Warner Bros. Discovery, Inc.

Ladies and gentlemen, welcome to the Warner Brothers Discovery Fourth Quarter 2024 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 now like to hand the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategies. Sir, you may now begin.

Good morning, and thank you for joining us for Warner Brothers Discovery's Q4 earnings call. Joining me today is David Zaslav, President and Chief Executive Officer, Guna Videnfels, Chief Financial Officer, and J.B. Perret, CEO and President, Global Streaming and Gains. Earlier this morning, we released our Q4 earnings results, trending schedule, as well as accompanying shareholder letter. We will begin this morning with some very brief remarks by David, and then turn the call right to Q&A. Today's presentation will include forward-looking statements that we made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may include comments regarding the company's future business plans, prospects, and financial performance, and involve risks and uncertainties that could cause actual results to differ materially from our expectations. For additional information on factors that could affect these expectations, please see the company's filings with the U.S. Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K and its reports on Form 10-Q and Form 8-K. In addition, we will discuss non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to the closest GAAP financial measure can be found in our earnings release and in our trending schedules. which can be found in the investor relations sections of our website. And with that, I'm pleased to turn the call over to David.

Good morning, everyone, and thank you for joining us. Two and a half years ago, when we brought Warner Brothers Discovery together, our vision was to combine Discovery's leading position as a global force in media and entertainment with local content and local sports, alongside the iconic storytelling brands, IP, and libraries of Warner Brothers and HBO. This powerful combination is a unique, compelling offering that we believe would resonate with consumers worldwide. It was the strategic guts of our transaction. Our direct-to-consumer business ended 2024 with about 117 million subscribers across more than 70 countries And we still have nearly half the world to go with many key markets like the UK, Italy, Germany, and Australia launching over the next few years. We added about 6.5 million subscribers in the fourth quarter and nearly 20 million subscribers in less than a year. Max continues to grow at a powerful pace, and we expect it to continue throughout 2025 and beyond. In this generational media disruption, only the global streamers will survive and prosper. And Max is just that. With the launch of Max internationally in 2024, we now have a global subscription business that is growing subs, revenue, and EBITDA. We have a clear, demonstrable path to at least 150 million subscribers by the end of 2026. fueling further revenue and EBITDA growth. MAX is one of the world's very few global and profitable streaming services. Our direct-to-consumer business contributed almost $700 million in EBITDA, a $3 billion improvement in just two years. And we expect direct-to-consumer EBITDA to nearly double in 2025. As I mentioned in our last earnings call, we are laser focused on getting our studios back to a place of industry leadership and generating 3 billion or more in EBITDA. We are showing growth and real strength in our Warner Brothers television business, which I believe is the highest quality and largest maker of TV content in the world. We are excited about our studio's creative and financial outlook this year and beyond. particularly all that's coming from Warner Brothers Pictures and DC Studios kicking off with the release of Superman this July. Despite the headwinds facing linear television, we recently struck a flurry of multi-year renewal agreements with five of the six largest ATV providers in America, many of which were a year early and all of which commanded overall rate increases. These long-term deals provide real security and stability to our linear business. Finally, we've been hard at work and have made real progress implementing the reorganization we announced in December, which went into effect on January 1st. This new structure will provide investors with better visibility to the strength of our streaming and studios business and will give us real strategic value and optionality into the future. 2024 marked a year of significant progress in transforming Warner Brothers Discovery, laying the foundation for what's next and positioning us as a global media leader committed to providing shareholders with sustainable future growth. We remain fully focused on enhancing shareholder value and welcome your questions.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Jessica Reese-Elrich with Bank of Securities. Your line is now open.

Thank you. Good morning, everybody. Two questions, please. Can you give us an update? David, you just alluded to the restructuring taking place as of January 1. Can you talk about potential longer-term, more transformative actions? And then secondly, in the shareholder letter, there was a comment on your term, linear pressure. As you add direct-to-consumer and greater packaging flexibility, can you flesh that out and maybe discuss the long, you know, in 25, will there be consolidated growth?

Morning, Jessica. This is good. Now, let me take those two. You know, starting with the corporate restructuring, so this, as you know, has been a real priority for us, and we've made great progress. You know, as we said in the letter, we have implemented that new structure effective January the 1st. As you would imagine, there's still a lot of, you know, project work underway. to manage and implement the financial aspects of the reorganization. We would still have some processes run out of the wrong entities, tax implications, et cetera. So we're still working through that with a lot of focus and we're making great progress. And as I said, as we said in the letter, we're hoping to wrap that up really within the next few weeks. The point that I wanna...

So I would just add that I think this restructure creates real visibility to the strength of our studio and library and global streaming business. It allows us to – we'll be better able to respond to this generational disruption. The new structure will enhance our strategic flexibility and also create potential opportunities to unlock additional shareholder value, which we're focused on. And we're also focused on executing our strategy while ensuring we're able to take advantage of broader market opportunities as they arise. You know, in this disruption, we expect that there will be.

Yeah, the last thing I was going to add, Jessica, is we don't think from today's perspective that we're going to see a dramatic change to our segment reporting, but we are planning to provide incremental guidance beyond that to create more clarity on you know, the global linear networks on the one side and then, you know, streaming and studios, think of it as sort of a self-consolidation. And, you know, based on the progress we're making, I'm hopeful that we'll be able to provide that as we report first quarter earnings. And then on your point about linear pressure and packaging flexibility, look, I think, you know, I want to take a step back. The work that our affiliate team has done in 2024 is just absolutely unbelievable. You know, working through all these agreements ahead of schedule and securing rate growth in the current environment, I think, is a remarkable accomplishment.

And it takes us, it gives us a different cadence. You know, having started in the distribution side of the business, Normally, you would have your deals coming up 20% a year, so you're always facing that either opportunity or uncertainty. In all of my experience, we've never had this secure of a base where almost all of our deals are done with increases, with all of our channels carried for a period of years that gives us, I think, a real advantage as we go in. It takes one issue off the table for us.

And as we look forward, the one thing I would want to call out, you know, we've seen pretty strong rate increases in the prior year. I mean, in Q4, you know, close to 6% rate increases in our domestic affiliate business. You know, with the new set of deals, those rates, those rate increases are going to be slightly slower and more in the no single digit versus mid single digit rate. But, you know, as we laid out, we have also, you know, as an industry, I think come together and created some flexibility that will drive the sustainability and longevity of that ecosystem. And then specifically when we look at the international part of our business, it's really remarkable how, you know, across our international footprint in the aggregate, we are already seeing positive net revenue impact from our affiliate renewals. What does that mean? In many of these renewals, you know, we're working together with our affiliate partners to make some concessions on the linear side where they're facing, you know, not as pronounced but similar pressures as domestically here. But we're cooperating, you know, through software hard bundles on the B2C side. And net-net in the aggregate, we're growing across our international affiliate portfolio. We're up in revenues. That's the kind of, you know, crossing up the lines. that we're looking for. We're not there in the U.S. yet, but it's a great proof point that we're seeing that strong value and demand for our content internationally already leading to consolidated growth.

Thank you.

Okay, let's move to the next question.

Your next question comes from Robert Fishman with Moffitt Nathanson. Your line is now open.

Hi, good morning. Two for you guys. As you think about the importance of scale in DTC, I'm curious, does Max have enough diversity in programming as a standalone service to compete with those larger SBOD platforms? Or maybe asking it differently, any updated thoughts on whether the smaller streaming platforms ultimately need to consolidate? And then on a related note, when you think about the strategy to use sports and news on Mac, pulling that content from the ad tier, I think, yesterday, Can you talk more about how you plan to explore ways to evolve the sports and news distribution ecosystem? Thank you.

Thanks, Robert. We really see our offering as unique, and there are very few global streaming services, and the kind of demand and consumption that we're seeing around the world is quite compelling, and it's really driven by the quality of of the original storytelling, whether it's White Lotus, House of the Dragon, The Pit, together with the great library of content that we have and the great IP and motion pictures. But you add that to the fact that we have 20, 25 years of entertainment content from our free-to-air channels, cable channels around the world, and sports. It's really the quality package of content you really want to see. which includes even things like Friends and Big Bang Theory. It's got a great menu. It's distinguished from others because in addition to that very high quality, you also have meaningful local. And that is also driving not only consumer interest, but distributor's interest in the product. So we feel really good about where we are. JB, talk a little bit about our news and sports strategy, because it differs in the US versus other markets.

Yeah, Robert, I think both on the diversity point also, we've never gone into a period, as we look at the next two years, and frankly, well into 2027 at this point, where we feel better about the lineup, the consistency, the strength, So on our note, we have, you know, 15 franchises returning that have been in our top 20 of all time. So we feel really good about the content lineup coming and the diversity of that content lineup over the next two plus years. On the sports and news front, we recognize and we've said, I think fairly openly, you know, we're continuing to experiment on what the right model is. And the reality is we have a variety of different models in operation around the world. um in the us as you rightly point out we announced yesterday we're moving uh sports and news uh out of the ad light and into the uh premium and standard ad free in latin america we have it across all of our packages in europe we upsell it uh as a add-on uh and a buy-through um and so uh you know we're openly continuing to experiment as to what the right model is and what the best way is to both drive engagement and first views or acquisition through that powerful content, but at the same time, make sure we're figuring out a business model that works. And we're going to continue to experiment and see what works. And we have the beauty of a global footprint with rights across the world that we can experiment with.

You know, and one of the things that we've pivoted on is Mark Thompson and Alex McCallum, who the two of them built the digital business at the New York Times. We see that as an opportunity to build a completely separate digital and subscription line of businesses. And over the next few months, they'll be out talking to you about how they're taking advantage of CNN as the largest digital news brand in the world, the most trusted news brand in the world, with over 150 million people coming every month, and how they're going and what we're doing to build a sustainable digital business out of that. But when you look at the overall question of what are we, we said three years ago, it's not how much, it's how good. And that has been our focus. So in Europe, when we have sport, we have the best sport. And we're going out with the highest quality content. And so that is Casey and Channing and Mike and Pam, the focuses and Gunn. It's not how much, it's how good the distribution service.

Okay, let's move to the next question, please.

Your next question comes from Kanan Venkateshwar with Barclays. Your line is now open.

Thank you. Maybe a couple. First one on strategy. David, if you could just outline how you see the asset landscape right now. Obviously, there's a lot going on in the industry with different objectives, but in this environment, do you see yourself as a buyer or a seller? I mean, is there an opportunity to maybe become the consolidator and do some kind of a bigger spin-off of networks? So your thoughts on that would be useful. And just to follow up on Jessica's question on the full year, When you have easier comps on studios this year, and if you just look at networks, despite the headwinds, if you just take the same trend line as this year into next year, and then DTC profitability that you've guided to, it would imply that you should grow EBITDA in 25. So is there something that takes away from that algorithm? It would be great to get your thoughts on that.

Thanks. I guess fundamentally, when you look at the marketplace, we really believe that the global players will be those that will really prosper in the years ahead. And ultimately, the largest sustainable growth media companies, they'll probably be four or five or six. And our job every day is to fight to get a seat at that table. And we feel that we've made real progress now. with our global streaming service and the global appeal of all of our content and the consumer reaction to assure that seed. The consequence of that, I think, is there's more and more pressure on regional players. Can they build their own platform? Do they have enough local content? One of the things that we're seeing now is we've been talking about bundling for two and a half years, but many of the really high quality local players have come to us now after two or two and a half years and aligned on our strategy of better together. So whether it's Globo in Brazil or Televisa in Mexico or all across Europe, players coming to us. And I expect that that's going to happen. There'll be a few global players. There may be some consolidation in getting there. The consolidation may simply come with bundles. And the bundles, as opposed to just being an economic bundle, will be a consumer-friendly bundle where you could move between content from one to another. And I think we're going to be a very, very attractive player. We're already having a number of discussions, and we'll just have to assess how strong we are alone and who and when we need. In the end, we'll always do what's right. We're a public company. We're always going to do what's right. for shareholders. But JB, this idea of bundling, because this is something we're attacking regularly.

Yeah, I mean, I think at the end, as David says, there are two forms of re-aggregation. There's a structural one, which is what David talked about, and then there's a commercial one, which is the bundling strategy. And we've seen great success with it, obviously, here in the U.S. with Disney, seeing it both drive acquisition as well as significantly reduce churn. And to the earlier question that Robert had about diversity, the reality is the industry has gone from a model in the 2010 to 2020 period of everybody trying to do everything. And frankly, a glut of content and an overspend to a much more rational spend where we've gotten all back to doing what we're really good at and providing consumers access to all that goodness. through these bundles. And so I think that is a commercial path to getting a lot of the value. And we're seeing it happen already. And as David said, the good news is people are seeing that and it's gaining a bit of a momentum across the world, not just with global players, but frankly, with regional and local players as well. And so we think that's an exciting new growth factor for us as well.

And sports will be a pressure point. Some regional players are becoming more and more dependent on sports and rental sports. And the ability to really build a long-term platform on short-term sports rights has not been a good story in the past, and it's unlikely to be a good story in the future.

And then, Kanaan, on your financial follow-up, look, as you saw in the letter, we're not intending to give consolidated financial guidance this year, as we did in the prior year as well. But we have a lot And I'll just recap some of the points we put in there and give some additional context. So starting with B2C, you saw the $1.3 billion EBITDA target, very achievable from our perspective. And importantly, having gone through a $3 billion swing over two and a half years here in profitability, I do think we have now earned the flexibility here to make trade-off decisions, get behind what's really working, fuel further growth or optimize for profitability where we don't see those opportunities. I think that's a pretty specific guidance that you can model. On the studio side, you're right. We do have a lower comp in 2024. We talked about the limited avails for content licensing in the prior year. That's obviously getting better. We have a humming TV production business, which we expect to continue. growing and improving in profitability. Channing's team is already doing a phenomenal job. And then, you know, JB, you may have seen the restructuring of the games unit that JB has implemented, you know, towards the end of last year. So with that, we should be in a much better position in 2025 as well. And then, you know, I also believe that our film slate has a greater balance. And, you know, as we've discussed multiple times, we should be know with the uh process rigor uh we have implemented we should be doing better financially uh you know both in success and in the inevitable uh you know misses that you have to expect with a hit driven business as well so in a nutshell studios certainly very significantly better than even this year than uh than in the prior year and then the third point obviously is is the network business and i I don't want to create the wrong impression here. That business continues to face challenges. We have seen a weaker ad sales result in Q4 than what we had hoped for, what we had expected, frankly. We didn't expect a ton of political advertising, but CNN We had hoped for a greater benefit from the elections, which didn't come in. Now, going into the first quarter, we see some mild positive signals from the ad market. It's not a sea change, but we're seeing less upfront cancellations than in the prior year. We're seeing a scatter CPMs up moderately. But we also acknowledge that we have some work to do in terms of our linear portfolio Ratings and delivery. Channing has taken over that business as an additional responsibility, has put the team in place. There are a lot of content initiatives that are underway. You know, some new shows, you know, bailing out loud of the TLC team that's delivered so many hits in the past is doing very well. And then the thing that I'm most excited about is that Channing with her vast knowledge of the deep library at Warner Brothers and HBO is going to implement a strategy of much more efficiently utilizing those libraries. That's always been one of the core, you know, ideas from a synergy perspective here. So, you know, hopefully we'll be seeing some progress there as well. So, and then, you know, I called out on the affiliate side, the fact that, you know, we're expecting to continue to see sub declines quite too early to expect a a leveling offer or a significant moderation, slightly lower rate increases than in the past. We do have a great sports portfolio. And again, I'm very, very happy with how that sports strategy has been implemented over the past few years. But that does mean that we're seeing some incremental expense in 2025. Importantly, expense that will come back out in 2026, because remember, We have a half a season of the NBA this year, and that was a significant chunk of expense. And 2025 is only suffering a little bit on the expense side from having that expense plus the cost of the new rights. So we'll see a very significant improvement as we come out of the year into 2026. Other than that, we will continue to be very, very focused on cost. It continues to be a huge priority for the team. albeit obviously now from a basis of a cost structure that's already been improved very significantly over the past few years. And the last comment I'll make is on the international side. We continue to see trends in the linear market that are much better than domestically, not in the aggregate growing, but a much more moderate pressure there. even though in the current geopolitical environment, we have to acknowledge that there's some uncertainty there as well. So that's the reason why we're not out here with a firm, hard number for that business or the company in the aggregate. But look, we're making phenomenal progress in the transformation of our business. And the intention here is obviously to have those lines cross. And we see so much opportunity in D2C and the studio businesses, and we have no doubt that we're going to cross the lines at some point, but I'm not putting a timestamp on it. Thank you.

Your next question comes from Kutgan Maral with Evercore ISI. Your line is now open.

Good morning, and thanks for taking the question. I want to ask about free cash flow in the balance sheets. Booner, I know you just mentioned that you're not providing explicit consolidated guidance and walk through the moving pieces and the uncertainty ahead. So forgive me for the follow-up, but any chance you could expand on the free cash flow outlook for the year, particularly with the moving pieces across working capital? And I ask in part to get a better sense of where net leverage can move to from 3.8 times today, because it seems like we could see a healthy year of deleveraging ahead, but I can't really tell with the EBITDA commentary. So I would appreciate your perspectives. Thank you.

Sure. As you know, free cash flow has been one of our top priorities from a financial perspective, the most important metrics, and we have really changed the entire company's mentality here. This was not a fact anyone looked at three years ago, and we have a pretty well-oiled machine now. And that's one of the reasons why we continue to put up these strong cash conversion rates, even with some top line pressures, especially on the linear side. The balance sheet, I think, is in very good shape now. By the end of this quarter, we will have paid down $19 billion of debt since closing the transaction. And we will continue to be super, super focused on this. At the same time, I also want to reiterate that I'm not worried about any maturities. I view our capital structure as a real asset. The terms that we locked in between the rates and the maturity profile are an absolute strategic asset for this company. So we'll continue to focus on bringing that down further. I continue to believe that two and a half to three times is the right leverage target for this company. But it's not the be-all, end-all, end-all, be-all, I think, that is the target of this company. And specifically for free cash flow in 2025, again, we're going to continue to focus on it. Talking through some individual building blocks, we want to continue growing content investments, albeit with continued improvement of our ROI against those investments. And I see evidence of that every day. You know, moving further through the free cash flow walk, working capital was, you know, will be strong again in 2025. We did have a good result in 24, even though there was a drag of almost $500 million from paying down some of our securitization facility opportunistically, which I don't expect to happen in 2025. We'll obviously benefit from lower debt load and responding interest. payments, we are going to see a little more capex as we expand our production footprint predominantly in Leavesden, expanding our capacity there. And restructuring expenses are going to continue to come down. But to your point, the actual dollar amount in the end is going to be mostly driven by the resulting final EBITDA number, of course.

Very helpful. Thanks, Gunnar.

Your next question comes from Rich Greenfeld with LightShed. Your line is now open.

Thanks for taking the questions. I've got a few, but hopefully they're quick. Given your comments about sports costs that penalize 25 until the NBA ends after the first half, how should we think about the net sports cost savings for 26 versus 25? Disney's also, this sort of goes to JB's commentary, Disney's dropping a whole bunch of sports. You're probably going to have half the UFC available, all of F1, and Sunday Night Baseball is obviously now available. But it doesn't, given your renting sports comments, should investors assume that you don't have interest in any of those sports rights at the moment? And then just finally, to follow up on the earlier question on your new affiliate deals, do you get any type of minimum penetration guarantees for max when you included, you know, as a wholesale as part of these packages? I know you used to get minimum penetration for your cable networks. I'm curious how that works for DTC.

Thanks, Rich. Look, we like sports, but we're very disciplined and we're opportunistic. So we're, we're money good on almost all of our sports in this company. And we, We've worked very hard to build our free cash flow, our EBIT, to pay down debt. And I think the critical element for us, as we look at our streaming service, is the quality content. The movies, the series that Channing and Casey does, that's the leading edge of what consumers and our library, that's the leading edge of the value equation. And we own that. So when we launch Harry Potter... you know, in a year or a little over a year, we'll have 10 consecutive years of Harry Potter and be able to advertise that globally around the world. That kind of investment also pays off in merchandising, in our smaller theme-oriented parks. And so our focus is let's really spend economics on where we can get the best return. There are sports rights that we can look at opportunistically and say we can make a real return on. But we don't need any more sports anywhere in the world in order to support our business. We would buy sports if we think it would enhance our business. And it's going to get more difficult. Some of those prices being paid and some of the competitors are opting to go to sports instead of doing what we do. Because what we do is long cycle, it's hard, and it's not easy to do what Channing and Casey and Mike and Pam and James Gunn does. So when I see a real push to pay a lot more for sports to get effective, guaranteed audiences or an audience that you could really model versus building it on great IP like Batman or the Penguin or You know, I think that's a good thing for us because that's where we're going to really build the value, and that's what we build our brand around.

And then, Rich, on the penetration and carriage commitment question, a couple things. One is it's not a one-size-fits-all, and globally we have a variety of different models in play. The second is obviously we're doing soft and hard bundles. In the soft bundles, obviously, there's no penetration or carriage commitments. In the hard bundles, there's plenty that do have carriage or penetration commitments, and then there's others that don't. So it's really kind of a mixed bag. It's hard to say it's one particular model, but we certainly do, in a variety of cases, do have obligations and commitments, and that's part of what we obviously, the reasons we pursue them is that we do have uh carriage commitments um like we've done in the uk with sky like we've done in other markets uh across the world uh where the partner is agreeing to distribute it to a you know a fixed number uh of their uh subscriber base so uh how much is the 26th i'll just add one i'll just add one one last thing on the sports side to to be specific we will see several hundred millions of dollars of sports expense come out in in 2026

To be fair, there will be some associated ad revenues as well, but this should be certainly a few hundred million dollar improvement in 2026 over 2025. Thank you.

Your next question comes from Mike Ng with Goldman Sachs. Your line is now open.

Hey, good morning. Thank you for the question. I just have two related to DTC. It was encouraging to hear about the 150 million plus subscriber target by the end of 2026. Of that, you know, roughly 35 million subscriber growth over the next two years. Any thoughts on, you know, how much is domestic versus international? Sounds like, you know, the comments around the international launches and the hard bundles seems like it's more international, but just wanted to get your thoughts around that. And the related ARPU pressures because of these growth drivers, is that more of a comment around ARPU potentially being flattish from here, or could we actually see ARPU down a little bit before normalizing and returning to growth? Thank you.

The U.S. is a pretty mature market. We think that there's still some growth given the quality of our service. And we're fighting for that. A lot of the growth may come from price as we play around with the quality of what we're providing versus the cost of what we're providing, as well as how many people in a home can use the service and that'll be rolling out. But this idea of a global media company and a global streamer and being able to scale And that's the point that we're pushing on right now on an open door. And that's what we think when we look around. There's not a lot of players playing that game. So, JB?

Yeah, I mean, I think, Mike, a large proportion of the growth will come from international just because, again, as David mentioned, we've got a material footprint outside the U.S. that we're not even reaching yet. And so that international growth will come from launching in new markets as well as penetration growth. So that's the answer on the first question. On the ARPU question, you will see some deterioration in the ARPU in the near term. But again, you know, it's at this point of our expansion to be given that, you know, you think about things like our ad light offering prior to about, you know, 15 months ago was only available in one market. It's now available in over 45 markets. um that's taking time as as we go with a lower priced uh uh uh arpu uh or price in in some of these markets uh and uh and build up the advertising revenue stream uh that will take some time as we launch international markets in asia uh which is a region that has generally lower our proves you'll see some obviously continued pressure that comes from that uh and then As we do recognize that trying to get the product in the hands of more people more quickly is a priority, as we do these attractive hard bundle deals where we do give up a little bit more on pricing to get immediate scale and distribution, that will as well. So you will see that pressure go on, but we'll continue to manage the business smartly in terms of looking at our subscriber acquisition costs and balancing that with the right LTV profile. And we think there's a lot of room still to lean into that equation based on the numbers we're seeing. And medium to long term, we're very confident we can get back to ARPU growth even after this expansion period here over the next sort of 12 to 18 months. Great. Thanks, David. Thanks, JB.

Your next question comes from Ben Fineburn with Morgan Stanley. Your line is now open.

Thanks. Good morning. And thanks for the shareholder letter. I think it's helpful. There's three sort of long-term kind of, I guess you wouldn't call them guidance, but long-term goals that you guys have talked about either in the letter or this morning. one for each segment. I was hoping you could talk a little bit more about. In networks, there's a comment that you think you can stabilize segment revenues over the next few years following the MVP agreements. That would be certainly exceeding the market's expectations. I'd love to hear a little more about that outlook. The 20% margins at D2C, any timeline that you'd want to share with us at this point, I think you'll be probably around 10 plus for 25. And then, David, the $3 billion plus of studio, I think obviously last year was tough, but even the prior year, you were kind of in the low twos. So how can you help us gain confidence across those three metrics, all of which I think would drive healthy value for your stock and upside to expectations? Thanks a lot.

Yeah. Okay, Ben, thank you. Let me take them one by one. On the network side, I want to make sure the comments are understood properly and we're not expecting sort of, you know, revenue stability as in sort of zero growth or decline, right? What we're talking about is, you know, stabilizing, you know, our position within, you know, the industry trends. And certainly we do hope that some of the, movement that we've now seen in in recent affiliate renewals over time will have a positive impact on the um on on the industry overall overall but you know don't take this as sort of you know guiding to uh you know flat revenue from uh from linear but i do think our hand today much better than it was uh maybe six nine months ago um on the ddc side the 20 margin uh uh uh target you know it's it's one of those that uh We're going to manage. I have no doubt that we're going to be able to hit and exceed those margins, but we're not going to be managing towards a margin goal. It will be wrong. As JB laid out, we're looking at lifetime value relative to SAC. We now have a profitable business, and we will use the flexibility to make the tradeoff decisions. I'd much rather have stronger growth in 2025, 2026, 2027. maybe at the expense of a little bit of EBITDA margin, because it builds longer-term asset value. Hitting a margin goal a year early or late really doesn't help any of us. First and foremost, shareholders are going to benefit from the asset value we're building. But again, the margin target itself I think is very well in hand based on our plans. And then on the studio side, again, let's go back to what we discussed during the third quarter earnings call. I laid out some of the points that impacted 2024, among others, a year that had a very, very low number of avails in our content library. We know that 2025 and all of the years in the near future are going to have a much, much better profile. So that is a major part of the profitability of our studio. While the film and TV production drives the replenishment of the library, you know, availability dates are a major factor. The other point is, you know, I don't think we're going to see a year like 2024 again when it comes to what happened, you know, in the games business. This was a real outlier to the negative after maybe a bit of an outlier on the positive in 2023. But based on the restructuring that JB has implemented, you know, I think we're in a much better place. And remember, we have made real changes when it comes to managing our franchises. when it comes to driving the ancillary revenues and the consumer product segment experiences, tourism, retail, all those things are now coordinated from the moment of green light, as opposed to being an afterthought previously. And those are real margin opportunities for every dollar we spend. So again, I think we're going to see a real step up in EBITDA in 2025. But, you know, when David talks about getting the studio to $3 billion, that's not an end state. That's, you know, that's sort of fixing where we are right now and then growing from there. And we believe the studio has enormous potential beyond that.

Thanks, Gooder.

Our last question comes from John Hudlick with UBS. Your line is now open.

Great. Thanks for taking the question. Maybe just a quick one on skinny sports bundles. Despite the wind down of venue, it looks like sort of this distribution model is going to proliferate. You have DirecTV, Comcast, and it sounds like one's coming from Fubo. Just maybe, David, what's your initial thoughts on these bundles in terms of do you think that they're going to see meaningful adoption and drive any sort of meaningful change in either cord cutting or sort of affiliate trends at Warner Brothers? Thanks.

I think part of it is going to depend on the consumer value proposition. The idea of aggregating sports together and offering it on a contemporary platform where instead of thinking about channels, you can think about sports and go there and see it is very compelling. It was one of the reasons that we were driving behind venues. So some of these bundles, if you look at them as contemporary platforms that just provide a better consumer experience, is positive, but it really depends on the value equation. If it's very close to the price of the overall bundle, what we've seen over the years is that even though consumers might think that that is what they choose, when they do get the choice, unless it's significantly less expensive, they opt for the bigger bundle where they could see a wealth of other quality content. And so I think ultimately everything we're doing is going to be driven by providing a better consumer experience. And everything we do here is driven by that. And it's one of the reasons why we're so optimistic. When you put the TV set on and you see 18 apps and three people watching TV at the same time have their phones out Googling where a show is or where a sport is, it's not a good consumer experience. And the value creation over the last 50 years almost always follows a better consumer experience. And that's what we're doing with Disney. That's what we're doing with Verizon when we're together with Netflix. That's what we're doing on our own by having local sport, local content together with the best quality TV and motion picture content. And that's why I think there will be an aggregation in a meaningful way behind a couple of the bigger global players. Because consumers at some point, they're going to say, this is too cumbersome and too challenging. And I just want to put the TV on or I want to go to my phone or whatever device I go to. And be able to see the content that I love without having to come in and out of products and without Googling where things are. So I think that's going to be the wind at the back of this industry. And, you know, I think everyone's going to have to get on board with that because consumers are going to demand it. And that's where we're going. All right. Thanks, Dave.

There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.