO Max today successfully migrated over to Max? Over time, there'll be three other metrics and a fourth that will come. The three would be brand awareness. Obviously, we're building a brand with Max now that is new, that has a different proposition, a broader proposition for something for everybody in the family. Number two, customer satisfaction. Number three, engagement. You know, as we talked about on the April twelfth event, a lot of it is around seeing all this content coming together and the breadth of the proposition driving higher utilization and therefore helping retention. Those, I think, are the core ones in the initial few months. Over time, obviously, as that flywheel continues, we obviously want to see subscriber growth and scale, as the additional metrics. Those are the ways that we'll look at success. All right. Doug, on the free cash flow question, as you just heard me say in the prepared remarks, I have a high level of confidence in our guidance and our ability to deliver here. You know, taking a step back, there's no doubt the environment continues to be challenging. You know, we're working against pretty significant reductions in ad sales. As I laid out, we see gradual improvement for the Q2, but it's gradual. There's that. What you're also seeing in our results is what we've referred to as the built-in hedge, right? We've got a great game, Hogwarts Legacy. Box office was a little weaker, but across the entire footprint of the company, managing as one integrated company, we have enormous opportunity. We don't want to be in the business of predicting, you know, ad market developments in the H2. As I said, I have confidence in our guidance without assuming a complete turnaround here because we're focusing on what we know. What we know is the control that we have over the initiatives that we put in place over the past 12 months, and we're knocking them out month after month, quarter after quarter. We've got systems coming online. We've got individual workflows that are going from 10 to 12 hours a pop to 3 minutes. I mean, there's a lot that's happening, and we have clear milestones scheduled out for the rest of the year. you know, looking at that, I will, you know, I have great confidence that we're going to continue to deliver these improvements. I mean, as I pointed out earlier, on the cash flow side, it's even more exacerbated than on the P&L side with the seasonality of our free cash flow. T he $930 million in Q1 was pretty exactly in line, actually a little bit better than what we had budgeted for. you know, with that, I have full confidence, we're going to deliver for you guys. Thank you all. Your next question comes from the line of Robert Fishman with MoffettNathanson. Please go ahead. Hi. Good morning. I have one for David and one for JB or Gunnar. First, David, can you expand on the strategy you mentioned in your prepared remarks and maybe the financial benefits of licensing your HBO and Warner Bros. library content internationally, some of the deals you discussed? How do you balance those licensing deals with your ambitions to scale Max outside the US if and when you choose to launch in those markets? For JB and Gunnar on DTC, anything you can share about the DTC retail versus wholesale trends? Noticed the wholesale revenue dragged down overall DTC revenues and just whether that wholesale pressure should continue throughout the year. Thank you. Thanks, Robert. We're focused on taking HBO around the world. The fact that we have real scale around the world, that we have content in every language, we have channels in every country to promote, is a real advantage for us. We're really driven by free cash flow and long-term free cash flow growth. If there's a market like India, where we could structure a deal where we could make a lot more money by licensing our great content in that market, with an option which we always have at the end of that deal to take another look at that country with our platform that's already built. We're not building a new platform for each country and see if we can go in ourselves, can we generate more long-term profit and free cash flow? It's really an economic analysis. You will see in most markets it will be us building asset value, owning it, driving it for long-term value and growth. You saw us do it at Discovery. We were the first outside the U.S. We were in 200 countries, and it generated a long tail of free cash flow and real EBITDA growth for us. I'm very optimistic. We're in less than 50% of the countries. You know, it's very hard to have a business that's profitable just in the U.S. You know, I've always thought that you really need to be above the globe, and that's the advantage. That was the value creation of the FANG companies, that they had that scale. We own all of our content. The idea that we're starting off by having a business that's profitable this year in the U.S., and then we go on this journey of driving it outside the U.S. with a strong platform that's already built, I think is, you know, bodes very well for us. Yeah, Robert, I'd just add to what David said. There's two filters as we look at it. There's the strategic filter and financial filter that David just talked about, which obviously is preeminent, which is a market like India. If we don't believe we can be profitable as a streaming service within a 3 to 5-year time horizon, at the end of the day, right now, that's not going to be our priority focus. If there's opportunities to license and take a bunch of money off the table to help support our growth initiatives in other markets where we think we can scale more profitably and more effectively, we do that, number one. Number two, there's just a practical reality that, you know, some of these licensing deals are done in markets where we're just not going to be ready to launch from a platform perspective. As David mentioned in his prepared remarks, we've got a timetable to roll out our new product and convert and migrate our existing HBO Max customers over the next 12 months plus. Some of these things are going to take, you know, into 2025 and even beyond to launch in new markets for our platform to be ready. In the meantime, it just makes perfect sense for us to take as much money off the table as possible. You know, that's the thinking. The added advantage is in these markets, they're still seeding our brands in those markets. We're getting value. The brand itself is being driven as quality curated, we have the handoff when we think that market can be profitable. Sorry, one other thing I'd say is in all these deals, oftentimes what we've done, which is better than what we have in existing licensing deals, is ensuring that when those deals expire, we have stronger cliffs for the content to come back. We can actually, when we're ready to launch, if we assume we're going to launch in those markets at the end of those deals, we get more of our content back immediately. Robert, the only thing I would add is on your revenue growth and wholesale question, two things to keep in mind. Number one, Q1 had a bit of an overlay with content sales revenues. As we pointed out in the prepared remarks, you know, obviously the ad market also on the digital side isn't the greatest right now. I see a lot of upside opportunity here as that market comes back. Specifically for wholesale, remember that our subscriber base contains the linear HBO subscribers that are obviously, you know, showing similar trends to what we're seeing in other parts of the linear ecosystem. Needless to say, we expect the total to be a growing business. You know, we'll see how the launch goes in May. We're looking forward to getting that product out. I pointed out some of those, you know, overlapping subscribers. We'll see how those wash out, but we're definitely looking for revenue growth for, you know, the H2 of the year and then many years to come. Great. Next question. Your next question comes from the line of Steven Cahall with Wells Fargo. Please go ahead. Good morning. Maybe first, David and JB on DTC profits that are tracking ahead. Just curious what's performing ahead of your expectations there. Is it the subscribers and revenue? Is it more about the cost reduction? I know you're new into the Max launch domestically, but I'm just curious if you're seeing legacy HBO subscribers, which I think, David, you were talking about on CNBC this morning. If you're seeing those folks engage with the Discovery content, it's different genres. I know that's the hope. Just wondering what early trends you might be seeing there. Gunnar, on the adjusted EBITDA guidance for the year, I think it still implies low $11 billion. You know, from your comments, it sounds like the macro is still a little tough, but you're bullish with the incremental U.S. DTC profits. I'm just wondering with DTC performing better and no change to that guidance, is there anything that's performing worse, or is that better just in the range as we think about all those different components? Thank you. Hi. I'm going to start with the second. Start with the guidance, quickly because, you're right, obviously the D2C point, is a big, big, positive driver, here. The most important point as I laid out is we have very clear visibility into our transformation, initiatives and the impact that's going to have on the cost base. Also for the studio, definitely, you know, a support here for the H2 of the year. Very strong, summer slate that we're, really looking forward to launching and the revenues of those are going to hit from Q3 onwards. Don't want to speculate about the linear business, but remember that the comp in the H2 is going to be much more beneficial, because especially the Q4 last year was pretty anemic, in the scatter market. A t the end of the day, we still have a lot of shots on goal here, and it's a hit-driven business, especially on the studio side. That's why we're giving the range and, you know, I feel comfortable with that range, with what I know today. Look, when we think about Max as we launch, we have real scale, quality content, a broader aperture. The real challenge is the churn. Very difficult to build a strong business with churn. The churn on discovery+ is quite low. The churn on HBO Max is high. Driving that churn is as or maybe more important than driving the growth. If we can drive down the churn, the growth will be very substantial. We have a series of attacks in order to do that. The primary one is how do you nourish more people in the family? The more people use it, we've seen that we've been at this in Europe for more than 8 years. The more people that use it in the family, the more engaged people are, the broader the offering, the lower the churn. We also have a technology advantage now in terms of catching people that want to buy the product that weren't able to reach out to. You know, this is a business of artillery. We're adding a lot of artillery here to the offering in order to get more to get more viewers in the family engaged and excited about the amazing quality content that we have. We have more weapons and we have sports and we have news, and those are on the sidelines right now. We have a great product. That's now going to be profitable for the year. Let's drive that. Let's drive the brand, and know that we can move to the left and to the right with sports and news, which we've done in markets in Europe, which has been additionally advantageous. JB. Yeah. Steven, to echo what David said, we've seen it across multiple metrics. We've seen it across retention. As David rightly pointed out, we've had in the first few months of this year, record low churn on HBO Max. The churn is still- It's still high. very high. It's still high, but we've been with the-. It's an unacceptable range in order to build the business that we will build. Yeah. As we've talked about at the April 12th event, that was all done through a what I'd call a slightly more analog attack plan. We're now getting to a tool and a platform as we launch Max that we think has a lot more ammo to be able to actually attack churn in more aggressive fashion. We think we're just at the beginning of that upswing. The second is, we obviously had price rises in the US as well as a few of the Latin American markets. The reality is the great news there is we've seen much better reaction and much better retention as well on ARPU increases in those markets. That's been a positive. We've seen efficiencies, in across the board, in some of the items that Gunnar talked about. Obviously over time we've seen some scaling, but we've been measured in our scaling. That's been a great... As it relates to the content, you know, cross-pollinization, reality is we've done very little so far, but we have done stuff with Magnolia, for example. As you heard us, I think, hopefully talk about before, it was a top 10 performer, on the service, at launch and even a top 5, in the initial, week of launch. We feel very positive about, what that means. As we've cross-pollinated content outside of the U.S., we've seen similar trends of great reaction and reception from HBO Max consumers to the discovery+ content. When we go full throttle with it when Max comes together, we feel very optimistic. Steve, if I can just add one thing. From the perspective of the longer term outlook here, again, you know, we gave guidance a year ago around how we see this D2C business developing. As I said earlier, today, many of the operating KPIs are tracking much better than what we assumed. Again, the big thing is getting this product launched, and then, you know, we will learn so much about assumptions that are now assumptions and hypotheses and, you know, in 2, 3 months, those will be backed up by a lot more actual data. This is going to be a super important period. Needless to say, with the U.S. breakeven and actually hitting profitability for the full year happening this year, a full year ahead. Now remember as we said before, we are obviously losing money in the business internationally as we are launching markets and as we are earlier in the maturity curve in many of the international markets, and that's going to continue. You know, as I said earlier, we've got that $1 billion-plus guidance for 2025 for the entire combined business and we'll update that on the basis of what we're learning once the product is in the market. Great. Thank you. Next question. Your next question comes from the line of Peter Supino with Wolfe Research. Please go ahead. Hi, good morning, thank you. On the subject of free cash flow, adjusted for one-time charges, you mentioned that the last 12 months the company had produced a little over $3 billion of free cash, adding that 1 plus of one-time charges to the 2 plus of underlying. If your expectation is that synergies will contribute $2 billion in 2023, it seems like your free cash flow has an easy path to $4 billion, which is within your guidance range. I'm wondering if you'd add any significant puts or takes to that analysis. Specifically, is the DTC upside that you described today, the idea that EBITDA will be $1 billion better than previously expected in 2023 incremental to the math I just laid out? Thank you. Look, Peter, I, again, I in the current environment, I wouldn't characterize anything as easy, but, I have very, very high confidence in the range that we laid out. We have confidence in the ability to generate these synergies. You're right on the trailing 12 month number, but, you know, it's a lot of work. We have line of sight, and, you know, we'll take it from there. I don't want you to take this as an upgrade to our cash flow guidance. I think we were among the first to say that the advertising market was starting to be challenging. We have been pretty careful in projecting because you can't how an advertising market is going to turn and when it's going to turn. For purposes of how we looked at this year, the market is quite challenging. You know, it's improved a little bit, but it still remains a really challenging environment. The good news for us is we built that in, into our projections for the year and into how we talk to you about what we'll face this year and how we'll perform. Great. Next question. Your next question comes from the line of Bryan Kraft with Deutsche Bank. Please go ahead. Hi. Good morning. I wanted to ask you about Hogwarts Legacy. Sales have obviously been extremely strong to date. Can you talk about what you expect for sales of the PS4 and Xbox One versions, which I think become available today, maybe just relative to sales to date, you know, how much of a lift could you get? Also I wanted to ask, how the next, you know, say X hundreds of millions of dollars of sales would look from a margin perspective relative to that first $1 billion? You know, because I would assume that there's a lot less marketing and amortization running through in the Q2 and beyond. Just, you know, wanted to ask about that as we think about profitability for the studio going forward. Thank you. Thanks, Bryan. We have a very good gaming business with 11 different studios and a real talented capability. The real differentiator for us as a company is we own our IP, and that IP, you know, belongs to us, and we're developing it. In some cases, we may decide to develop it with a third-party game technology company. You know, we may be the only media company that owns, whether it's the DC Universe, Harry Potter, all the content that we own, Game of Thrones, that's for us to deploy. I think that's particularly strategically important because if you look at Hogwarts Legacy, a big piece of the success of that game is you go into it. If you're a player, you go into that game, and you're in that world. You know, that's, you know, a new concept. Before it was really, you know, it was gaming, and it was storytelling. Now, you know, I don't. You know, it's very difficult to figure out what anyone's definition for the metaverse is. You know, when we launch a product as a motion picture or a long form story on Max or HBO, and then we have a game, that game belongs to us. Now there's this tweener, which is it may be in the next couple of years that we launch our Superman movie, and then people spend more time, and there's more economics of people just hanging out in the Superman world and universe. The fact that we own all that is something that I think is going to be really important as we look for, you know, whether, you know, as technology develops and given the amount of time people spend on gaming, we don't want to be in the motion picture and long form storytelling and business and have somebody else in the business of hanging out in those worlds, because those worlds, I think, are going to be quite profitable in the years ahead. Bryan, to the Hogwarts Legacy, obviously the Gen 8 release that's going out, you're right, today, is important. I would say obviously those consoles are a much smaller base than the current generation consoles that we released back in February. It's obviously a much smaller portion of the whole, but nonetheless important. I think the other big call-out is obviously the Nintendo Switch release, which will come later this year. We see that as probably a much bigger install base and a fan base that as it relates to the franchise of Harry Potter, which obviously appeals to a very big audience globally and a more... In markets like Japan, where Nintendo has a big footprint and Harry Potter skews very strongly in terms of popularity, we see a much bigger upside probably from that release certainly than the Gen 8. That's how we see the rollout over the next few months. The margin profile, Bryan, is not going to change materially. We'll be a little lighter on marketing. Obviously, retail price points are a little lower, so maybe from a gross margin perspective, a little bit of a headwind, but no material change. Thanks very much. Appreciate it. Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Well, thanks. two questions. David, if you step back and think about the last year where the heavy lifting is done, integration, the restructuring, and now the focus is on operating and building your businesses. Where do you see the most opportunity, and maybe you can touch on timing beyond the existing business? You know, you touched on games, but there's I'm sure there's a bigger business plan. FAST, you've mentioned in the past, you're talking about driving your franchises deeper. In animation, you just mentioned you hired a head of animation. You know, and that's a huge driver for Universal. Maybe if you could, maybe there's something I'm missing. Then secondly, on sports, you alluded to it coming to Max. I don't know if you can say anything more about that and maybe touch on the NBA. What do you think the timing is and ways to slice. Are there ways to slice and dice the rates among the various players so that you ensure it's a profitable contract in the next round? Thanks, Jessica. There's... When we look at this business, you're exactly right. We reset the business for the future by looking at each company and saying, "What should How should we be structured to have the best chance for sustainable growth in today?" We took out a lot of layers. We built a new leadership team, but we still have a lot of the benefits that'll be flowing through this year and next year. We're still finding, you know, we're still opening up some closets, and stuff falls out, and we're, you know... Which I think is a good thing, you know, more opportunity. We got some businesses that aren't doing well. You know, Warner Bros. turns 100, and they've had two of the worst years of, you know, if you look back at Warner Bros., you know, it was really just very difficult. Very difficult on every level in terms of what was turned out. So we think we've turned the corner on that. We got a very strong leadership team in place now. We got James Gunn and Peter working very hard on DC, which is going to be a very big growth driver for this company. So we're very bullish on DC, and, you know, the Superman script, first draft is done. Gunn is, you know, he's on a mission from God, I think it's a really good moment for us to prove out on DC, you know, what we got and how strong it is globally for long-term sustainable growth. We got some more movies coming up that are better. We've been working hard on fixing them and enhancing them and investing. We said, you know, no movie before its time, With Barbie and Flash, we have two very good movies. Dune 2, very strong. I think the slate coming up now, that'll make a big difference. We've lost a lot of money in the motion picture business, Making that turn is important. Continuing to build on Max, We haven't done much with animation at this company. We own Hanna-Barbera, Looney Tunes. If you take a look at animation, it's a critical. We have three animation studios, and we don't have a lot of, you know, production in terms of, you know, it's not productive in terms of free cash flow. It's not productive in terms of market share. It's not productive in, you know, in terms of growth. You know, driving that, and we now have a really strong leader. Our leadership team is in place. You know, if this was a if this was Formula One, and we're dealing with a very difficult environment, and it's, there's, it's raining, and and it's the track is wet, and it's a challenge. You know, we got a leadership team of race car drivers here, you know, in every case. So we got a lot of confidence in Mike and Pam on the Warner Bros. side. The games business is just getting started, which I think is something that people didn't really pay a lot of attention to. Maybe the most important portion is the fact that we have this great diversity of assets. It's hard to predict what's going to go on, but we've restructured this company now. We're really tight. We're really tight, and we're continuing to figure out how do we drive productivity so we can invest more in storytelling. That's all we do. You know, right now it's, you know, the environment is challenged, challenged. As things start to pick up, and they will, you know, in different areas, and we can't predict exactly when, you're going to see a very quick turn at this company. The idea that we can end this year, drive toward, we're to be less than 4x levered with a very tight cost structure, with command and control of this business, with strong brands that people love around the world, then, all of a sudden, you know, things improve a little bit, and you'll see an acceleration. NBA. Yeah. Oh, the NBA. Look, I saw Adam 2 days ago at the Knick game. Go Knicks. Big night at the Garden. Wow. Been waiting a long time for that one. We're doing a terrific job with the NBA. When you look at Barkley and Ernie and that team and Shaq, the programming we're putting on, we're setting records with the NBA, we're setting records with hockey. We also have March Madness where we did very well. You know, we couldn't do as well with the marketplace because sports is relatively strong, but sports used to be strong enough that it was also able to help you with the rest of the business. That was happening for a long time. The market was just quite soft, we're able to take advantage of the sport, but we weren't able to take advantage of the piggyback halo. I think that's true in the industry. It just got more difficult. Between baseball playoffs, March Madness, hockey, you know, we have long-term deals that are quite favorable to us. We like the NBA, the deal's coming up in 25. There's lots of ways it could be reconjugated. You know, we did a very favorable deal in the UK with our BT Eurosport business, where we ended up with 90% of the football, the soccer games, and Amazon got less than 10% of the Champions League games. We produced that content for Andy Jassy. They promote to us, we promote to them, and the economics of that deal were, you know, very favorable for us. There's lots of ways to reconjugate it. We like the NBA. We hope we can get there, but we're going to be very disciplined. We work very hard to build this company, to drive profitability, to have a strong balance sheet, to provide real growth and real free cash flow. That's the long-term sustainable nature of this great company. We're not going to jeopardize that for any piece of IP. David, I'd like to add one slightly less strategic, more operational point that nonetheless I think is super important, Jessica, and that is For the sake of the argument, we're spending $20 billion of content. A lot of that still goes through siloed systems, still imperfect processes, and in many cases, still through a mindset that's very business unit-oriented still. I have no doubt we're in the very early innings of looking at this, at as one of rather Discovery contents. We talked a lot about the stuff that we discontinued because it didn't make sense financially. I think the opposite is true as well. I think the company also passed on very, very interesting and attractive investment opportunities just because some intercompany budget wasn't in place or so. All of that is going to change. We'll get much better in allocating capital as a company, we'll get much better in the day-to-day operational management of spending of that cash. We just harmonized those processes and decentralized those teams that were all fragmented. Looking at that, the ROI on our capital in the ballpark of $20 billion, hopefully growing over the next few years, is set to improve, and I have full conviction in that. You know, when we talk about a marketing campaign, one of the things to bear in mind is we're using our platforms now. That wasn't happening. You know, we are really hyper-focused. You know, as I said, on many nights now, we're getting 48, 45, close to 50% of all viewership, broadcast, cable. On any given night, we have, you know, 25%-30% of viewership on the platform. Using that, using Bleacher and House of Highlights, which has a very young demo, using CNN.com, yes, the campaigns are bigger, but we're one company, so the ability to promote on HBO on our own platforms is a big savings. It's a big savings for us internationally, and we're deploying it. Great. Let's go to the last question, please. Your last question comes from the line of Matthew Thornton with Truist Securities. Please go ahead. Hey, good morning, everyone. Thanks for taking the question. Maybe a couple on Max, if I could. Could you update us just how you're thinking about migration later this month, just in terms of any friction as folks go from one app to the next? Just latest thoughts on any potential friction there and how you're managing that. Secondly, you talked about the overlap of discovery+ users that also have HBO Max. What about those that don't and how you're attacking and trying to upsell those to the more, the higher price point, you know, Max service? Any color there. Just final one, I think this was mentioned on a prior question. Any thoughts around a FAST here, and just how to think about a FAST here around Max, help drive top of funnel, help drive advertising, help monetize deep library? Any incremental updated color there would be great as well. Thanks so much. Yes. Thanks, Matthew. Just on the migration point first, a couple things. Number 1 is, remember, there's been no change in the billing process. As it relates to revenue, there is no change, and there's no migration as it relates to billing. Revenue and billing continues to be exactly the same irrespective of whether somebody has actually quote-unquote, "migrated," i.e., accepted the new app or downloaded the new app if they need to. Number 2 is, as we said at the April 12th event, there's a large portion of the base that will have to do absolutely nothing, where the app will automatically convert, and upon streaming again, you will have accepted the terms of use, and you'll be off and running. For the portion of the base that actually has to download, redownload, we've done everything we can to make it as seamless as possible, including, you know, not having to input. You'll basically be 2 clicks to get to the streaming again, your video content. You have no need to. Your username, password will all be migrated. Your watch lists, all your history will be migrated. We tried to make everything as possible. Now, inevitably in these processes, you're going to find some friction. We think it's fairly limited in terms of the subscriber risk associated to the migration. We feel very good going into it. We've tested it. We're all ready for the migration. The flip side is on then switching to the discovery+, as Gunnar said, we do see about 4 million subs, largely in the U.S., but there's some of that internationally as well, that overlap between the two services. Obviously we're going to be doing everything we can, to upsell, those that are not subscribed. As we said again, the flip side is we're not going to be too in their face about it. At the end of the day, if people want to stay subscribed to discovery+, and that's the environment they prefer, that business by itself is profitable and we will continue to maintain it and serve them there. We will over time, initially through marketing efforts, try and see if we can get them to come in and sample it. We'll have offers that incentivize them to sample it for some period of time at favorable economics. We'll see how successful we can be in upgrading them. Next slide. Yeah. On FAST. Look, on FAST, we always believe in what we call a hybrid strategy, which is ultimately, first and foremost, what we call channel syndication, which is ultimately we realize that the platforms and the distributors out there are many who have the scale and the size, we want to get our channel portfolio out there and viewed. Since it's an audience aggregation and advertising business, we've already gotten out with Roku and Tubi, and we've been very pleased with the initial success with a very small, but a handful of channels that we have out there already. We will continue to look to see if we can increase that volume to your point, for a second, third, fourth monetization windows for certain content. Then we'll continue to explore the owned and operated strategy. At some point in time, longer term, we do see this opportunity for this WBTV brand and platform to exist in an owned and operated environment. I think at some point that'll be dovetailed with the state of the advertising business, and we want to make sure we come to market at the right time when the demand is sufficient. We will continue to execute this hybrid strategy of syndicated channels initially, and then over time, at the right time, launch our own service. Great. I think that's it. Thank you very much for joining. We will speak with you soon. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.