The paragraph is an introduction to the Warner Bros. Discovery fourth quarter 2024 earnings conference call. It begins with the operator announcing that the call is in a listen-only mode and is being recorded. Andrew Slabin, Executive Vice President of Global Investor Strategy, then introduces key executives, including David Zaslav, Gunnar Wiedenfels, and JB Perrette, who will provide brief remarks before moving to a Q&A session. The presentation will include forward-looking statements under the Safe Harbor provisions, which may involve risks and uncertainties affecting future results. Further details and non-GAAP financial measures are available in the company's SEC filings and on their website.

David Zaslav discusses the strategic integration of Warner Bros. Discovery, highlighting its strong growth in the direct-to-consumer streaming business. The company ended 2024 with around 117 million subscribers across more than 70 countries, with plans to expand further into key markets like the U.K., Italy, Germany, and Australia. The platform, Max, gained 20 million subscribers in less than a year and aims for at least 150 million subscribers by the end of 2026. Zaslav emphasizes the profitability of Max, noting it is one of the few global and profitable streaming services, with direct-to-consumer EBITDA reaching nearly $700 million—a significant improvement over two years. He is focused on returning their studios to industry leadership and aims for $3 billion or more in EBITDA.

The paragraph discusses the growth and strength of Warner Bros' television business and its optimistic creative and financial outlook, particularly with releases from Warner Bros Pictures and DC Studios. Despite challenges in linear television, the company secured multi-year renewal agreements with major pay TV providers, providing stability. A reorganization, effective January 1, aims to enhance visibility into its streaming and studios business and offer strategic value. The year 2024 marked significant transformation progress, positioning Warner Bros. Discovery as a global media leader committed to sustainable growth. The Q&A session begins with questions about more transformative actions related to restructuring and linear business pressures. Jessica Reif Ehrlich from Bank of America Securities asks for updates on restructuring and comments on linear pressures in the shareholder letter.

Gunnar Wiedenfels and David Zaslav discuss the company's ongoing corporate restructuring and its benefits. Wiedenfels highlights the progress made in implementing a new structure, along with efforts to manage financial aspects such as tax implications. He anticipates these efforts will conclude soon. Zaslav adds that the restructure will enhance the company's strategic flexibility, visibility, and ability to respond to market disruptions while potentially unlocking shareholder value. While no significant changes in segment reporting are expected, the company plans to offer more detailed guidance on its global linear network, streaming, and studios to provide clarity during the first quarter earnings report.

The paragraph discusses the achievements of an affiliate team in securing rate growth and flexibility in packaging for 2024, with most deals completed and rates increasing. David Zaslav notes the stability and advantage gained from securing deals for years ahead. Gunnar Wiedenfels mentions that while domestic rate increases will slow, the industry has created flexibility for sustainability. Internationally, despite pressures, positive net revenue from renewals is seen due to concessions and cooperation on the direct-to-consumer (DTC) side, leading to overall growth.

The paragraph discusses an increase in revenue for an international affiliate portfolio, showing strong demand for the content internationally, although this growth has not yet been replicated in the U.S. Robert Fishman from MoffettNathanson questions the sufficiency of content diversity on Max to compete with larger SVOD platforms and the potential need for smaller streaming services to consolidate. David Zaslav responds, emphasizing the uniqueness of their global streaming service driven by quality original storytelling and an extensive library of content, including popular shows like "Friends" and "Big Bang Theory." He highlights their offering as a comprehensive quality package that includes sports and entertainment content, leveraging decades of legacy programming.

The paragraph highlights the company's strong positioning and optimism about its content lineup, with a focus on high-quality, locally meaningful products driving consumer and distributor interest. JB Perrette discusses their news and sports strategy, emphasizing the varying methods being tested across different global markets. In the U.S., they are shifting sports and news from ad-lite to premium and standard ad-free packages, while in Latin America and Europe, different monetization models are used. The company is committed to experimenting with these strategies to optimize customer engagement and effective business models.

In the paragraph, David Zaslav discusses plans to develop a separate digital and subscription business, leveraging the success of Mark Thompson and Alex MacCallum at the New York Times, focusing on CNN's strong digital presence. He emphasizes quality over quantity in content, particularly in Europe. Kannan Venkateshwar from Barclays asks about the company's strategic direction regarding asset management, questioning whether they see themselves as buyers or sellers in the current industry landscape. Additionally, he inquires about the expected growth in EBITDA in 2025, considering easier comparisons and trends.

David Zaslav discusses the media industry's future, emphasizing that only a few global media companies will thrive due to the growing importance of global reach and content appeal. He highlights the pressure on regional players to build platforms and produce local content. Zaslav notes that many high-quality regional players are now aligning with a strategy of bundling services, which could lead to industry consolidation. This bundling would enhance consumer experience by allowing seamless content movement. He suggests that his company is actively engaging in discussions to strengthen its position, keeping shareholder interests in mind.

The paragraph discusses the concept of re-aggregation in the media industry, highlighting two forms: structural and commercial bundling strategies. JB Perrette emphasizes the success of bundling, particularly in the U.S. with Disney, as a means to drive customer acquisition and reduce churn. The industry has shifted from an overspend on content to a more targeted approach, focusing on core strengths and providing consumers access through bundles. This strategy is seen as a growth opportunity globally, including for regional and local players. David Zaslav points out that building long-term platforms on short-term sports rights is historically unsuccessful. Gunnar Wiedenfels mentions the decision not to provide consolidated financial guidance this year while noting context from a recent letter.

The paragraph discusses the company's financial outlook and strategic decisions across its business segments. The Direct-to-Consumer (DTC) segment has met a $1.3 billion EBITDA target, demonstrating financial flexibility to pursue growth or optimize profitability. The studio segment is expected to improve in profitability due to a stronger TV production business and restructuring of the games unit. The film slate is more balanced, and overall, the studio's EBITDA is expected to be significantly better than the previous year. However, the network business faces challenges, with weaker-than-expected ad sales in Q4, particularly from CNN during the elections. Some mild positive signals from the ad market are seen in the first quarter, with fewer upfront cancellations than the previous year.

The paragraph discusses the state of the company's linear portfolio, mentioning moderate increases in scatter CPMs and content initiatives like new shows on TLC. Channing, with expertise from Warner Bros. and HBO, is tasked with optimizing their content libraries for better synergy. The company anticipates continued subscriber declines but is managing costs carefully. There's a strong focus on sports, which has increased expenses for 2025 due to the NBA season and new rights, but this is expected to improve in 2026. Overall, cost management remains a top priority amidst these changes.

In the paragraph, the speaker discusses international trends in the linear market, noting they are better than domestic trends but still face moderate pressure due to geopolitical uncertainties. Despite not providing a firm financial prediction for the business or company overall, the speaker is optimistic about their business transformation, particularly in the DTC and studio sectors, and anticipates crossing key performance lines in the future. Kutgun Maral from Evercore ISI then asks about the free cash flow outlook and net leverage potential in light of the company's current financial position and uncertainty. In response, Gunnar Wiedenfels emphasizes the importance of free cash flow, which has become a top priority for the company.

The paragraph discusses the company's financial strategy and outlook, highlighting their success in maintaining strong cash conversion rates despite some revenue pressures. They have paid down $19 billion of debt since a recent transaction and aim to reduce net debt further, targeting a leverage ratio of 2.5 to 3 times. The company plans to continue growing content investments while improving ROI and expects strong working capital in 2025. They anticipate benefiting from lower debt and interest payments, planning to increase capital expenditures to expand production capacity, particularly in Leavesden. Restructuring expenses are expected to decrease, with the final EBITDA figure being a key determinant of financial outcomes.

In this paragraph, Rich Greenfield asks about Disney's sports cost strategy and interest in acquiring sports rights such as the UFC, F1, and Sunday Night Baseball. He also inquires about the guarantees related to the inclusion of Max in affiliate deals. David Zaslav responds by stating that while they are interested in sports, they are disciplined and focus on investments with good returns. He emphasizes the importance of quality content, particularly mentioning plans to launch Harry Potter content, which they believe offers significant value and returns through merchandising and other avenues. Their current strategy focuses on maximizing free cash flow and profitable investments.

The paragraph discusses the strategic approach to acquiring sports rights, emphasizing that they are considered mainly if they enhance the business. It highlights the challenges and high costs associated with securing sports audiences compared to building value through intellectual properties like Batman. JB Perrette mentions that their global approach to distribution varies, with some regions having commitments through partnerships, such as with Sky in the U.K. Gunnar Wiedenfels adds that significant sports expenses will decrease by several hundred million dollars in 2026.

The paragraph discusses the projected subscriber growth for a Direct-to-Consumer (DTC) service, targeting over 150 million subscribers by the end of 2026, with a significant portion of growth anticipated internationally due to the service's expansion into new markets. David Zaslav highlights the U.S. as a mature market with some growth potential, primarily through pricing and service quality enhancements. JB Perrette underscores that much of the subscriber increase will be international due to untapped markets and increased penetration. They also address concerns about ARPU (Average Revenue Per User), hinting at potential short-term stagnation or decline before returning to growth.

The paragraph discusses an anticipated short-term decline in ARPU (Average Revenue Per User) due to the company's expansion strategy, including the introduction of a lower-priced ad-lite offering in multiple markets and expansion into international markets with generally lower ARPU, like Asia. The company is prioritizing rapid customer acquisition and distribution through attractive bundling deals, even if it means compromising on pricing temporarily. They aim to offset this by managing subscriber acquisition costs and maintaining a favorable lifetime value profile, expecting ARPU growth to resume in the medium to long term, despite the current expansion efforts over the next 12 to 18 months. A transition to a discussion between Mike Ng, David, JB, and Ben Swinburne hints at strategic priorities and revenue stabilization goals following MVP agreements.

The paragraph features a discussion led by Gunnar Wiedenfels about financial outlooks concerning network revenue stability, direct-to-consumer (DTC) margin targets, and studio EBITDA for the company. He emphasizes that the aim is not just to maintain flat revenue from linear networks but to strengthen their industry position and capitalize on positive movements from affiliate renewals. Regarding DTC, Wiedenfels is confident in achieving a 20% margin target but suggests the focus should be on long-term growth and asset value rather than strictly managing to meet margin goals by a specific date. The ultimate priority is enhancing the company's long-term asset value for the benefit of shareholders, even if that means a temporary sacrifice in EBITDA margin.

The paragraph discusses the company's plans and expectations for future profitability, particularly in the studio and games businesses. It mentions the challenges faced in 2024 due to low content availability in their library and sees improvements from 2025 onwards. The restructuring under JB is believed to have placed the company in a better position, with changes in franchise management and consumer product coordination offering new margin opportunities. There is optimism about a significant EBITDA increase in 2025 and growth potential beyond the $3 billion target for the studio. The paragraph ends with John Hodulik from UBS asking a question regarding the proliferation of skinny sports bundles despite the winding down of Venu, listing DirectTV, Comcast, and Fubo as examples of this distribution model.

David Zaslav discusses the potential adoption of sports bundle packages at Warner Bros, emphasizing that their success largely depends on offering a compelling consumer value proposition. He believes that aggregating sports on a single, modern platform is attractive, as it simplifies the viewing experience. However, if the cost of these bundles is similar to that of larger bundles offering more content, consumers may still prefer those extensive options. Ultimately, the focus is on improving consumer experience, as evidenced by the cumbersome nature of multiple streaming platforms and devices currently cluttering the viewing process.

The paragraph discusses the trend of value creation in the entertainment industry over the past 50 years, emphasizing improved consumer experiences. It highlights efforts by companies like Disney and Verizon, in partnership with Netflix, to streamline access to local sports and high-quality TV and movie content. The speaker predicts that consumers will increasingly demand seamless access to their favorite content without navigating multiple platforms, leading to consolidation among major global players. The industry is expected to adapt to these demands to enhance consumer satisfaction. The paragraph ends by concluding a conference call.

This summary was generated with AI and may contain some inaccuracies.