Warner Bros. Discovery Aktie

Ladies and gentlemen, welcome to the Warner Bros. Discovery First Quarter 2026 Earnings Conference Call. [Operator Instructions] Additionally, please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mr. Peter Lee, Senior Vice President, Investor Relations. You may now begin.

Good afternoon, and thank you for joining us for our Q1 2026 earnings call. Joining me today from Warner Bros. Discovery's management is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, our Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games.

This afternoon, we issued our earnings release, shareholder letter and trending schedule and these materials can be found on our website at ir.wbd.com. Today's presentation will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements about the benefits of the proposed transaction between WBD and Paramount/Skydance, future financial and operating results, the combined company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of WBD's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current 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.

WBD is not under any obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time whether as a result of new information, future events or otherwise, except to the extent required by applicable law. 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 section of our website.

I will turn the call over to David for some brief remarks, after which we will take your questions. Before doing so, I ask that you limit your questions to topics related to our Q1 results and related business and financial topics. As noted in our shareholder letter, management will not be taking questions regarding the proposed Paramount guidance transaction. And with that, I'll turn it over to David.

I'd like to start by taking a moment to remark on the great life and extraordinary legacy of Ted Turner, who was sadly lost today. The words giant and visionary get tossed around loosely in our industry, but Ted Turner truly embodied both. Ted was a generational entrepreneur. Someone who believed deeply in the power of ideas and in telling stories and building platforms that could inform, connect and inspire people around the globe. His global vision for our industry was way before its time, impressively powerful. And alongside Ted through much of that journey was John Malone, whose partnership, strategic vision and shared belief in the power of cable helped build and strengthen many of these iconic businesses over decades. In many ways, it was a full circle moment for John and me when Warner Bros. Discovery came together in 2022. And we had the opportunity to work with the great businesses and brands that Ted imagined and built. Ted was so happy.

From CNN to TNT and TNT Sports, to TBS, Cartoon Network and Turner Classic Movies, Ted build businesses that changed the world. Decades later, they remain vibrant and central to who Warner Bros. Discovery is today. His vision and spirit are very much alive in all the work we do.

Ted inspired a generation and inspired so many young hopefuls like me to believe in the dream and join the cable business. With Ted, everything was possible. And along the way, he gave us all courage and gave us a great life and meaning. He changed the world. He was a great American and I love him. May his memory be a blessing.

Now turning to the quarter. We're excited to share the results of another strong quarter for Warner Bros. Discovery, marked by excellent progress in delivering on each pillar of our strategy and propelling our ongoing transformation. I'd like to start by highlighting how our team continues to translate the investments we've made over the last 4-plus years into entertainment people love and results shareholders expect.

Beginning with streaming, in Q1, we introduced HBO Max to important new markets while also delivering high-quality content that engage existing subscribers and attracted new ones. We successfully launched HBO Max in the U.K., Germany, Italy and Ireland, while our Sky licensing relationship has long made WBD content available in these significant European markets. For HBO Max to be a truly global and scaled streaming service, it was imperative that we build a direct relationship with these audiences. We prepared diligently and invested aggressively to ensure success, and we delivered.

Thanks to these successful launches, we've now meaningfully exceeded our guidance of over 140 million total subscribers by the end of Q1. We have strong and accelerating momentum and expect to finish the year with more than 150 million subscribers globally. And more importantly, we are seeing healthy acceleration in subscriber-related revenue growth, which we expect will pick up real pace in Q2 and through the rest of the year. We believe achieved a strong subscriber and subscriber-related revenue growth is delivering content that audiences love, and boy did they love what they're getting on HBO Max today.

Thanks to the brilliance of the HBO team, Warner Brothers Pay-1 Movies, Warner Bros. TV, one of the industry's best and strongest TV studios and an industry-leading film and television library amassed over a century, HBO Max's content is thriving in a highly competitive market. Fresh off its Emmy and Golden Globe wins, the second season of The Pitt reinforced its place as a cultural phenomenon, averaging more than 20 million viewers an episode. And A Knight of the Seven Kingdoms proved 1 of the breakout TV hits of 2026, not just rewarding Game of Thrones fans, by bringing many viewers into that universe for the first time. With 36 million viewers per episode, Knight of the Seven Kingdoms is among the most popular debut series in HBO history. In fact, HBO has never featured more active shows, averaging more than 20 million global viewers than it does right now, complemented by comedy hits like Rooster, limited series like DTF St. Louis and an international local language series such as Like Water for Chocolate in Mexico and Máxima in Argentina. We've created an offering that's distinct, balanced and earned a pricing premium through consistent excellence.

With euphoria now back, a new season of House of the Dragon on the way and the upcoming debuts of the television series, Lanterns, Stuart Fails to Save the Universe, and Harry Potter and the Philosopher's Stone on Christmas Day, we see nothing but strong growth ahead for HBO Max.

The second pillar of our strategy has been elevating our WB Studios back to industry leadership. Since bringing WBD together, we've transformed WB Studios on nearly every level. Last year, those changes broke through creatively and financially. If there were any remaining questions about Warner Bros. creative renaissance, they were answered unmistakably at this year's Academy Awards. Warner Bros. was recognized with 11 Oscars, including One Battle After Another, becoming Warner Bros. first best picture winner in more than a decade. And the most Oscars in the studio's 103-year history. From the beginning, we committed to attracting and working with the world's best creative talent to tell culture-defining stories and to marketing and releasing those films in theaters. These Oscar wins and the string of box office successes in our Motion Picture Group, validate our conviction. This year, Warner Bros. Discovery Picture Group will release 14 films, including Dune Part 3, Supergirl, Clay Face, Practical Magic 2 and starring Tom Cruise. We're slated to release up to 18 films in 2027, including Lord of the Rings, The Hunt for Gollum, Batman and the Superman's sequel, Man of Tomorrow. And Warner Bros Television continues to be one of Hollywood's most prolific independent TV suppliers with 80-plus active shows spanning more than 20 streamers and linear platforms.

As we are making strides in areas such as games and experiences where we believe we have meaningful unrealized opportunity ahead, we are well positioned to achieve our goal of at least $3 billion in annual WB Studio's adjusted EBITDA. The work we've done to return our WB Studios to leadership has set the foundation for the company's next chapter.

Finally, the third pillar of our strategy has been optimizing our global linear networks. Disruption in the linear television market has created well-known challenges. Faced with those challenges, our team has shown great resolve and ingenuity in keeping our network brands and content, highly relevant. We're seeing the fruits of those efforts across sports, news and general entertainment. We've significantly evolved our sports portfolio with a focus on breadth, value and international exposure. During Q1, we increased linear viewership of the Milano Winter Olympics by 50% compared to the Beijing Winter Olympics in 2022, and more than double streaming hours and tripled streaming viewers compared to Beijing in 2022. We had a record-breaking March Madness this year, with the most watched Men's National Championship game ever broadcast on TNT Sports.

And we're off to a strong start with both the MLB regular season and the NHL playoffs. We're also seeing resilience in general entertainment networks. We continue to innovate and refine our content strategy. And in Q1, we saw a 16% sequential improvement in year-over-year general entertainment delivery trends versus Q4. Even excluding sports, networks like TLC and TBS grew prime time viewership by double-digit percentages versus the prior year.

Increases were even more pronounced in news. The world has confronted a wave of recent disruption. As it has, CNN has proven again it's where people go for news they trust, delivering 30% year-over-year growth in total minutes spent across platforms in Q1. These strategic and operational successes all helped set the stage for the next chapter in our transformation. And no event was more significant in Q1 than our reaching an agreement for Paramount/Skydance to acquire WBD at a cash price of $31 per share. Our shareholders clearly agree that this offer represents outstanding value as 2 weeks ago, they voted to approve the sale to Paramount/Skydance.

We've said consistently that we're living through a period of historic disruption in media and entertainment. How content is made, how it's distributed and how it's consumed is evolving with increasing velocity. When you look across Warner Bros. Discovery today, in studios, streaming and global linear networks, each segment of our business is demonstrably more nimble and better positioned for future success than when Warner Bros. Discovery was formed. That's a testament to the hard work and dedication of our talented team of 30,000-plus colleagues who have remained focused and relentless in pushing Warner Bros. Discovery forward. With that, we'll now take your questions.

[Operator Instructions] Your first question comes from Rich Greenfield with LightShed Partners.

Now that we've sort of finished the major European rollouts, and it feels like sort of your global rollout is sort of now complete. I was just wondering maybe get your observations, HBO Max as a business and sort of where the product stands today. Anything you could sort of say about where you think the future of HBO Max is? And then just Disney and this morning really highlighted the point that sports is -- really has a growing importance of streaming platforms. It's why they want to keep ESPN inside of Disney. You all have a very different perspective on sports and streaming. It'd be helpful to understand what you see or your unique perspective.

Yes. Thanks, Rich. It is an exciting moment. I think when we look at the 4-year journey that we've been on, when we set out in 2022 and said we believe the world is going to go to -- the winners are going to require a global footprint. You have a handful of big global streamers that could be successful, and we knew that we had to be one of those. And we worked tirelessly. We got, obviously, a world-class team together pulling from the best of the tech and the media world. We reinvested and spent that first year. We've developing a whole new platform of product that was flexible and dynamic and allowed us to deliver high-quality and consistent streams of all content types, including high concurrency things like the Olympics. We obviously went global. We are in about 40% of the TAM at the time. We're now more than double that. And we kind of relentlessly, David and myself, Casey and a group of us just iterated on the strategy and the positioning over sweating it every day, every week, every month. And ultimately, we made a mistake, plain mistakes along the way, but kept being led by both the customer feedback and the data and transforming the service into this must-watch service that people value because it does hit different and the delivers on this better is better, not necessarily more is better premise. And then lastly, obviously, look, we're hugely beneficiaries of the incredible team that Casey and the entire WBD content creative leadership has put together with a content slate that has gotten better, broader and more consistent 365 days a year throughout this journey. And so we sit here today when we started this journey with sort of mid-90 million subs. We've added almost 50 million subs over that period. We were losing $2 billion. We're now -- we made $1.4 billion last year. You saw the results today, growing increasingly double digit on the bottom line. We're seeing the benefits of the operating leverage that we have, start to really kick in as the growth on profits is really starting to accelerate as we look throughout the year. And so I think going forward, the great thing is we still have multiple different levers of growth, Rich, to your point. We're still nascent in some of these big markets. We have, as I said, stronger and stronger slates, obviously, going into 10 years of Potter is going to be a huge tailwind for us with, I think, the biggest streaming event certainly for us ever coming at the beginning of the year and over the next few years. So the content slate continues to strengthen. We're moving more and more wholesale subs into retail and the ARPU and the LTV of that is accretive and looks better. Our ad sales business, particularly internationally, is still very nascent and growing our product, which we've talked about a lot. We've invested a lot to get it better and it still has a lot of things that we're moving day-to-day to improve, and that will help engagement. And as you've the engagement and the churn metrics we're starting to see particularly over the last couple of months. And as we look out for '26 are the best we've seen in the 4 years that we've been here. And so we're very excited about where we are. It's taken a lot of sweat, an incredible team effort to get us here. But we also see a great and promising future where the momentum is actually getting stronger as we look out across the year and into -- beyond '26. On sports, I would say it a little bit differently, Rich, is that we know the power of sports and we've been playing in that space, whether it be in Europe, in the international markets for 15-plus years. I think the thing is we know the power of sports, but we are more wanting to prove out the ability to do sports profitably. And that's a much harder equation in the streaming space. We know it can be acquisitive. We know it can help engagement. And there's indirect value to those. And so we're experimenting, I'd say, much more trying to figure out what is that secret sauce that allows you to do sports and streaming at are profitable. But we have various different experiments. We're obviously doing some cast here in the U.S. We're doing a stand-alone premium sports offering, ala carte in the U.K. We have sports bundles into the basic HBO Max tier in Brazil and Mexico. We have stand-alone sports in Chile and Argentina. So we are -- absolutely, we see the power of it, but we are going to continue to be disciplined and experiment to try and figure out what's the model you need to use and exploit it in the streaming space that can deliver engagement and subs, but also profit. So HBO Max is a global high-growth asset. It's really the linchpin of our ability to have our ambition to split the company. And now I think the piece of the business that you will see will be a huge benefit to Paramount when our deal closes together with their assets. But it's a -- for JB and Casey and then the whole creative leadership at Warner Bros. Mike and Pam and James Gunn and Channing to all come together and get behind this idea of a global HBO Max and to turn it from losing over $2 billion to effectively a $4 billion turnaround, but more importantly, a high-growth asset that makes -- that made our studio and streaming business a sustainable growth asset, which was the basis on which we executed the strategy of splitting the company, which ended up with the interest of multiple players and ultimately Paramount.

So for JB and Casey and the whole team and the creative renaissance that went behind it, that is the leading growth asset at Warner Bros. right now, and I think it will continue to be. And that's probably the most important asset. It pulls together all of our TV library. It pulls together all the great Motion Picture content that Warner Bros. and DC puts together. And having that kind of a leading growth asset, as JB says, as a global player is something we're excited about, particularly in light of it coming together with even more strength from Paramount.

Your next question comes from Robert Fishman with MoffettNathanson.

David, with the launch of YouTube TV Sports and just overall cord-cutting trends. Curious what your latest thoughts are on how the pay TV landscape will evolve from here. Are we reaching a floor for sports fans? And what do you think happens to the cable networks that aren't primarily sports? And then just maybe following up on your first comments. You've long discussed the advantages of bundling streaming services in the U.S. while also thinking about the international DTC opportunity. But curious through all of your different conversations with Netflix and Paramount, any updated views you have on the power of a global scale streaming service and how some of these smaller services can still best compete over the long run?

Well, let me start with the second one, the idea of bundling or consolidation. When you put your TV set on and you see in any market around the world, 15 to 20 choices of apps that you come in and out of. And when you're talking about what you want to watch, you've got 3 people on a couch, Googling where it is and how to get in and out of it. It's just not a good consumer experience. And for 4 years, we've been saying that, that the consumer experience is going to get restructured and that there will be a lot of value creation in those that can be one of the emerging leaders, and more importantly, for consumers to have a better experience. And we saw with Disney that it was that bundling together, we -- the churn went down. It was a better consumer experience. It was also a better economic experience. We've been working on bundling. And the idea of Paramount coming together with Warner Bros. is in that same vein of creating a service, which David and the team will work to do which is -- will create an even more robust and compelling consumer experience. JB, you've been leading around the world this idea of bundling for us. And 3 years ago, you and I were talking about it in the last 1.5 years, loads of regional players have been working with you and with Casey on doing that.

Yes, Robert, it's -- we're obviously big believers in it. We've seen the benefits of it from an LTV perspective on our base. As David said, we had 3 years ago or so, no bundled subscribers from -- bundles and other programmers. And now in addition to obviously the Disney bundle here, we launched in Germany with RTL Plus. We've launched with in Southeast Asia. We've had -- we had part bundles in LatAm and across, frankly, the global footprint. And the reality is we see meaningfully our highest LTV subscribers coming from some of those bundled subscribers. And so it's beneficial to marketing expense -- it's obviously a huge beneficial to churn. And ultimately, it's a very healthy and growing part of the business that I think will be an increasingly important part of the entire ecosystem.

On the ecosystem for channels, we had a great quarter, focusing on doing what we do, which is try and create content within sports, food, home, general entertainment. Our overall networks were up significantly. A real focus on the creative team of creating more content that nourishes our viewers. The sports also for us is doing very well. CNN Mark's team, the ratings were up significantly. Your guess is as good as ours in terms of what happens to the overall universe. It's encouraging what Chris Winfrey strategy has been at Charter. And if you look at their actual multichannel subscribers, they're almost flat. And they're providing a very compelling experience where you can go from cable over and enjoy some of the best programming that you want on services like HBO Max or Disney. So I think our -- we can't control that. We can help it by doing great programming, and that's what we're continuing to do, and the numbers reflect that.

David, if I can add one point that's important. We have long stopped viewing our linear networks as linear networks. We have creative teams that are creating fantastic content that works across platforms. And we are generating significant returns with every dollar we're spending in that business. And increasingly, we're seeing very significant revenue contributions growing from international and in some cases, more than 50% of revenues coming out of streaming utilization of this content. So the demand for this content and the viewer engagement is still there and continues to be a great business for us. .

Your next question comes from Steven Cahall with Wells Fargo.

As we think about Studios, the guidance, I think, for adjusted EBITDA is relatively in line with 2025. So first was just looking to understand that a level deeper. You had a really strong slate in 2025. I know you've got a big slate this year, too, but just trying to understand if there are drivers to that profitability in 2026 that maybe offset a slightly smaller slate expectation in 2025? And then some folks like Paramount account for internal licensing a little differently. I know that was a contributor in Q1 as well. But is there any good way for us to just think about the revenue or the EBITDA of the studio business, excluding that. I know at the consolidated level, it comes out, but just kind of thinking about the studio level? And then on networks, I think EBITDA was down roughly about the same as revenue, which was a big improvement on the back half of last year. Any way that you kind of think about the revenue plus EBITDA trajectory longer term of networks, do you think you can continue to hold EBITDA at or better than the pace of the top line?

Steve, this is Gunnar. Let me start with the internal licensing question. It really doesn't make sense to exclude internal content sales from the studio performance. That's why we have chosen to go with this internal fair market value model because whatever we sell internally, we could also sell externally. And the only thing that would change is we would probably, in many cases, generate a little less profit over the ultimate period for that content. And we would generate that profit a little earlier because it takes JB team a little more time to generate the profits by utilizing content internally. So that's why these things have to go hand in hand. We have a lot of disclosure around what gets eliminated. And what I've said in earlier calls is that over the past few years, as we have pretty dramatically shifted from a heavily externally focused content licensing to a more internal utilization model. We have essentially created value in our company profits that are eliminated and sitting on the balance sheet that are beginning to bleed back in a much more material way into our consolidated profits as we're getting the benefit from utilizing the content, which took a little longer to hit the P&L, but it's going to be a very helpful driver for us.

On the studio side, look, the -- you mentioned this 2025 has been a fantastic year for the studio and an absolutely outstanding year for the Motion Picture Group. So maintaining that profit level, I think, is healthy and is certainly an ambition for the team. We also have that quarter-over-quarter fluctuation for our content sales. As you know, the timing of the renewal of certain deals is always slightly different and lead to bumps in the individual quarters. And then if you think about sort of longer-term growth opportunities, one thing that we have also talked about multiple times, and that is flowing through our numbers increasingly is our opportunity that we see in experiences in consumer products, an area that historically hadn't received a lot of attention. And you know that we have opened a Potter tour in Tokyo. We're working on another one in Shanghai. We have smaller experiences activations. And so these things are increasingly going to contribute to our profits and that will be the case this year as well.

And then on the linear network side, look, I want to be -- I want to stay away from giving very specific guidance as to where we see the revenue trajectory and the -- our ability to maintain EBITDA levels. What you did see this quarter is some very encouraging signals, much better delivery and share gains in many of our key international markets for the business. As I said earlier, increasingly, we're seeing the monetization shift, still generating fantastic returns with a different mix and incremental value coming from international markets streaming utilization, et cetera. And then as we have said before, we are continuing to be very, very focused on efficiency management. Not to the extent anymore as in the early years after creating Warner Bros. Discovery, where we were able to to offset very significant percentages of the revenue declines, but we do still see opportunities. And clearly, AI, I think, is at a stage where this has become -- going to become a more meaningful contributor to efficiencies and greater volume more easily created in certain areas in our workflow. So I do think there is a lot to be optimistic about again, wouldn't be the right time, I think, at this point to create sort of new longer-term guidance for that business.

And your last question will come from Kannan Venkateshwar with Barclays.

So David, you scaled one or -- sorry, discovery over the years by orders of magnitude. There are obviously some areas where scale benefits, so things like maybe the tech stack or marketing. But is there an done that you start to hit as you get larger? Do the benefits of scale basically increase proportionately with with size? I mean, reason I'm asking this is we are starting to see some engagement stagnation across premium services, especially the larger services, Netflix engagement being an example. And then also on the legacy TV side, I mean, it took a little bit of time for you to integrate the Warner assets with Discovery. And so would it be good to get your context on -- as you scale the business, where did you start hitting the hurdles? And beyond a certain point, that scale become a disadvantage. And then, Gunnar, from your perspective, the spin that was being planned, are there costs right now in the P&L that would not have existed if the spin was not being planned? I mean is there some of these efficiencies potentially in the future?

On Scale, having more scale of great content and storytelling on your menu is clearly valuable. What we learned is aggregating it all together in one place, isn't always the best way to create the most value. So as Gunnar was saying, there's a lot of our content on our channels domestically and around the world. The JB and Casey have found is really helpful in engagement and attraction on HBO Max. There's some that we get significant incremental value by reselling it on AVOD to niche users that have a great love for our affinities. And so same thing was the idea of putting sports together with all of our content in every market, in some cases, putting that scale all in one place, we were better, like, for instance, in the U.K. we have TNT Sports. We put all of our entertainment content in one basket and then we put all of our sports content in another. And we think we can nourish different audiences in different ways and get more value. But having more premium high-quality content that when people could watch anything they want is what you really need in order to be successful together with a global footprint. I mean, the biggest issue on scale is global. When you're competing regionally, if you're a U.S.-only business or if you're if German speaking only or if you're Mexico only or Brazil only, those used to be very compelling businesses. But as TikTok and Instagram and and Facebook together with Amazon and Netflix and HBO Max and Disney start to become more global and have the ability to amortize content above the globe in that way and see what works and then restructure that content in different ways to create more value. It just -- it becomes harder and harder to be a regional player. JB, you've been in this fight.

Yes. I mean I think the short answer to your question is we don't see that moment coming anytime soon. I understand the question of some of the leaders in the space who've been at this for 15 to 20 years, maybe seeing some maturation that is a very different situation for us that we've been at this for 5 or 6. And so we're in the early innings where they may be in more mature innings. And the levers that I described earlier are the same levers that from certainly an operating leverage standpoint financially, we're seeing great opportunities to drop more and more dollars from the top line growth to the bottom line, given a lot of, obviously, the investments we've made on tech platform and some of the core infrastructure. And those are still a long way to go in terms of penetration in some markets, including very nascent markets that obviously we've just recently launched in that we're still in the very early days of that growth trajectory. And at the end of the day, as we said oftentimes, the content, our product is the content. And the slate and the data that we've used to try and deliver clearer and clearer views of the types of content that will better nurture and satisfy we'll bring in more customers. We're getting smarter and smarter at it. and the slate that you keep seeing delivered by Casey and the team, which already is a sort of best in the business in terms of batting average, we keep doing better and better and getting better and better slates that are delivering more and more for our customers. And so between that -- and then also the ad sales benefits continue to improve the product, which is also where we are in the early innings versus others who are much more sophisticated because they've been at it longer. All those ingredients what lead you to believe that we still got years to go in terms of operating -- getting more and more high operating leverage from this business. as we continue to sort of grow across the different levers. Gunnar?

Yes. Kannan, your question on separation-related expenses in the P&L. There are still some separation-related expenses flowing through. But I just want to explain the geography a little bit. Those are costs that you will find below the line. So they will have a very marginal impact only on EBITDA. There is a lot going on below the line. If you look at our restructuring expenses, you see the Netflix break fee that we didn't even pay flow through our P&L, et cetera. And that is going to continue. It's not only the separation-related work, but also expenses related to our sales process and the pending sale. The interesting point here, I think, is for free cash flow. You did see that we had a pretty meaningful negative cash impacts last year. We may not get quite to that level, but pretty close in 2026 as well. We flowed $100 million roughly in negative cash impact through the first quarter. And again, there will be more coming through a combination of advisory fees, but also incremental interest from the bridge, tax leakage, et cetera, et cetera. So that's going to continue to be a factor, and we'll keep pointing it out over the course of the year.

Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect.

Good morning. My name is Claire, and I'll be the conference operator for today. At this time, I would like to welcome everyone to the call to discuss Paramount's acquisition of Warner Bros. Discovery. [Operator Instructions]

I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Corporate Finance and Investor Relations. You may now begin your call.

Good morning, and thank you all for joining us. I know it's special early for those of you on the West Coast. Today, we'll be discussing Paramount's agreement to acquire Warner Bros. Discovery. I'm Kevin Creighton, EVP of Corporate Finance, Investor Relations.

With me today is our Chairman and Chief Executive Officer, David Ellison; our Chief Strategy and Operating Officer, Andy Gordon; and our Chief Financial Officer, Dennis Cinelli.

As a reminder, we will be making forward-looking statements today. The forward-looking statements include statements concerning a merger agreement between Paramount and Warner Bros. Discovery, including with respect to the expected timing of the transaction's completion and the effects thereof. All forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause Paramount's actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements.

The slides we'll present will be posted to our website after the call.

With that, I'll turn it over to David.

Hello, everyone. Thanks for joining us this morning.

Before we begin, I did want to acknowledge the events ongoing in the Middle East. We are hopeful for a swift path to peace and our thoughts are with the people in the region as well as with our brave servicemen and women in harm's way and their families.

We're here today to announce our definitive agreement to acquire 100% of Warner Bros. Discovery. We're pleased we were able to reach this resolution with the WBD Board and management team and believe this will be a transformational combination for the industry, pro-Hollywood, pro-consumer, pro-competition.

As you know, the terms of the agreement are $31 per share in cash, valuing Warner Bros. Discovery at approximately $81 billion of equity value and $110 billion of enterprise value. This transaction marks a defining moment for both companies, and we are incredibly excited about what it means for Paramount, Warner Bros. Discovery and for the broader industry going forward.

By uniting our iconic studios, complementary streaming platforms with a global footprint, our cable and linear networks and our world-class IP, we have the opportunity to help shape the future and build a next-generation media and entertainment company. This has been our goal since day 1. This is not about consolidation. It's about reinventing the business. We want to expand our reach and enhance our ability to create the world's most compelling stories and experiences, and we're incredibly excited about this transaction, and it will accelerate that ambition.

With this in mind and to better understand the opportunities ahead, we will now walk you through the transaction and its key strategic and financial components.

Let me start by saying, as a producer and lifelong fan of film and television, I firmly believe that visual storytelling is one of the most vital art forms that we have. And we saw this as an extraordinary opportunity to bring together these 2 legendary companies with a combined 200-plus years of storytelling between them. It isn't just about the legacy of these storied studios. It's about building the next chapter of what stories can be and who they can reach.

Ultimately, this combination will enable us to better compete in today's rapidly evolving entertainment marketplace where storytelling, combined with world-class technological expertise is essential in driving value creation for consumers, creatives and shareholders.

This transaction will deliver benefits across 3 key pillars. First, the combined company will expand the creative capabilities of both Paramount and Warner Bros. Discovery, producing a consistent pipeline of high-quality content across its platforms and third-party distributors. Our aim is to build on the rich storytelling legacy of both studios to become the premier destination for the industry's leading creative voices and help realize their visions. Second, by bringing Paramount and Warner Bros. Discovery together and uniting our direct-to-consumer businesses, we have an opportunity to reach more audiences and compete effectively with the leading streaming services. And finally, with a presence in over 200 countries and territories worldwide, with our portfolio of cable and free-to-air networks, including CBS, CNN, TBS, TNT, Food Network, HGTV, MTV, Cartoon Network, Adult Swim and Discovery Channel, we will provide more opportunities for global distribution and local production.

Our combined company will be home to many of the greatest, most recognizable and beloved franchises in the world from Harry Potter to Top Gun, Star Trek to Looney Tunes, Game of Thrones to Yellowstone. This represents tremendous opportunity, and we fully intend to invest in the creative engines of both studios, making them the most sought-after destination for the industry's leading creative talent.

As we have said consistently, we are committed to delivering a broad pipeline of high-quality storytelling, including 15 theatrical films per year per studio for a total of at least 30 films annually. We've already demonstrated our ability to increase output with 15-plus films currently dated for 2026, up from 8 releases in 2025 when Paramount combined with Skydance. At the same time, Warner Bros. Pictures delivered a powerhouse slate last year with Superman, Minecraft and Sinners propelling the studio past $4 billion in box office. We've also echoed our commitment to a minimum 45-day window globally before films become available on PVOD. And we will continue to adhere to specific windowing regimes in geographies we operate in worldwide.

HBO is a crown jewel in this business, having brought to life some of the most powerful stories told over generations. And under our ownership, they will continue to have the resources and independence to do what it does best. At the same time, we believe in licensing our content to other platforms and producing third-party content in our television studios, and we are committed to growing our studios and the popular shows they create.

DTC growth will be essential to the success of the combined company. To enhance competition and deliver viewers a truly compelling offering, we will combine the streaming portfolios of the 2 companies into one stronger platform over the coming years. Across the 2 platforms, there are over 200 million DTC subscribers today in more than 100 countries and territories worldwide, positioning us to compete effectively with the leading streaming services in today's marketplace. Our offering is powered by a complementary portfolio of fan favorite series and franchises, premium sports and trusted news brands. We are confident that by coupling these offerings, along with significant investment in technology and innovation, we can provide consumers significant value in a compelling and engaging platform.

Additionally, we will continue partnering with third-party producers around the world, investing in the most compelling creative voices and empowering them to bring their distinctive, high-quality stories to life. By supporting productions within local markets, we not only strengthened regional creative ecosystems, but also deliver authentic, culturally resonant storytelling that captivates audiences and excites our subscribers worldwide.

By combining our linear businesses, we will expect to boost cash flow, drive efficiencies and help manage market pressures. The unified platform will offer advertisers more compelling and impactful opportunities, including in marquee U.S. and international sports leagues and events like the NFL, UFC and internationally, the home of the Olympics.

Our linear portfolio is well diversified with a global footprint. And ultimately, we believe that these assets together will create more value for the ecosystem and for shareholders. And as we mentioned previously for Paramount, we believe that many of our linear channels have incredible brands that can be reinvigorated for a streaming and digital world.

Bottom line, this combination is pro-competition, pro-consumer and pro-creative community. We want to give audiences and consumers more of what they want and we want to enable the industry's leading creative talent to do their best work and have it shared with the broadest possible audience globally. This transaction will ultimately create a stronger Hollywood and global production ecosystem, one that expands consumer choice and unlocks opportunities for creative talent. It will deliver exceptional storytelling, powered by a broad portfolio of IP and bring those stories to audiences in more innovative and engaging ways through the advances in technology. And we're confident that at the same time, it will generate meaningful long-term value for shareholders.

I will now turn it over to Andy to walk through an overview of the transaction.

Thank you, David. As discussed at the top of the call, Paramount will acquire 100% of Warner Bros. Discovery for $31 per share in cash, valuing the company at $81 billion in equity value and $110 billion in enterprise value. The merger has been unanimously approved by the Boards of Directors of both companies and its completion is subject to customary closing conditions, including regulatory clearances and approval by the Warner Bros. Discovery shareholders, with a vote expected in the spring of 2026.

The transaction is funded by $47 billion in a new equity investment fully backed by the Ellison Family and RedBird Capital Partners. The new equity will be priced at $16.02 per share. I'll dive deeper into that in a moment.

The transaction is also backed by $54 billion in debt commitments from the Bank of America, Citigroup and Apollo. This includes $39 billion of new debt and then another $15 billion to refinance Warner Bros. Discovery's existing bridge facility. The $54 billion excludes our $3.5 billion credit facility, which is also being bridged by the same banks. We expect the pro forma company to have approximately $79 billion at closing of net debt, which we'll also dive into in a few minutes.

We have already funded the $2.8 billion termination fee as of last Friday, payable to Netflix under Warner Bros. Discovery's prior merger agreement. On the closing timeline, we expect to close in the third quarter of 2026. In the event this is delayed, Warner Bros. Discovery shareholders will receive $0.25 per share ticking fee for each quarter until closing, starting after September 30, 2026.

We have already made significant progress in securing regulatory clearances globally prior to the signing of our merger agreement. In the United States, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has expired, and there is no statutory impediments to close in the United States. We initiated pre-notification discussions with the European Commission already. And as an example of our progress, Germany and Slovenia have already given their approval to proceed. We look forward to working with the remaining regulators across the world over the coming months.

As I mentioned on the prior slide, the Ellison Family and RedBird Capital Partners will purchase new shares of Class B Paramount stock issued at a price of $16.02 per share. The terms of this equity investment were decided by a special committee of Paramount's Board comprised of independent directors who are represented by independent legal and financial advisers. As part of our capital raise, existing Paramount shareholders will have the opportunity to participate in a rights offering of Class B Paramount stock alongside an incremental to the $47 billion of new equity investment at the same price and on the same terms. The rights offering is expected to occur near to the closing date and more details will be forthcoming.

Before we get into the transaction valuation and our outlook for the business, I want to take a minute to give some context on our synergy target. As we've said previously, we expect to realize $6 billion plus in synergies within 3 years of closing. At Paramount, we're well on our way to delivering on our transformation, and we are using a similar plan here, though obviously on a larger scale.

It's important to note that the majority of our synergy target comes from nonlabor sources. Among the efficiencies we have identified, none of which we expect to include a reduction in production capacity, include consolidating our streaming technology stacks and cloud providers, including P+ and HBO Max, realizing global efficiencies in procurement and business services, optimizing the combined real estate footprint and the broader corporate overhead, driving efficiencies in marketing, optimizing spending on agencies and tooling and also migrating the combined company to a single enterprise resource planning, otherwise known as ERP system and combining other IT systems across the company. Again, these are just a few examples of where we believe we will find meaningful efficiencies as we unite these storage companies, working together as a team to achieve these results.

Finally, before we move on, I want to note that while we expect significant efficiencies and for that $6 billion to ultimately fall to the bottom line, it's important to note that we are positioning the business for investment in growth in addition to reducing debt over the near term.

Okay. So we'll touch briefly on the transaction valuation and leverage outlook. The transaction values Warner Bros. Discovery at 7.5x 2026 EBITDA on a fully synergized basis. On the leverage side, we expect to have a net debt-to-EBITDA of 4.3x on a synergized basis at close, inclusive of $79 billion of net debt. Based on our pro forma plan, we have a clear path to quickly achieving an approximate 3x leverage ratio within 3 years of closing, which will position us well with a healthy balance sheet and investment-grade credit metrics.

Touching on the sources and uses in the transaction and pro forma capitalization, a few notes. Our capital structure ensures we will hold a minimum of $5 billion in cash on our balance sheet at deal completion and accounts for all the commitments we have made to Warner Bros. Discovery as part of our merger agreement, including the $2.8 billion transaction termination fee already paid to Netflix, refinancing Warner Bros. Discovery's $15 billion bridge loan and rolling over $14 billion in additional Warner Bros. Discovery net debt.

Now let me turn this over to Dennis, who will touch on our pro forma financials and outlook.

Thanks, Andy. We will quickly touch on the pro forma financials.

Amid a fast-evolving entertainment landscape this unification will put us in a much stronger financial footing to capitalize on the growth opportunities ahead. Across both companies, we expect $69 billion in estimated 2026 pro forma revenue, $18 billion in estimated 2026 EBITDA, which is inclusive of 100% of our expected $6 billion plus of synergies. This gives us a strong base to drive growth and profitability as we reinvent the business for the future.

I will now touch briefly on our medium-term financial targets. Given the strategic levers and operating plans David and Andy spoke to, we feel confident in the path towards these financial targets. Of course, as things progress, we'll give more details on our outlook. But for now, we wanted to give some visibility into how we're thinking about a few of our key metrics, specifically revenue, margins and cash conversion.

On the revenue side, we expect to see mid-single-digit CAGR for the total company revenue, driven by the growth in our direct-to-consumer and Studio businesses. As for linear, we are in the business today, and we have taken a conservative approach to the ongoing linear declines over the coming years. As for margins, while we won't give explicit guidance, we do think the company will be a mid-20% margin company by 2030. That reflects disciplined management of linear businesses relative to the market trends, continued investment in and growth of our Studios businesses, and the meaningful scaling of streaming alongside increasing profitability. Our synergies will impact our profitability and not simply mask revenue declines.

And finally, as we've said many times, as owner operators of this business, we are very focused on free cash flow conversion. And our expectation is that we'll see over $10 billion in free cash flow, with approximately 50% free cash flow conversion by 2030 and continue to close the gap from there.

Now let me hand it back to David for some closing thoughts.

Thanks, Dennis. The combination of these 2 iconic companies and their world-class teams represents a unique and thrilling moment for the global media and entertainment industry.

We're bringing together 2 of the most respected and storied names in Hollywood. And in doing so, we have the opportunity to tell even more great stories and share them with a broader global audience, while at the same time, creating long-term value for our shareholders, and we couldn't be more excited for all that's ahead.

And with that, we're excited to get into your questions.

Thanks, David. Okay, operator, we'll now go ahead and open up the line for questions.

[Operator Instructions] Our first question comes from John Hodulik from UBS.

Can we just follow up on the comments you guys made on DTC talking about coupling the services. Any color on whether you're not -- you expect to eventually combine those 2 services into one service and over what timeframe? And then similarly, you talked about the technology harmonization. What are the steps or the timing upon sort of getting the entire sort of DTC business on 1 IT platform?

Yes. No, thank you so much for the question. As we said, we do plan to put the 2 services together, which today gives us a little over 200 million direct-to-consumer subscribers. We think that really positions us to compete with the leaders in the space at Paramount by middle of this year. We'll have competed -- sorry, completed the consolidation of our 3 services under one unified stack. And you can see us taking a similar approach to basically this platform going forward. And we think the combined offering, given the amount of content and what we can do from the tech side, really will put us in a position to be able to compete with the most scaled players in DTC.

Our next question comes from Michael Morris from Guggenheim.

I wanted to ask you about the legacy network portfolio that you will now control. It's certainly a robust collection of those networks. And so -- and it's pretty significant portion of your combined economics, especially on the revenue side. Can you talk a bit about the plan there going forward? How do those look in terms of operations? Are there strategic things that you plan to do to maximize the value?

Yes. No, absolutely. So as we said, I think by putting basically the combined linear businesses together, it gives us an incredible footprint across both content and sports. There's -- it also gives us the operational efficiencies, we believe, to keep those businesses healthier for significantly longer than they would be on a stand-alone basis, which will be good for jobs, will be good for free cash flow.

And we also, as the approach we've taken in Paramount, there are incredible brands across the combined linear portfolio that we really do believe in being able to transition to a digital future. And really, we can then meet people where they are, right, where if you want to have the choice to access it on the linear platform, you can do that. If you want to access those brands in the streaming ecosystem, you can do that and believe that the combination of that will ultimately keep the portfolio healthier and prolong the life for longer than they would as stand-alone businesses.

Andy, anything you want to add...

Michael, on the question of strategic actions contemplated, we, like at Paramount, believe in the assets we're buying, and there's no plans to divest or spin off a package of cable assets at this time. And in particular, we actually think given the brands that Warner Bros. is bringing to Paramount, we have a lot of opportunities to think about all the different aspects of what they can do, both on the linear side and the digital side that David already talked about. So that's our plan right now.

Our next question comes from Robert Fishman from Towers (sic) [ MoffettNathanson ].

I want to know how does Warner Bros. and HBO IP help accelerate your growth that you wouldn't be able to have achieved on your own with your own franchises and IP that we started to discuss last week on your earnings call. And as part of the increased bid since where you started the process, I'm just curious how much value do you ascribe to the Warner Bros. and HBO libraries?

Yes. No. So look, we think that basically the combination of these 2 companies really puts us in a position to be able to compete with all the leading players in the space. By bringing these 2 companies together, we have 15,000 basically films and thousands of television episodes. It's an iconic portfolio of franchises from Harry Potter, Lord of the Rings, the DC Universe, Game of Thrones, Mission Impossible, Top Gun, Transformers, SpongeBob, Star Trek, we think, is incredibly powerful.

The combined DTC platforms is basically 200 million subscribers at close. To contextualize, it's roughly the size of Disney, right? Obviously, competitive with Amazon, competitive with Netflix. So we really do think that, that really positions us to be one of the leading competitors in the DTC space and really accelerates our growth there and achieving scale in DTC. We've talked about it since the beginning of the new Paramount Skydance as one of our primary goals for the business.

I think when you look at the sports portfolio, we'll have the NFL, Olympics, UFC, PGA Tour, all of March Madness, Champions League. It's an incredibly robust basically platform. And we think the combination of that will position us really well for competition. So we do think that there is a significant value in putting these 2 businesses together.

From a value standpoint, our bid was at $30 a share basically December 4 of last year, we have been consistent, and we think we have been offering greater value certainty and speed to close. We only increased our bid from a value perspective by $1 between basically the December 4 date and the deal that we're very grateful the Board ultimately ended up accepting. And again, our viewpoint is really on building long-term shareholder value, and we believe that this transaction positions us well to do exactly that.

Our next question comes from Rich Greenfield from LightShed Partners.

You made a comment about not having interest in selling off a portfolio of cable networks or not doing, I guess, a Versant. But I guess as you look across the combined portfolios, are there any assets that you sort of look at and go, those are noncore to the company that could be used to reduce leverage?

And then just a big picture question. As you did this huge deal with UFC, I think you've already had 2 fights or 2 fight nights play out. I'm curious whether your contracts contemplated having Warner Bros., can you use that content across HBO, TNT Sports? What type of flexibility do you have? And maybe this is just a good opportunity, should we assume that even if you combine the services, Paramount+ and HBO Max, will there still be a premium version of HBO that still keeps sort of a premium level status?

Rich, it's a great question. And so for the first part, no, very simply, we have no divestitures planned at this time. So just take that one, that's our answer there.

In regards to the UFC, what I would say is we did future-proof the deal, so we do have the flexibility. We have the ability with the UFC to ensure that by bringing the streaming services together, it can be available across both platforms. We have basically flexibility to be able to put those on -- some of the fights on both our broadcast network as we're doing in one of the upcoming fights. We also have flexibility to have some of those events on TNT. So I think we do create the -- we have the flexibility in that deal to really maximize value and also really maximize reach for our incredible partners at TKO.

And look, while we won't get into any personnel conversations, I hope, understandably, Casey and his team do an absolutely remarkable job at HBO. And as we said, we do plan for that to be able to operate with independence so that HBO can candidly do what it does incredibly well. And our viewpoint is HBO should stay HBO. And they built a phenomenal brand. They are a leader in the space, and we just want them to continue doing more of it. But by bringing the platforms together, all of our content will be able to reach even a broader audience than we can do stand-alone.

David, what's your favorite HBO show of all time?

It's hard not to say Game of Thrones.

I'll throw in Sopranos.

Yes, that's good too. There's a lot, Rich. It's a long list.

I just wanted to know your favorite. That's all.

Our next question comes from Peter Supino from Paramount (sic) [ Wolfe Research ].

It would be exciting to be at Paramount right now. This is Peter Supino from Wolfe Research. There's a lot of handwringing in the film and TV business about the share of broader consumer attention paid to film and television as a category. So my question is, how important is engagement growth to your team as a metric of success? And if it's important, how do you plan to factor that into managing the company and communicating with financial markets about it?

Yes. So I think you have to break that question up into a couple of pieces, right? I mean when you look at basically the theatrical space, which is something we deeply, deeply believe in, large franchises and big pieces of intellectual property are launched in theaters period. I'll say I personally learned this lesson, both of these films I'm incredibly proud of. In 2022, we basically -- we had the largest theatrical box office film. We were the first or second with Top Gun: Maverick, which became a cultural phenomenon, grossed $1.5 billion at the box office. And really, I think, is something that resonated culturally that year.

At the same time, we released The Adam Project that summer on Netflix, which at the time of its release was the most successful film in Netflix on the time, previewed incredibly well with audiences, but really did have a different cultural resonance, basically, perspective in terms of how films obviously resonate on streaming versus what they do theatrically. It's why we said from day 1 when we acquired Paramount that we weren't going to be in the business of making movies directly for streaming. We really believe that movie should be seen in theaters. And we still believe that's one of the most significant places that you can really create long-term resident intellectual property.

Television is a completely different business in that regard. You can obviously pierce the zeitgeist and put huge hits up on the direct-to-consumer platform. But when it comes to the DTC business, engagement is absolutely key to obviously success there. So you have to look at what drives engagement. It's really more unbelievable content that the audience wants to engage in. By combining these incredible, obviously, studios and platforms, we're delivering the audience more of what they want from a content perspective. And then it's also significantly improving the basically tech product to obviously keep people engaged with that platform for longer.

So engagement is a key metric that we're going to look at, and we are going to continue to invest in both our -- the incredible content offering that this company will create and produce as well as in a tech product that can really compete with the best that's coming out of Silicon Valley and the industry leaders in the space.

Yes. I would just add on sort of what we may or may not disclose. I think it's too early to sort of have that conversation. I do think that you'll see the results over the course of the next several years sort of embody what David just talked about relative to engagement and reduction in churn, which you'll see in the increase in revenues from DTC and the expansion in margin over time.

Our next question comes from Rick Prentiss from Raymond James.

This is Brent Penter on for Rick Prentiss. I just want to hit on timing. What precedents are out there transactions maybe of this size and scope that gives you the confidence that this deal can close in Q3 '26? And then relatedly, we have negotiations coming up with writers, actors, directors. Any impact on the timing of the deal related to those negotiations taking place at the same time or vice versa? Could there be any effect on those discussions with the guilds that this deal might have?

So look, in terms of basically our confidence in closing the timeline, we are absolutely confident that we can meet basically timing that we've outlined. To summarize, as we've said, the HSR waiting period is expired, obviously, domestically, which means that there is no reason if we had cleared globally why we couldn't close in the U.S. today legally.

We've been engaging with regulators around the world. And the combination does not come close to hitting any of the metrics that would be problematic from that standpoint. We will work incredibly collaboratively with regulators to ensure that we get a quick path to closing and are confident in our ability to achieve that goal. And in regards to the union negotiations that are ongoing, we do view those as obviously separate from the speed of the transaction closing. But with that said, we're not going to comment on ongoing negotiations.

Our next question comes from David Joyce from Seaport Research Partners.

I was wondering about the array of sports rights in the portfolio on a pro forma basis. Have any of the regulatory bodies around the world expressed any concern about that sort of concentration?

What I would say is there has been none of that expressed to us at this time. And I think if you look at peers like ESPN and others, you won't see anything that's obviously further consolidated or out of line with other industry leaders in the space.

And I would just add on that. There are a number of sports rights that are actually not exclusive to our combined networks that also are distributed across other platforms globally.

Our next question comes from Craig Huber from Huber Research Partners.

I thought it was interesting, you said you have no intention here of cutting your production content spend. Maybe you could touch on that a little bit. And also talk about AI, if you would, a little bit, how that comes into being here with the 2 combined companies here from a cost efficiency standpoint, but also maybe how to help the top line as well.

Yes. No, absolutely. As we said, we have no intention to pull back on production. We obviously intend to make 30 movies a year, basically 15 films from Paramount, 15 films from Warner Bros. Additionally, when you look at the overall landscape, when you put these 2 services together, we'll be at 200 million subscribers, the market leader at Netflix is 325 million subscribers based on their last earnings call. So we obviously -- we have all of the economic incentives to make sure that we grow this business and are going to invest in content to basically achieve those goals. So from that standpoint, that's really how we're going to operate.

In regards to artificial intelligence, I talked about this a little bit on the last earnings call, I do believe that it's going to be a transformative technology in the space. But first and foremost, we are a content company. We are a storytelling company. And we really do look at AI as a tool for artists and really want to develop it basically through that lens. Do I -- I also am somebody who has tremendous optimism about the creative unlock in terms of what it can do in the hands of some of the greatest and emerging filmmakers in the world. But from that standpoint, everything we look at will really be as a tool for the artist, never as a replacement for storytellers, never as a replacement for filmmakers really in support of their visions and what they look to achieve.

Dennis, anything you want to add on that?

Yes. I would just say, I mean, we talked about our medium-term goals. And so when you think about our overall investment that David has outlined, like that's contemplated, right? We expect to see content grow, help grow our DTC business, help us grow the Studios business. And then when you put that growth plus realizing the synergies we talked about together, that's where we get to the $10 billion plus annually in free cash flow by 2030. And so we really think about growing this business and invest in this business as David and Andy outlined.

And last thing I'll add to that, just one of the areas you will see us invest in this space is really in the engineering talent. As we talked about on our last earnings call, we do plan to 10x the headcount in terms of how much we invest into that space, which we do think will position us well for really being able to be a driver in this category. But again, really in support of the creative community that we're very fortunate to work with every day.

Right. Thank you, Craig, for the question. Thank you all for joining us this morning. We'll go ahead and wrap it here. But if you have any additional questions, please feel free to reach out to me or Logan, and we'll try and get back to you.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Ladies and gentlemen, welcome to the Warner Bros. Discovery Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Additionally, please be advised that today's conference call is being recorded.

I would now like to hand the conference over to Mr. Peter Lee, Senior Vice President, Investor Relations. You may now begin.

Good morning, and thank you for joining us for our Q4 and full year 2025 earnings call. Joining me today from Warner Bros. Discovery's management is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, our Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games.

This morning, we issued our earnings release, shareholder letter and trending schedule, and these materials can be found on our website at ir.wbd.com.

Today's presentation will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include statements about the benefits of the plan separation or the proposed transaction with Netflix, future financial and operating results, future company plans, objectives, expectations and intentions before and after the separation and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations from Warner Bros. Discovery's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current 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.

I will turn the call over to David for some brief remarks, after which we will take your questions. Before doing so, I would kindly request that you limit your questions to the topics related to our Q4 results and related business and financial topics. As noted in our shareholder letter, management will not be taking questions regarding the Netflix transaction and our discussions with Paramount Skydance.

And with that, I'll turn it over to David.

Good morning, everyone, and thank you for joining us. From the beginning, we set our goal for Warner Bros. discovery has been to make this great company the most innovative and exciting place to tell stories in the world. Looking at 2025, it's clear we fulfilled our ambition.

Warner Bros. Motion Picture Group delivered a historic run of success with 9 films debuting #1 at the box office in 2025, 7 consecutive films opening with more than $40 million in box office sales, a first for any studio. And our film spent 16 total weeks atop the global box office. We accomplished this through brilliant original films, like one battle after another, centers weapons and global tentpole titles like a Minecraft movie and Superman, and we revived IP like the Conjuring last rights and Final Destination Bloodlines. Fans responded and critics did too. Our film slate won 9 Golden Globe awards, including best picture musical or comedy for One Battle After Another. And cinematic and box office achievement for centers. Next month, we're up for an industry-leading 30 Academy Awards, and we're optimistic the incredible original films we produced and talent we've worked with will deservedly be recognized.

And we are seeing momentum continue in 2026. Weathering heights our ninth consecutive theatrical release to open #1, has generated over $160 million at the global box office in 2 weeks, including an $83 million opening weekend, further reinforcing our commitment to exceptional original storytelling and our position as a premier destination for the world's leading creative talent. Building on the momentum, our 2027 film slate is set to deliver a truly monumental year for Warner Bros. with tentpole and franchise powerhouses on the horizon from Godzilla Berson 3 Superman man of tomorrow from James Gunn, Minecraft 2, Condrin First Communion Batman Part 2 from Matt Reeves, Gremlins, and Mode of the Rings on frugal. We also brought innovative and exciting storytelling to television, both in streaming and through our Linear Networks. So many of the series that shaped global culture in 2025 were delivered to audiences around the world by HBO and HBO Max.

Building on shows like The Pit, The White Lotus and the Last Of Us, HBO continued to deliver hits in the fourth quarter with several breakout sensations. I welcome to dairy delivered the fourth strongest debut season in HBO history, averaging 27 million viewers per episode and Heated Rivalry, which averaged 13 million viewers in episodes and drove meaningful social media engagement. That momentum is ongoing. Both The Pit and Industry have become cultural sensations with their new seasons, which debuted in the first quarter of 2026, seeing 30% and 50% respective audience growth versus their prior season. A Night of the Seven Kingdoms, the third installment of the Game of Throme's franchise has also debuted strongly, averaging over 24 million viewers per episode and growing. With House of the Dragon, Euphoria, the Gilded Age, DUNE PROPHECY and HAC returning this year as well as the premier of land terms and steward sales to save the universe. This is just the beginning of what promises to be a banner 2026 for HBO.

Our Streaming segment also delivered terrific growth. Scaling HBO Max globally has been one of our core priorities for 4 years. We've executed our plan with focus and discipline, now exceeding the 130 million subscriber target we set out in August 2022. Following the successful launches of HBO Max in Germany and Italy and the upcoming launches in the U.K. and Ireland, we are on track to reach more than 140 million total Streaming subscribers by the end of the first quarter, and we're well on our way to exceed 150 million subscribers by the end of the year.

Our Global Linear Networks also continue to create and tell stories that inspire and entertain fans with 17 of last year's top 25 new cable TV series and improved general entertainment viewership trends in recent months, our global linear networks teams clearly remain highly attuned to today's audiences. While secular headwinds persist, our portfolio of networks attracted 30% of all prime time cable viewing in the U.S., and we advanced critical initiatives like the launch of CNN All Access. Encouragingly, we saw a sequential improvement in advertising trends during the fourth quarter, which has continued into Q1.

And of course, the 2026 Milano Katina, Olympic Winter Games, which closed this past Sunday, was a massive success for Warner Bros. Discovery. Over the course of the winter games, we saw more than 50% growth in linear hours viewed compared to the 2022 winter games. And we more than tripled our Streaming audience on HBO Max and Discovery Plus throughout Europe. Four years ago, Warner Bros. was a business in need of transformation. Over that time, we've invested aggressively in transforming Warner Bros. Discovery for the future.

We invested big in making great original film and television and reignited important legacy Warner Bros. IP, like our DC Attack Plan, which James Gunn and Peter Safran have been executing. Harry Potter, Lord of the Rings, Gremlins, together telling stories that have shaped global culture. We invested in Streaming technology and turned HBO Max into a world-class D2C platform that we have now launched globally in over 100 countries and territories. And we invested in our global networks, evolving our brands, accelerating our digital future and empowering teams to adapt, innovate and continue entertaining audiences worldwide. The result has been a creative renaissance at Warner Bros. Motion Pictures, Warner Bros. Television, DC and HBO and is exemplified by our success in 2025 with the best and most talented people on and behind the screen.

Since our Q3 2024 earnings call, when we made clear we were evaluating all paths to unlock value, we have taken decisive actions, first, through our corporate reorganization, then announcing the planned separation of Warner Bros. and Discovery Global and ultimately, a comprehensive strategic review. Our Board continues to lead a rigorous, highly competitive and thorough sales process. We engaged with 4 bidders, which led to 8 price increases and have thus far achieved a 63% increase in value versus the first offer received in September, delivering significant value for WBD shareholders throughout the process.

Our focus has and always will be maximizing value and certainty while mitigating downside risks. And the Board will evaluate any proposal against that standard with the objective of delivering the best deal for our shareholders. When we started Warner Bros. Discovery in April 2022, the WBD stock was around $24. Since then, we have been laser-focused on transforming the business for the future, investing big in our creative culture and original storytelling at HBO, Warner Bros. TV, Warner Bros. Motion Pictures, New Line and DC, all of which created meaningful shareholder value.

With that, we now welcome your questions.

[Operator Instructions] Your first question comes from Rich Greenfield of LightShed Partners.

Really, the first one for Gunnar. As you think ahead to the spin-off of Discovery Global this summer, there's a tremendous amount of investor focus on what leverage it can handle and what is really achievable. I guess do you see any issues with Discovery Global being 3 to 4x levered, given the free cash flow dynamics of DG right now? And why do you believe because there's been obviously a lot of focus on Versant -- why don't you look at Versant as a good comp for DG?

Okay. Good morning, everyone, and thank you, Rich, for those questions. Look, I don't want to talk about sort of specific comparison with our competitors here. But I do want to talk about the opportunity for Discovery Global in general. And I have spent a lot of my time over the past half year working with the great networks leadership team, fantastic people. And I really do believe we have an opportunity to double down on what already makes us a global leader in the field.

We have unmatched scale internationally and locally. We have iconic brands reaching billion people. We have trusted journalism with CNN and TVN and other players everywhere in the world, fan favorite talent, a world-class sports portfolio, and I'll say a little bit more about sport and how that differentiates and a strong digital footprint that is already contributing meaningfully to the monetization of our brands and our network content and I think has tremendous growth opportunity as we get going here.

I do want to start with the international opportunity a little bit because that's typically harder to understand from a domestic perspective here. But number one, we have fundamentally different trends internationally. For example, we're expecting to be flat to slightly up in international ad sales this year. Obviously, a fundamentally different setup than the domestic business and largely impacted by the fact that we have meaningful free-to-air presence in many of the key markets. We also have scale internationally that allows us to partner, potentially think about M&A partnerships, representation with other players in the market and a team that's been in these individual territories for decades, boots on the ground with strong relationships in all of our revenue lines. So that's number one. And I think hard -- or sometimes overlooked from a domestic perspective.

Number two is sports, and I'll talk about the U.S. side here for a second. Not all sports rights are created equal. And if you look at our sports portfolio, and if you just take 1 metric over the past 12 months, we've had 104 -- 140 events where we reached 2 million people or more. So this is a high-quality, high-impact sports portfolio. And we're committed to continuing to support that portfolio with opportunities as they arise, but we feel very, very well positioned with that.

I do want to talk about D Plus for a second. We haven't talked about it a lot because HBO Max has been the core priority. But if you remember back when we merged into Warner Bros. Discovery. We were trying to shut down Discovery Plus. And the fact of the matter is we still have millions of viewers. We're very regularly engaged who love the content, and there is a tremendous opportunity. We have already opened up the buy flow again in certain international territories. And as you saw in our proxy, it is a profitable business, and I think has a lot more ahead for us.

CNN, I mentioned the journalism. CNN is the most trusted global news brand. The news gathering organization is unrivaled from my perspective. Whenever something happens anywhere in the world, we don't have to have people at a desk. We don't have to send people. We have people on the ground who are there within hours or minutes sometimes, able to cover whatever is going on. And that's reflected in the spikes and the strong viewership we've seen coming into the first quarter of this year. And Mark Thompson has been leading that business with an eye towards leveraging that core asset of the global news gathering organization into a much more -- a much broader monetization interaction model. We've launched CNL and All Access to give people the interaction with our news offering, however and whenever they want. And again, you saw in our proxy, the ambition, how we're planning to begin growing that business again after a phase of investment.

And then I'll speak to the CFO here again for a second, the capital structure. It's sometimes over and that goes to the first part of your question. Again, if you do the math, based on what was disclosed in our proxy, you would see that Discovery Global would come out of the gate with roughly, call it, the 3.3x net leverage number. That is absolutely sustainable and supportable. I actually think that rating agencies are probably going to -- and again, it's early days. We don't have final ratings yet, but I would expect that we're going to see single B, maybe low BB ratings for Discovery Global, so absolutely sustainable. And there is a huge opportunity because as we've shown in the past, we are very well able and willing to leverage the opportunities in our long-dated, low-interest capital structure. So again, I could not be more excited about the opportunity. And we're ready to get going.

Does it sound like you're losing a lot of sleep over leverage?

Absolutely not. I mean -- look, I mean you're right, there has been a lot of investor focus. There has been a lot of debate also about this famous debt allocation mechanism, just to be absolutely clear. This Board and the management team, we're targeting to optimize shareholder value and everything we're doing. We're targeting to not have to move any debt around. We put in that estimate range of $0 to $2 billion in the proxy to give ourselves some wiggle room, and that's the end of it.

Your next question comes from Robert Fishman of MoffettNathanson.

Looking at all your premium Warner Bros. and HBO original content and the franchise IP that you start to talk about, what do you think is now finally being appreciated that was overlooked before the sales process heated up? And how difficult is building new franchises from scratch?

And then just separately, as we think about your internal forecast for streaming profit to roughly triple by 2030, can you help us break down the drivers to reach that goal? What do you think is misunderstood areas of growth? Is it advertising, pricing, subscriber increases or even more efficient spending?

Thanks, Robert. I think that there was a -- we certainly had a team, me included, that was focused on delevering this company and paying back debt. And we needed to accomplish that, and we did. But most of our day was spent on this idea of investing in original content and bringing back the great franchises that Warner Bros. uniquely owns and investing more money in content. And so yes, we made -- we canceled a lot of movies and a lot of series when we first got here.

The question we asked in each case is how is this content and how are these stories helping us? And are they doing well? And so we canceled a lot of stuff that was down 50% or 60% that we didn't think was going to be successful. What I think was missed was we hired a great leadership team, creative leadership team. And we invested enormously in this mission of -- this question that we ask ourselves all the time that what stories will we tell at this great company at Warner Bros, at HBO, at Warner Bros. Television?

And so we really tripled down on investing in getting the best writers and directors back at Warner Bros. We didn't lose any creative talent in the last 4 years, and we added substantially to that and investing aggressively in original content at HBO, Warner Bros. Television, Warner Bros. Motion Pictures and not just investing in just doing in existing franchises. Batman 2 is very important to us. And Minecraft 2 is important to us. But original content. That is really what Warner Bros. is about. It's why we invested in centers. That's why we invested in weapons. That's why we invested in One Battle After Another. And I don't think anybody is investing in original content in television and motion pictures the way we have. It did take time. We're a long-cycle company.

And so our commitment to D.C. was mostly heard in terms of language, and then you saw it with Penguin and Superman. Our commitment to original content, you saw it coming slowly. It came out with Minecraft and talking about building new franchises. Mike and Pam were able to do that with Minecraft. And Minecraft 2 is coming back. It made almost $1 billion, and it's coming back in '27. So I think when you look at Warner Bros. today in HBO, it's a company that's storytelling first, focused primarily on the creative culture and with a superb creative team that has been given great latitude to take risks to tell original stories because we are a business of challenge and failure. But with the Warner Bros. Library, together with the creative talent we have, it's been a great creative renaissance at Warner Bros. and you see it across our entire company, and you'll continue to see it.

When you look at '27 on the motion picture side, it's stunning. And it's all coming together for Warner. And for HBO as well. HBO has never been stronger. Casey and the team at HBO have shepherded an extraordinary creative slate and JB and his team thought to take that all around the world. And now that we'll be launching in the U.K., Germany, Ireland and Italy. We're not done yet, but it's a huge accomplishment to take these -- this business global and to see it sore.

And Robert, on your question about the levers for growth and what makes us highly confident about the future growth of HBO Max in the Streaming business, I'd say there's 5 different levers that we look at. One is we say oftentimes, the product is the content and it starts with -- we've never been clearer about what we need, the kind of content we need, the customer segments we have to go after and strengthen. And we've been at work at that for the last 4 years, continuing to improve it and some of the hypotheses that we had like the need for a longer running series that ended up with the pit and with the strength of the team that Casey and his organization have.

We have a track record of delivering an incredible batting average with the swings that we take. And so the content is strengthening. We go into 10 years of Potter starting in the beginning of '27. And so we have great visibility to a strengthening content slate, which is at the core of everything we do.

The second is, we are seeing and we do expect further volume and penetration growth driven by, a, obviously, relatively recent launches in big, sizable new markets, including the European markets that we are in the process of completing this quarter. And so there's more growth to be had in those markets. Penetration growth in our existing markets, driven by partly the content slate, a sharper marketing focus, social outreach that is strengthening. And then we're in the second inning of our password sharing enforcement. And so that is just beginning to get scale. It hasn't expanded globally at all. That will start in 2026. And so that's volume and penetration levels.

The third is product enhancements. We talked about this all the time that we went from not good to good, but we've still got a ways to go to get to create. And that is every day hundreds of improvements last year that we made that improve -- move the dial inches every time, but to improve engagement and retention.

The fourth is obviously retention. We have focused a lot, but the -- we still think there's significant opportunity to continue to improve churn and retention, and we have a number of initiatives going forward this year and next that will continue to drive that lower.

And then the last is just monetization, which is obviously a combination of both price on the subscription side and ad sales, where we are very early in the ad sales growth trajectory based on the fact that our fill rates are still relatively low internationally, and we're still launching in new markets with our ad tiers, and we think there's further upside in the years to come. So we feel great about the next couple of years and the really kind of sweet spot of the flywheel we're finally getting into to seeing content marketing, product enhancements all flow together to drive that growth.

Seeing HBO driving it globally was such a key initiative for us and doubling down on the quality content. And also having backing canning and her great team on rebuilding Warner Brothers Television as the largest and premier producer of TV in the world. But one of our big bets was the motion picture business. We believe in the motion picture business. We love the motion picture business. And 4 years ago, most of the movies were being made to go direct to streaming. We did get rid of a lot of those movies. But then we took those economics plus some with an ambitious idea that people will come back to the theaters. And Mike and Pam believe that and Bremer believe that, and James Gone and Peter believe that. And we, as a company, believe so deeply in the motion picture business, and putting movies on the screen for shared experience.

It's the top of the pyramid. It's what we all grew up with, and we're owed by. And it's what -- when we look at this year and we look at next year and the year after, our commitment to the motion picture business has -- is at the core of our company. And we're just excited about the fact that people are going back to the theaters. And then going back to see our content.

Your next question comes from Peter Supino of Wolfe Research.

I wanted to ask you to expand on the international expansion of DTC. You mentioned earlier in today's call that the programming is the product. And so I'm wondering if the amount of programming that you're offering international audiences is today driving enough engagement to get you a level of ARPU that enables you to make money? Or does that flywheel that you're working on require more programming dollars and does it require any local programming?

Yes. Peter, I guess a couple of observations. When we kicked off this journey 4 years ago, we said that we would focus on launching in markets where we thought we could actually turn -- return -- be profitable within a 3- to 5-year time horizon of launch. I will tell you that, that has turned out to be -- we've turned out to outperform that metric significantly and turn profitable. In most markets, within 1 to 2 years of launch.

And so we are well ahead of where we thought, and the international businesses are particularly the ones that have been around for a couple of years like Latin America, for example, meaningfully profitable. And so we continue to see opportunities to drive that profitability further.

The big benefit that we have compared to some is that a lot of the IPs that we're working with have global audiences already. And so whether it be DC and our both DC theatrical slate as well as the DC series we do, whether it be obviously the HBO brands in a -- The Game of Thrones Universe, as an example. And even on the theatrical side, other series and other things that we have in development, that piggyback off of an already established global franchises. We don't need to actually -- our content appeals to those global audiences in a unique way that is different than most. And so our need to do a lot of local international content is a little bit different than other players, number one.

Number two is we are doing and we have been doing select international content in markets that either there is a particular need or where the content seems to travel better than in most places. And so we had -- we are early on a couple of years ago to acquire the biggest leading local streamer in Turkey, which is a content type that travels well. Turkish novellas across -- many parts of the world do really well. And so we target investment in markets where both there are strong, big scale opportunities as well as opportunities where the content tends to travel. We announced this partnership with CJ last year on Korean content, which also obviously has a great track record of traveling well.

And so we are already investing in local content. We don't see a need to have a meaningful spike up. We will continue to invest in those markets as is currently in our plan and in the financials you see represented in the proxy. But that potentially -- certainly, local international content continues to be important, but we don't see a certainly major step change needed to continue to drive our growth.

The next question comes from Bryan Kraft of Deutsche Bank.

I had 2, if I could. Just first on the studio, I was wondering if you could provide some more color on the video games pipeline and how your broader strategy is evolving there, including what's coming in 2026? And just any kind of directional color on what your guidance assumes for 2026 EBITDA contribution from video games relative to 2025?

And then I just wanted to ask on the network side. Could you give a little more color on the advertising improvement? I know there was an MBA headwind, but how much improvement did you see in domestic advertising, excluding sports versus the international side, which also sounds like it's performing well and had some improvement?

Yes. Thanks, Bryan. On the first one on the game side. So obviously, 2025 was a year of sort of reset for the games business. And we really went back to kind of the basics. And the largest part of it was we had allowed ourselves to sort of get distracted to going after too many IPs with a too broad set of studios. And the core of last year's reset was around getting back to proven studios with proven games and proven players. And so that's where we are now.

Obviously, '26 is a year given that '24 we had, unfortunately, unsuccessful launches. '25 was this reset year, so we didn't really replenish the pipeline. '26, we'll see a sort of year that looks similar to '25. But the real fruits will start coming in '27, '28 when we return to some of our biggest franchises launching in that time frame and returning to those franchises. We haven't announced those yet. In 2026, we have 2 big IPs launching, one in May, which will be our LEGO Batman series from our -- one of our most prolific studios in the U.K., TT Studios. We are thrilled about -- we announced that game last August. We just released another trailer yesterday, and the feedback and the trending and tracking is looking terrific for that game and the quality of the game is fantastic. That's on the console PC side.

And the second game for '26 is out of our Boston studio with our successful mobile franchise, Game of Thrones Conquest, which will be coming out with a second game called Dragon Fire that we'll be launching this summer. And again, there, that's a different profile. As you know, mobile games tend to have a more upfront cost based on the UA and the marketing cost, but we feel confident just like its predecessor, Game of Thrones Conquest, which 8 years on is still delivering significant financial returns that, that one will also see a similar trajectory and will help us build an even more robust library.

Thank you, JB. And then on the ad sales side, Brian, so generally speaking, starting with the U.S. market, from our perspective, the market itself has been relatively consistent with prior quarters. As you pointed out, we have done significantly better and the sequential improvement that you mentioned is after digesting 100 basis points of NBA headwinds in terms of ad sales. And look, the driver here are, number one, the new upfront has kicked in. We're number two, we're seeing good scatter premiums. But number three, really some real health in terms of the underlying audience delivery. And that is across the board.

On the sports side, once you correct for NBA, we've done really well with the MLB playoffs, NHL has done well and has seen improvement. And on the general entertainment side, we mentioned this in our shareholder letter. We've had 17 out of the top 25 premier refreshment series. And importantly, we don't talk about this enough, but this is across all of our key networks. We had top shows for TLC with Balantoud, Fall of Didi on ID, Flip off on HG tournament of champions on Food Network and discovery with Naked and defrayed Boca. So all of our top networks are continuing to create high-quality output and that, I think, puts us in a very good position for 2026 as well. We're seeing those trends continue, and even more pronounced uptick on CNN audience.

So underlying delivery has been a real helper.

Turning to the international side. International, again, as an entire business line has outperformed relative to the U.S., obviously, with different trends in the different regions. But importantly, EMEA, our largest region, continues to do very well. And as I mentioned earlier, I think we can see some real stability, potentially even a little bit of growth in ad sales going into 2026.

Your next question comes from John Hodulik of UBS.

Maybe a couple of follow-ups on the Discovery Global side. Gun, you guys gave some guidance for ad and OpEx savings for 26 on that side. One, anything you can tell us about the cost savings? Is it just the MBA? or are there additional opportunities for cost savings there? And then is there a way to sort of bottom line in terms of how you see EBITDA trends in that business as we look out to '26 and maybe beyond? And then I'd love to get your view on how you see the sports business. You talk about the TMT Sports app. Just what's your appetite for building a sports business and potentially securing additional rights and how you see that business going forward?

Yes. Thanks, John. So look, in terms of cost guidance, it's a little bit of a weird situation because we have -- you have our projections, our long-range plan in the proxy. And I think that, that answers your question to some extent. Again, there is a big benefit from NBA cost savings, obviously, in -- and it's been a great outcome for us maintaining that profitability through such a transformation of our sports portfolio.

We're going to continue to be very focused on efficiencies in general. We are looking wherever we can at utilizing AI to further improve our efficiency and our effectiveness, got some great projects ongoing that are creating much better visibility into our content, et cetera. Those are all going to be things that will help us drive efficiency and generate more output with the same cost structure.

On the sports business, specifically, we continue to have appetite for sports rights. It is one of the important strategic pillars, as you heard earlier. And what hasn't changed is we're going to be disciplined. We're not going to be doing deals that don't make financial sense for us, but we're open for business. You will always see us involved in every process that's ongoing, and we will know what the value is, and we'll continue to be great partners. We're very happy with the partnerships that we have. And there will certainly be continued appetite as we go forward even after separation into Discovery Global.

Thank you. Ladies and gentlemen, there are no further questions at this time. That concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning. My name is Nadia, and I'll be the conference operator today. At this time, I would like to welcome everyone to Paramount management call to discuss the launch of their all-cash tender offer to acquire Warner Bros. Discovery. [Operator Instructions] I would now like to turn the call over to Kevin Creighton, Paramount's EVP of Investor Relations. You may now begin your conference call.

Good morning, and thank you for taking the time to join us today. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer; David Ellison; and our Chief Strategy and Operating Officer, Andy Gordon.

As a reminder, we will be making forward-looking statements today. The forward-looking statements include statements concerning the proposed transaction between Paramount and Warner Bros. Discovery, including with respect to the expected timing, the completion and the effects thereof.

All forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause Paramount's actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. Additional information is available in our SEC filings. Additionally, we will be posting materials to our IR website at the conclusion of this call.

With that, I'll turn it over to David.

Hello, everyone. Thank you all for joining us today, especially on such short notice. This morning, we advanced our proposal to acquire Warner Bros. Discovery by filing a tender offer, and we will submit our HSR filing here in the U.S., and we are also getting ready for the regulatory processes started internationally.

Consistent with the formal proposal we delivered to the Warner Bros. Discovery Board on December 4, we are offering $30 per share, all cash fully backstopped by my family, RedBird Capital Partners and our partners at Bank of America, Citi Bank and Apollo.

As part of our offer, the Ellison family and RedBird would remain the majority shareholders with an owner-operator ethos and discipline. Our offer represents approximately $18 billion in additional cash, certainty beyond Netflix's offer, which is a cash consideration of $23.25 per share, as we offer far greater certainty, both in terms of the regulatory path and the economics of an all-cash transaction.

On Thursday, we submitted our fully financed superior offer, an offer that directly addressed every concern with our previous bid that they laid out, yet we did not receive a single call back. That brings us here today. We want to bring our proposal directly to WBD shareholders to evaluate a clearly superior proposal across both economic value and regulatory certainty. And we believe they deserve that choice. We're here to fight for value for our shareholders and for WBD shareholders.

The motivation for this effort is simple. It's the same reason we pursued Warner Bros. Discovery from the start. We love the movie and entertainment business. We believe deeply in its future, and we want to help preserve and strengthen it.

Movies are one of America's greatest exports, and we want to lean into that legacy, not diminish it. By bringing together the complementary strengths of Paramount and Warner Bros. Discovery, we can unlock greater scale, reach and create a potential, telling even better stories and sharing them with a broader global audience.

This transaction is about building more, not cutting back, more opportunity for the industry, more choice for consumers, more value for shareholders and more support for creative talent. Our focus is on expanding creative output, not dominating the sector as Netflix envisions. Our goal is to make Hollywood stronger in a way that benefits the entire ecosystem.

We're taking our offer directly to shareholders because they deserve transparency and the ability to make an informed decision. Our proposal is superior to Netflix's in every dimension, higher headline value, increased certainty in that value, greater regulatory certainty and a pro-Hollywood, pro-consumer and pro competition future. We're confident that once shareholders have the opportunity to choose for themselves, they'll choose Paramount.

Now we'll take a few minutes to talk through some slides that highlight some key points. These will be made available on the IR website at the conclusion of this call.

As we just discussed, the proposal we put forth has superior economic value. It's $30 per share, all cash. To contextualize that is approximately $18 billion more in cash than the Netflix offer. Netflix offer is also uncertain. It leaves shareholders with stock in a highly levered Global Networks business. It exposes shareholders to volatile Netflix shares that could drive value below headline levels and has a highly uncertain regulatory outlook.

Our offer at Paramount provides regulatory -- provides certainty of value, fully backstopped financing package supported by the Ellison family and RedBird and more regulatory certainty. We addressed every concern WBD raised to us in terms of increasing value, strengthening our financing and enhanced regulatory commitments. Yet in spite of doing all of that, we received no response from WBD prior to the announcement of the Netflix deal, which is why we're here today.

Next slide, please. Paramount's proposal is superior across every dimension. We're proposing a full company acquisition, not a carve-out. The Netflix deal leaves shareholders with a highly levered declining global network stub, creating value uncertainty.

For value, our offer is $30 a share, all cash. $6.75 more per share or 29% more cash than Netflix. Including Netflix's stock component, their total value is $27.75, still $2.25 below our offer. Even after assigning value to the global network stub, total value to WD shareholders in the Netflix deal does not exceed $30 per share, and ours is in 100% cash.

Uncertainty, Paramount provides a cleaner regulatory path, stronger closing protections and an expected approval timeline of 12 months, which is materially faster than Netflix's. Paramount is also committed to broader and more comprehensive regulatory efforts to get this transaction done, a level of commitment that goes well beyond what Netflix' offering.

Andy, over to you.

Yes. Thanks, David. It was interesting to us that neither Warner Bros. nor Netflix gave any indication as to the value of the spun-off stub. For Netflix's proposal to exceed our $30 all-cash offer, Global Networks would need to trade above 5x forward EBITDA, a level above where the nearest competitor, Versant is expected to trade.

Using a 4.5x EBITDA multiple in line with Wall Street consensus for WBD's Global Networks business, Netflix mix of cash and stock equates to $28.75 per share, only $1 above their stated value offer. Across any reasonable valuation framework, our offer delivers greater value with greater certainty in all respects.

To further go through the analysis, we are centering the linear networks valuation of $1 per share, implying a total Netflix offer at $28.75, as I already mentioned. Our view is anchored again on Wall Street's consensus estimate for Global Networks of 4.5x.

Wall street also values Global Networks direct competitor, Versant, Comcast Cable Networks spinout and the closest peer to WBD's Global Networks; at 4 to 5x forward EBITDA. Based on the global networks expected 3.5x net debt-to-EBITDA ratio and a 4.5x enterprise value multiple, one can imply there is less than 1x EBITDA of value in the business for equity holders, of roughly $1 a share.

Versant is also expected to be far better capitalized with materially lower leverage than WBD's global networks. Their expected 1.25x net debt-to-EBITDA ratio leaves 3x EBITDA value in the business for equity holders versus 1x for Global Networks -- for Warner Bros. Discovery.

It's again, they have not disclosed how it's valuing the stub despite its significance to the economics of the Netflix proposal. Netflix has not only cash but two pieces of paper, their stock and WBD Global Network stock.

In addition, the purchase price adjustment based on leverage that can shift between studios and streaming versus Global Networks, whereas our bridge financing will fully finance the existing bridge loan and backstops the full debt of WBD.

How is it they didn't explain the mechanism by which debt between Global Networks and studios and streaming would be allocated to the extent that the banks and the market cannot fully finance the Global Networks business? This is a risk in the Netflix proposal.

Paramount's proposal delivers more value to WBD's shareholders with its timeline and certainty to close, as we've already mentioned. Timing matters because it directly affects the value shareholders actually receive. Netflix's proposal is expected to take meaningfully longer to close, which reduces its present value, which is important relative to when shareholders can get their money.

6 months of additional time to close versus Paramount's proposal lowers the value of the cash and Netflix stock components of their offer by roughly $1.25 per share. That's if it's only 6 months beyond what we've committed to, to close, taking it from $28.75 to about $27.50 on a present value basis. And that is again, only 6 months after when we believe our deal will close on the outside date.

There's also additional risks tied to closing certainty in the noncash elements of Netflix proposal, including, as I've already mentioned, the Global Networks value.

Let's talk about regulatory certainty, and I'll start here, and then I'll hand it over to David.

Netflix's proposal would solidify streaming domination and the end of streaming wars, combining Netflix and HBO Max would give a 43% share of all global SVOD subscribers and over 30% of U.S. subscribers. With HBO Max 125 million subscribers and Netflix's over 300 million, it would be the largest streaming service platform on the planet by far, with over 400 million subscribers and even greater number of subscribers at the planned closing, which is 2 years from today.

The deal will be harmful to the film and TV industry, undermine creative talent, threaten higher prices for consumers and threaten the future of theatrical releases. Numerous constituencies, including the Writers Guild of America, has already issued a statement that the deal must be blocked. Hollywood legends like James Cameron and Jane Fonda have spoken out, describing the deal as a disaster for theatrical films.

Paramount's proposal provides vastly superior certainty and projections for WBD shareholders and the Hollywood community protections. PSKY and Warner Bros. Discovery is pro-competitive and procreative talent. It creates a more robust streaming platform to compete with the dominant tech giants like Netflix and others.

Paramount is committed to growing the film and TV output of both businesses, including a theatrical slate of 30-plus theatrical releases per year. We're going to satisfy the needs of the moviegoing public. Our proposal offers greater regulatory certainty and a faster path to the required approvals, which I'll now turn it over to Dave.

Before going into that, I want to get into a little bit of the timeline as well. On December 3, WBD provided feedback to the proposal we submitted on December 1. Within 24 hours, we quickly submitted a revised offer addressing all of their feedback. In value, we increased our cash offer by 13% to $30 per share. On financing structure, we met their ask of having the Ellison family and RedBird reaffirm our commitment to backstop 100% of the equity.

And for clarity, the Ellison Family Trust holds well over $250 billion in Oracle stock, which is more than 6x the needed equity for this deal. We also offer greater regulatory certainty as the equity is fully backstopped by the Ellison family and RedBird. And the only regulatory condition that we need to satisfy is antitrust, which we are confident we can get through.

We also offer them flexibility between signing and closing. We agreed to give WBD full independence in managing their outstanding bridge loan facility, so long as PSKY is able to refinance any new debt at par. We also committed to providing broad interim covenant flexibility based on the guidance given to us from WBD.

Despite addressing every concern, we did not receive a response to our improved and superior offer, and a deal with Netflix was announced the next day. And we're here because we want to bring what we believe is a far superior offer directly to shareholders.

We think the key questions WBD shareholders should be asking are: one, did WBD thoroughly review our fully backstopped $30 per share all-cash offer? If so, why did they choose Netflix's offer with lower economic value and less certainty?

The Netflix proposal leaves shareholders with stock in WBD's Global Networks business, which is saddled with debt. How is WBD attributing value to this equity? What supports the view that Netflix can clear regulatory hurdles in a reasonable time frame? And was the sale process fair and robust and did it serve shareholders' best interest?

And with that, I'll open it up to questions.

All right. Before we jump into that, just -- sorry, one second, Nadia. While we focus on the details driving us to launch the tender offer, on this call, we'll be posting the slides to our website immediately after. And they will contain additional certain additional forward-looking views of the proposed combination of Paramount and Warner Bros. and how we'd expect to manage the combined business as well as some financial highlights. So I just wanted to flag that.

With that, Nadia, we'll go ahead and open it to questions, please.

[Operator Instructions] The first question goes to Ben Swinburne of Morgan Stanley.

David, Andy, Kevin, I guess a question on process and then one on the synergy opportunity. You've launched a tender at $30, I believe, today, I haven't gone through the full docs that expires early January.

Is the expectation that you'll be building a position in WBD or how do you think about the sort of the next several months of process as you guys move forward? And then $6 billion plus cost savings, David, could you talk a little bit about, or Andy, where that opportunity comes from?

As you know, both Paramount and WBD had rounds of layoffs and cost cuts going back probably 3 years now for each of them, including a lot that you've laid out on Paramount's Skydance. So where do you see such a sizable synergy opportunity across the combined entity would be helpful for us.

Ben, it's Andy. Let me take the structure on the tender offer. And as you know, we are going direct to shareholders with our tender offer announcement today. That tender offer will be open for 20 business days. Warner Bros. Discovery will need to respond to our tender offer within 10 business days.

And after the 20 business days, we have the option to continue to extend that offer to keep it outstanding for as long as it makes sense for the Warner Bros. Discovery shareholders. Beyond that, there's nothing more to say around that particular issue.

With regard to cost savings, why don't I take the first part, and then I'll turn it over to David? But this deal is about synergies between two of the largest entertainment companies in the country. And so unlike what we've done, which was improved efficiencies at Paramount, this is about duplicative operations across all aspects of the business.

What I would say to you is that we are very focused on maintaining the creative engines of the company, and so the costs really go to duplicative functions on back office, finance, corporate, legal, technology, infrastructure, et cetera.

And we feel confident in our $6 billion number after doing due diligence extensively with Warner Bros. with the help of our outside consultants at Bain, who guided us through the Paramount process and have allowed us to deliver on our earnings call, another $1.5 billion of efficiencies just at Paramount alone. David?

Yes. No. I mean it's -- I mean I think Andy really obviously covered it on synergies. I mean, in regards to the process, I think what's important to note and why we're here today is we do believe we submitted shareholders with a superior proposal that has roughly $18 billion more in cash in it than the deal they signed up with Netflix.

And if you just walk through these higher process, every single offer we made had no financing conditions. And throughout the totality of the process, we never received a single markup of the documents. And upon our last offer, which we are now taking directly to shareholders, which, by the way, we did note directly to the CEO, David Zaslav, was not best and final; we never got a response to, even after we responded to all of their requests within a 24-hour period of time.

And given the fact that when you look at our $30 in cash versus their $23.25 in cash, we believe that shareholders will want the value, certainty and speed to close that we are offering, which is why we're here today.

The next question goes to Robert Fishman of MoffettNathanson.

Curious, how would this Warner Bros. Discovery deal accelerate the timing of achieving your own North Star priorities, especially when thinking about scaling your streaming strategy globally?

How would you use or plan to use HBO and Warner Brothers content differently within Paramount+, maybe even from pricing or tiering perspective to help reflect the premium content?

And then just a second one, if I can. Can you just talk about your confidence of ultimately winning a bidding war with Netflix, if they feel the need to raise their bid in the future?

By the way, great question. And look, as we discussed on our -- obviously, on our earnings call, basically, one of our core North Star priorities is obviously getting to scale in streaming. And we believe this acquisition accelerates that core goal.

Paramount+ today is 70, 79 million global subscribers. WBD has 122 million. When you basically dedupe that, you get to round numbers, 200 million global subs at close, which puts us on par with Disney, but still significantly below Netflix at 310 million or Amazon at about that number.

So again, we really view this as our deal is completely procompetitive, it's pro creative talent, it's pro consumer as opposed to the combination with Netflix would give them such a scale that it would be bad for Hollywood and bad for the consumer and is anticompetitive in every way that you can fundamentally look at it.

And so -- and then when you talk about the offer we still have not received a response to our $30 all-cash offer, which is the most superior proposal that has been put on the table today. So until we hear back from that, that's why we're taking this directly to shareholders.

The next question goes to Steven Cahall of Wells Fargo.

First, just a question on how you think about the regulatory process. You talked about a Netflix proposal could lead to streaming domination. When I look at things like Nielsen's Gauge in total TV time, I think Paramount is a little bigger than Netflix is or pretty comparable anyway. So how do you think about the regulators looking at this market as a streaming market versus a TV market, since that seems to kind of matter for how the different scales pan out.?

And then just on a strategic basis, you talked about some of this consensus valuation around networks, which goes into a lot of this debate. How do you value that business? Some of your competitors in this process haven't been interested in linear. You clearly are. So how do you think about the opportunity in that business? Maybe how it's complementary to yours? Or why you think maybe it's worth more than what consensus is putting on it?

Yes. So look, I appreciate the question. And look, we've heard this category ambiguity argument a lot. And look, I think we've all been doing this long enough to where we respectfully don't buy it. You know that a couple of things. And one is all linear is not equal, right? Broadcast is an incredibly stable business. Cable is in secular decline, being replaced by streaming, period. When you look at category ambiguity, saying that streaming is not a market, it's a little bit like looking at the beverage market and saying that Coke and Pepsi can merge because Budweiser is a replacement to it. It's just -- it doesn't make sense when you look at it, and it's not the way regulators look at it.

In addition to that, look at it through the lens of the creative talent community. Basically, great showrunners are not saying "I'm going to take the next Game of Thrones to TikTok or Instagram." They take it to streaming services.

And when you look at the consolidation of market share that would occur by combining Warner Bros. Discovery and Netflix, that is unprecedented market share. And so from that standpoint, we think that, that is deeply anticompetitive.

And then in regards to the value of the network, we do value it at $1 a share. And when you look at the analysis of it -- and again, one of the reasons why we are so interested in it and want to acquire it is because when you put together with our linear business, there are significant synergies, as we've discussed.

And it will also be highly cash flow generative. And we can use that cash flow to invest in our North Star principles and invest that into more movies, more television series. So we said we want to make 30 movies a year exclusively for theatrical. We want to make more original series, invest in sports and invest in our growth businesses.

And last thing I would say when you look at what the proposed combined company is, round numbers, it's $70 billion in revenue, very quickly getting to [ $16 billion ] in EBITDA and generates $10 billion of cash flow.

Anything you want to add that?

No, I'd just say, Steve, look, on the linear networks -- our linear networks and our broadcast business combined will actually create a much more interesting portfolio, both for our shareholders, but also for our large distributors, who still need our content to satisfy the needs of their customers.

And we think that we can actually do a really good job on the synergy potential that we talked about and helping with that customer constituency and have confidence now that we've owned the business for a bit and understanding what we can do with those brands. And let's be clear, Global Networks has some really great brands.

The next question goes to Jessica Reif Ehrlich Cohen of Bank of America Securities.

I guess one question on valuation. When you think about the -- it's success, like how -- the money that's raised to finance the -- can you just talk about how that equity -- like what value -- how much equity will be raised -- how much is equity? How much is that? And how you value and what value goes in? Like what -- help us think through the dilution.

And secondly, the -- in an event that the Warner Bros. Discovery shareholders reject your proposal, what is Plan B for your future growth?

Yes. Jessica, it's Andy Gordon. Let me address sort of the sources of capital. I wanted to -- so you understand it.

So we're committing over $41 billion of equity from RedBird and the Ellison's family is backstopped, including our partners. We have $54 billion in committed debt. Of the debt, approximately $17 billion is reserved to take out and extend the bridge that Warner Bros. Discovery has to date.

The equity account will be priced based on a fair market metric that our special committee has been setting for the last 3 weeks, and we'll guide to make sure that all shareholders have the opportunity to invest alongside of us.

With regard to Plan B, I'm going to turn it over to David to address that.

Yes. Again, as we said on our earnings call, we absolutely believe in our stand-alone plan and all of our North Star principles. But the reason why we're here today is because we believe that we put a superior offer on the table for Warner Bros. Discovery. $30 a share, all cash, exact numbers, $17.6 billion more cash and is currently being offered in the Netflix deal; we never got a response to that offer, and so we're taking it directly to shareholders.

The next question goes to Richard Greenfield of LightShed Partners.

It's one or two parts. You're raising about $40 billion of, I believe, of Paramount equity to finance this. It sounds like forgetting about the backstop, but just what you're actually raising. It sounds like about $40 billion of Paramount equity. It seems like $20 billion -- sorry, $12 billion from the Ellison, $24 billion from the Middle East and the rest from RedBird and [ Affinity ]. Assuming I have that right, what will the leverage on the combined Paramount, Warner Bros. entity be?

And then just tied to this, in the filing, I see very clearly you're saying there's no CFIUS concerns since Abu Dhabi, Qatar and the Saudis are foregoing any governance on their equity checks. Just wondering if you could give us any color on why they're investing so much with no governance, right? Like what's the -- is there any rationale you can provide?

Rich, it's Andy. Let me deal on the net debt. Look, we expect that at closing, how the agencies will look at our pro forma capital structure will lead them to an investment-grade rating based on our deleveraging over a 2-year period post close.

So we will be below, call it, at closing with accounting for synergies around 4x. And we'll delever quickly to below 3x and almost 2x over the convening 2 years to 2.5 years. So that's where we are on leverage.

Yes. And Rich, when you look at this from -- again, I want to speak to this now as actually the largest equity holder Paramount Class Bs. And also as we will be the largest shareholder in the combined company. And when you look at this transaction, and basically the industrial logic of this, by putting Paramount's content engine and Warner Bros. Discovery content engine together, you create a phenomenal IP portfolio that is competitive with Disney, which is truly best-in-class.

You immediately get to scale in terms of our streaming business at, round numbers, 200 million global subscribers. And you have a significant linear portfolio with significant synergies that will be highly cash flow generative. And when you look at that from a returns perspective, it's incredibly attractive to -- obviously, to all shareholders.

And from that standpoint, I think that's why our partners obviously are here, is when you look at the returns, this is a good thing for our business. It's obviously why we're advocating for it so strongly here today. And that's -- I think that's the lens that they're incredibly sophisticated investors. They'll look at it through the lens all investors do, which is how do they maximize value.

And one of the things that we always look at as the largest investor in this business is we are shoulder to shoulder with shareholders looking to maximize value for everybody involved in our company.

The final question goes to Peter Supino of Wolfe Research.

This is Logan [ Angress ] on for Peter. Just one question for me. While it's clear you want the entire asset, it seems a lot of the $6 billion synergy target is probably coming from the linear network side. I'm curious, in a world where your offer for all of Warner Bros. Discovery doesn't work out, would you be interested in acquiring just the global linear networks stub? Or is it all or nothing when it comes to your Warner Bros. Discovery offer?

Look, Peter, (sic) [ Logan ], I appreciate the question. Look, we put forth -- what we're interested in is the proposal we put forth, which was to acquire 100% of Warner Bros. Discovery at $30 a share in cash.

All right. With that, thank you, Nadia, and thank you all for joining.

Thank you.

Thank you.

Thank you. This now concludes today's call. Thank you all for joining, and you may now disconnect your lines.

Ladies and gentlemen, welcome to the Warner Bros. Discovery Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Strategy. Sir, you may now begin.

Good morning, and thank you for joining us for our Q3 earnings call. Joining me today from Warner Bros. Discovery's management is David Zaslav, President and Chief Executive Officer; [indiscernible], Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games.

This morning, we issued our Q3 earnings release, shareholder letter and trending schedule, and these materials can be found on our website at www.wbd.com.

Today's presentation 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 may include statements about the benefits of the separation transaction we announced in June, including future financial and operating results; the separate company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations from Warner Bros. Discovery's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current 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. I will turn the call over to David for some brief remarks, after which we will take your questions.

Though before doing so, I would kindly request that analysts limit their questions to topics related to our Q3 results in related business and financial topics. As noted in our shareholder letter, management will not be taking questions regarding our recent announcement of the Board's evaluation of strategic alternatives for Warner Bros. discovery. And with that, I'll turn it over to David.

Good morning, everyone, and thank you for joining us. When we formed Warner Bros. Discovery in April of 2022, 3.5 years ago. Our focus was on taking an incredible foundation of assets, world-class production capabilities, a century's worth of beloved storytelling franchises and IP and a roster of some of the most iconic brands in media and build them back up and transform Warner Bros. Discovery to thrive and win in the modern entertainment business. We built a creative culture that's attracting the best talent and Warner Bros. Discovery is now where creatives want to be.

Transforming and rebuilding Warner Bros. Discovery has been hard work. It has taken time and investment and the process has not been without setbacks. But as you could see from our third quarter results, we're delivering on our promise and Warner Bros. Discovery is back, global and stronger than ever.

As we've said consistently, our transformation and rebuild has been guided by 3 principles: First, returning our studios to industry leadership. When we brought Warner Bros. Discovery together, our Motion Picture Group had half a dozen or fewer movies on its slate and was stuck in last place. We were determined to invest in the motion picture business and to rebuild and regain our place as the leading motion picture studio. 3.5 years later, we're there. Right now, we're leading the 2025 box office domestically, we're leading it internationally, and we're leading it globally. Not only are we in first place, but we are the only film studio to have crossed $4 billion in 2025 box office revenue thus far. And we've done it with a significant amount of original stories.

That leadership was on full display in the third quarter. In Q3 alone, we successfully launched a new era for the DC Studios, Superman. We showed our exceptional [indiscernible] genre expertise yet again, with weapons and the conjuring last rights, which have together grossed more than $750 million in ticket sales. And we reinforced our commitment to producing great original works by great filmmakers with Paul Thomas Anderson's 1 battle After Another. As we look ahead, '26 and '27 will be a robust and strong slate of motion pictures. I'm excited to announce that we are adding a new Gremlins film that will be released in theaters on November 19, 2027. Steven Spielberg returns to executive produce or Amblin Entertainment, and Chris Columbus is coming back to both direct and produce.

We're also leading the industry in making television. Warner Bros. Television was recently recognized with 14 Emmy awards, including outstanding drama series for the Pit, and 9 Emmy wins for the Penguin. And WBTV remains Hollywood's leading supplier of television to both streaming and network platforms.

Based on our results to date, we expect our studios to meaningfully exceed $2.4 billion in EBITDA this year, and we are making strong progress towards our $3 billion EBITDA goal. Our second guiding principle has been to scale HBO Max globally. 4 years ago, HBO Max was a subscale streaming service that was primarily available in the U.S. We had a vision for HBO to be a global offering with broader and more local content, including sports in some regions, and that HBO could serve as a long-term profit engine. We are committed to that global vision.

Today, HBO Max is available in more than 100 countries. We've added more than 30 million new streaming subscribers in 3 years. Our streaming segment will contribute more than $1.3 billion in EBITDA to our bottom line this year versus losing $2.5 billion 3 years ago. And we still have launches in some of the biggest markets in the world, like Germany, Italy, the U.K. and Ireland coming in 2026.

By the end of next year, we will have more than 150 million total streaming subscribers. We're delivering those results by investing hard and continuing to distinguish our offering through quality. I said in the beginning of this journey, it's not how much, it's how good. And that belief continues to guide everything we do.

HBO really embodies that standard. And Casey and the team have done a superb job. Our successes earlier in the year with series like The Pit, Write Lotus and The Last of Us, carried forward into Q3 with shows like TASC and Gilded Age, both of which have averaged more than 10 million viewers per episode. HBO was recognized with 30 Emmy Awards this summer tied for the most of any network or platform. Just recently, HBO debuted It, Welcome to Dairy, to a resounding audience response. The series premiere was the third most watched in HBO history behind only The Last of Us and House of the Dragon, and has been watched by almost 15 million viewers in its first week. This is further evidence that in its long history, HBO has never delivered a steadier, more consistent pipeline of titles that subscribers circle in their calendars to watch.

In Q3, we also saw movies like Sinners, Final Destination Bloodlines and Superman arrive on HBO Max and drive strong engagement, with Weapons Now also available and The Conjuring Last Rights and One Battle After Another on their way in Q4, and we will end 2025 with more Warner Bros. Pay1 movies in HBO Max's top 20 titles than ever before.

After years of development, the balance of content we envision for HBO Max with Warner Bros. extensive TV library, HBO Original Series and Warner Bros. Pay 1 movies, a 1, 2, 3 combination that's very powerful. It has finally come into full form. The value proposition for subscribers is only growing stronger. Having rebuilt Warner Bros. to the #1 studio in the world is proving to be a big win, not just in the box office but across HBO Max, where our great films are driving record engagement and growth globally, well after its theatrical window.

Finally, our third principle has been to optimize our linear networks. The headwinds facing the linear television business are well understood. But for all that's been said about the disruption confronting these businesses, not enough has been said about their resilience. Networks like TNT, TBS, CNN, Discovery, TLC and HGTV, Food Network and many others continue to be indispensable to tens of millions of subscribers worldwide, which is why our networks remain such a powerful cash flow contributor.

As our global networks investment is extending their brands digitally, we see a long and profitable runway ahead. Through it all, we've also dramatically reduced our debt, with our net leverage ratio now down to 3.3x our EBITDA, including paying down $1 billion from our bridge loan facility in the third quarter. Thanks to the work we've done, we're on track to create 2 strong, well-capitalized businesses that can each create significant long-term shareholder value. The team is hard at work, both on the separation transaction and on following the Board's direction to evaluate strategic alternatives.

You've all seen media reports as to potential interested parties, and I won't comment on anything specific. But it's fair to say that we have an active process underway.

When you look at our films like Superman, Weapons and One Battle After Another, the global reach of HBO Max and the diversity of our networks offerings, we've managed to bring the best, most treasured traditions of Warner Bros. forward into a new era of entertainment and new media landscape. I'm thrilled with our progress in Q3 and welcome your questions.

[Operator Instructions] Your first question comes from Jessica Reif Ehrlich of Bank of America Securities.

Two questions, if it's okay. One on the library and 1 on sports. David, could you give us more color? You kind of alluded to the library, but you've grown organically and through -- also through multiple acquisitions over the last few decades. And you have quality -- but your quantity, but also obviously great quality. How do you think about mining the deep catalog? And can you give us some color on what's in Discovery Global Network or the soon to be named Discovery Global Networks like within Cartoon Network, Discovery, et cetera? And could -- you don't talk about that that much.

And then on sports, in the release talks about launching a standalone sports streaming app. Can you talk a little bit about how you feel about the sports portfolio today? Are there assets in there that you think are underappreciated? Are there opportunities to strengthen the portfolio?

Jessica, it's going on. Let me take those 2 maybe with an eye towards Discovery Global going forward. So I'll start with the sports question. As you've heard from us, we feel very good about the composition of our sports portfolio right now. We're going to begin to see some real benefits from the transition off of the NBA towards a portfolio of other rights that we acquired as replacement. You're going to see hundreds of millions of dollars of benefit next year from that transition. The team has done a phenomenal job restructuring our portfolio. That said, we're going to continue executing the same strategy as before. We're going to be disciplined in this space, but we also acknowledge that part is going to be 1 key pillar of our strategy going forward. That is the case for Discovery Global as it was for Warner Bros. discovery. And I do think there is going to be more opportunity opportunistically as we look ahead over the next 3 to 5 years.

The important change that we're working on and making great progress is the development of our stand-alone sports streaming app. We will need that in the U.S. market as HBO Max stops, the utilization of our streaming rights in the spin-off scenario. The team is making great progress, and that will put us in a position to have a a compelling stand-alone offering, but also something that will allow us to partner and bundle with our own products and others in the market.

As we've stated before, it will be working differently in the U.S. and outside the U.S. Outside the U.S., all of the sports content will be available to HBO Max, and we'll be offering it on HBO Max or as an add-on. There's some sports that will only be on HBO Max. And we have found that all of our movies and scripted series together with local content and local sport is a very compelling offering outside the U.S., and it's a driver of real growth, and it's quite differentiated. Here in the U.S., we didn't find that -- we were so robust in our storytelling that we didn't find that these sports were providing enough value for us in terms of incremental subs, which was -- we didn't get that many. There was some engagement. But the view is, for us, that HBO Max is much stronger as being a motion picture and storytelling product, not dependent on rental sports. And so I think it works out very well. And [indiscernible] we'll be able to take advantage of that with this new app.

Right. And then on the library, Jessica, you're right. I mean we're looking at tens of thousands of hours of beloved content that we're reaching more than 1 billion people with everywhere in the world. This is going to be 1 of the focus areas for the future Discovery Global leadership team to revitalize some of those content brands with different focus areas in different parts of the globe. We are adding thousands of hours every year to that library, a lot of which comes from our strong free-to-air presence outside of the U.S. And that is going to be 1 of the big strengths as we set sales with Discovery Global, and we will be fully focused on figuring out the best way to monetize, not only the fresh content, but also the enormous library with less sort of exclusivity for HBO Max...

JB you should talk to -- you're going to be all the content that we -- that you thought was valuable domestically and around the world will be -- will continue. You should just speak to that.

Yes. I mean we'll continue just going to have access on HBO Max to kind of what we call the best of the Discovery Global assets that continue to be healthy engagement contributor to HBO Max. And so the good news is even in the separation, we'll continue to have access to that domestically, we'll have access to that internationally, including, obviously, a lot of the free-to-air content that is bigger and broader, particularly in Europe from some of our free-to-air channels and networks across that market. So the good news is HBO Max continue to have access to the content that it has seen in our subscribers have seemed to be valued even in the separation.

And that will be the case, if, in fact, HBO Max goes ahead and splits as planned or if Warner is acquired as Warner. And obviously, if the company is acquired in whole, then they'll have access to everything.

Your next question comes from Kannan Venkateshwar of Barclays.

So maybe a couple of questions on the streaming side. So 1 on the discovery side, when you think about the CNN streaming app or the T&T Sports app, it feels like the process over the last few years has been for streaming apps to consolidate. And this yields a little bit of a reversal of that process where different genres are basically disintegrating it to different apps, which comes with its own operating costs and so on. So I just wanted to get the thought process behind that instead of maybe leaning more into licensing some of these rigs and monetizing it in a more, I guess, cost light manner. So some thoughts on that would be useful. And then on the linear side, the decline rate when it comes to linear distribution, seems to be a little different from your peers in the sense that your 2% affiliate increases are a little lower than what most of your peers seem to be talking about and the subscriber rate decline rates also seem to be higher. Is this because of some kind of a reset? And does this become a comp benefit as you go into next year and beyond with starts to benefit you?

Let me start with CNN and then, Juno, why don't you take over the the others. So we've been very quietly -- mark Thompson has hired a whole team, including a big group from the New York Times when he was there, where he rebuilt the New York Times as a digital business. This CNN product is the -- it's the first of many. But it's quite compelling, and we see it as a stand-alone. That doesn't mean that it wouldn't be bundled with multiple other products, but we had it on Max and HBO Max. And people look to the news, but this is a very compelling proposition that anyway, it's now here in the U.S., but very soon, it will be anywhere in the world you go, you can subscribe to CNN, where you could see CNN live. So if anything is happening in the world, if you wake up and tanks are rolling in Russia, and you want to know anywhere in the world, what is going on, when those events happen, CNN is on in every president's office and every Prime Minister's office. And it's when -- because we're the only real global news operation.

Mark and Alex have built a product around this idea that people everywhere in the world need to know from the most trusted source and news, what is really happening from journalists on the ground that they can trust. And so this will be -- if you have it, you'll see it. It's a terrific everyday product with robust opportunity to get [indiscernible] with all kinds of news other than the live feed or to have multiple live feeds. But in a world of AI and in a world of so many voices of what is really going on, to be able to be anywhere in the world at any time and hear something is happening and be able to go to this, we're very bullish on this as an independent product that will be of real scale, but also really important for society that we have this and making use of everything that's been built at CNN. And again, that could be packaged with almost anybody, but it's off to a very good start.

And Kannan, the only thing I would add is, don't think of it as sort of completely separate stand-alone products and technology stacks. JB and the team have built a phenomenal platform over the past few years. And to some extent, we're -- these are skins on essentially the same product platform. So there is very limited incremental operating costs. And also from a consumer perspective, think of it more as sort of modules that you could activate together. And what we've seen in virtually every market globally where we have experimented with news and sports, we've seen the greater commercial success by offering sports as a buy through as opposed to making it available more broadly to an entire sort of completely bundled or completely integrated products. So that's the rationale behind this.

On the distribution decline rates, it is true that in 2025, we're working through a transition period here. We have given greater flexibility in the recent round of renewals as others have as well, to some extent, across the industry. And I do believe that we're seeing some of those benefits come from already. If you look at how Charter has consistently reported their video subscribers with definitely a positive trend for the industry. So I do think we're doing the right thing here as an industry and as a company, and I certainly expect a slightly better trajectory in the near to midterm for us.

Your next question comes from Robert Fishman of MoffettNathanson.

Can you share more on your confidence to gain global scale with HBO Max ahead of your next wave of international launches? And any updated thoughts on how HBO Max's scale is able to best compete with the other larger SVOD platforms? And how that will translate into streaming revenue growth maybe accelerating next year?

And then shifting over just to your content spending and budgets as you think about next year. Can you just help us think about the right balance of investing in new IP versus leaning into your franchises? Where do you think you create the most amount of value clearly seeing the momentum in the studio, thinking about DC Comic here versus new IP that you've created across the platforms?

Okay. JB and Casey have really established a very unique product with the largest motion picture and TV library together with the robust original content together with Motion Picture. And as you go outside the U.S. local sports and local content, all adding up to a market position of highest quality streaming service, which is, as you go around the world, is in all of the surveys is how we are seeing. And we're starting to see that there's a real advantage in us having a differentiated view within the marketplace as being high quality. We think it gives us opportunity for real growth. It also gives us an opportunity over time with economics. And we're starting to be seen in a meaningful way and known with HBO Max as a brand and that acceleration is beginning. JB, what are you take them through what you're seeing on the ground?

Yes, Robert, on the scaling point, what makes this -- part makes us confident, a, is we've seen data points, obviously, with things like the Australian launch this year of markets where our content has been in market maybe through a licensed partner or a distributor for years. And we know the success of the content in those markets. We've seen it. We have the data on the performance. And that's partly what gives us high confidence, particularly in these 3 big European markets, U.K., Germany and Italy of what the content can do once it comes out of those license agreements and into our stand-alone HBO Max service, number one. Number 2 is the product is the content. And at the end of the day, the slate that we have coming in '27, building into '27 and launching into a decade of Harry Potter, we feel better than ever about the quality, both in terms of the performance of that content as well as an increasing volume, both of U.S. originated content as well as some local OP, local original productions in select markets.

And then as David said, look, no consumers anywhere in the world right now are asking for more content. Many consumers are sort of drowning in the more. We feel better and better about where we've landed over the last 12, 24 months in differentiating our proposition all based on, as David said, quality. And it's really starting to resonate. And you see that from every hit that Casey and the team have been producing with the numbers growing, not only in absolutes, but also week-to-week this year between the [indiscernible] growing week-to-week Last of Us, now we're starting to see that -- we saw that with Task. And so our marketing content and product improvements give us a lot of confidence that we can continue to see great penetration and growth as we scale.

And the total 150 million subs that David referenced earlier, a bunch of those we have through partnerships that we have locked in. And so we have good visibility towards both revenue and the scaling of subscribers in that time. And we can't wait to get after it. 2026 should be for us the biggest year of growth that we've seen in a long time for HBO Max.

Next question comes from Ben Swinburne of Morgan Stanley.

I have 2 questions. David, when you look at how well Mike, Pam, Shannon and the team have done over the last couple of years, especially this year at the studio, it's obviously very encouraging. You have a $3 billion -- I believe, a $3 billion EBITDA ambition at the studio. I'm wondering if you could talk about the bridge from what we're seeing in 2025 to that level of profitability, which I don't think we've ever seen from Warner Bros. business in the past.

And then, [indiscernible], I don't know if you want to answer this, but -- can you talk a little bit about any tax implications should you guys change the structure that you talked about in the strategic review press release specifically selling Warner Bros. and spinning Discovery Global? And is there a point at which the process you're running puts the separate -- the tax-free nature of the separation that is still Plan A at risk? It would be helpful for us to understand how that all works.

Ben, let me start with the second question. The answer is no, I don't want to provide any more color on that process. David, do you want to start with the $3 billion ambition?

Yes, sure. And remember, the objective is get to the $3 billion and then get a real growth rate off of that, which we believe that we could do. And it started with really getting back to basics on the fact that we have such a huge advantage with all the known IP and the talent within this company, New Line making horror films and for a price together with comedies that you'll start to see coming next year also for a price. On top of that, we have DC with James and Peter off to a great start with Superman, Super Girl has already been shot, Clay Face has already been shot. The script for the next Superman has already been written. Batman with Matt Reeves is terrific. And then we have Warner Animation with Bill Domanski. Mike and Pam a doing really a terrific job in this 4-part strategy where we really use tentpoles and then mini tentpoles, whether it's Lord to the Rings, Batman, Superman, Wonder Women that we use the tentpoles that we have that are known all around the world and then the mini tentpoles, which might be Gremlins and [indiscernible] and Practical Magic and then original. And we -- with a lot of discipline, we think that's going to be and is very strong. And our content I've been saying for a long time, has been under used. We haven't seen Superman for 13 years. You haven't seen Harry Potter for 14 years. You haven't seen Lord of the Rings for over a decade, and Peter Jackson has been working hard with us on that film that you'll see in '27.

And so we're very excited about mining and the original together. We also have the biggest TV and motion picture library in the world, which generates a lot of the economics of the studio. And we've been very, I think, judicious about how we do that. We could be generating another $1 billion or $2 billion if we decided to sell a lot of the most important IP that we have. But you've seen that we've been very precious about selling content from HBO because we really believe that -- and it's starting to pay off now that if you want to see the highest quality content, if you want to see the Wire, if you want to see Game of Thrones, if you want to see a series like Task or White Lotus, you don't get to see that anywhere else. And so that is working.

Canning's team has never been stronger. We have the best writers and directors working for us, over 70. We have over 80 shows in production at a time when everyone else is declining because less money is being spent where the studios just -- has never been stronger. And it was just coming off of a load of Emmy nominations and a lot of Emmy wins. And so we -- that business is going very strong.

We then have experiences where that's an area that we've been building by launching Harry Potter in Shanghai. And then we have a number of other Harry Potters facilities that we're going to be launching around the world, together with a whole team that is now working on monetizing the additional value through merchandising of our IP. And it's something that we haven't done particularly well. Disney has done really well. And so we've built a whole new team that's going after that.

And so overall, we're very bullish. We have the #1 TV studio. The Motion Picture business is doing great. Richard Brenner at New Line has had an unbelievable year for us, and we're excited about the next 2 years and what he has going. And we can't wait to launch Cat in the Hat with Bill Domanski. But the real stability is our library, and Canning's ability to be the fact that she's distinguished herself as the quality producer in television. And we're using a lot more of our content now within our own company, which has provided real value to us.

And David, maybe just 2 more points on that last point because I think it's important for people to understand. We have pretty significantly shifted from external monetization of our library to internal monetization of our library. And that means that we have, over the past few years, pretty significantly eliminated in our company profit. Those profits are sitting on the balance sheet or waiting to bleed back into the business. In other words, it's going to support our profitability going forward since we're now at a much more steady state across those roughly $5 billion of content licensing.

The second point is Channing, I think, has also, with her team, done a phenomenal job managing the transition from a broadcast focused production system to an SVOD focused system. It has an immediate short-term benefit of, obviously, sort of the cost plus model, has had the disadvantage of licensing terms being longer, but we're also on the backside of that. Over the next 3 to 5 years, a lot of those early streaming shows are going to come back and replenish the library and sort of reinvigorate that sales business as well. So Channing has done a phenomenal job and set us up, I think, for another big cycle of strong growth.

Your next question comes from Steven Cahall of Wells Fargo.

David, I was wondering if you could talk a little bit about HBO and its content process. You were just speaking a lot to Ben's question about the value of IP at Warner Bros. and how much value you've done in mining that. And I think what makes HBO unique is not mineable IP, but this ability to kind of reinvent with new originals all the time. So if we think about HBO either as something that you'll own or maybe someone else could own in the future, what is really unique to it that can't be found anywhere else and separates it from other streaming services from a content development standpoint?

And then, Gunnar, just on sports, I mean, you talked about needing some opportunity in sports over the next 3 to 5 years and how important it is to linear. Do you think that those opportunities will exist with rights that become available to market? Or do you think you may need to think somewhat inorganically as well about ensuring that that business has sufficient sports rights?

I'll take that last 1 right quick. I was primarily thinking about opportunities coming up in the market on an organic basis, Steve.

Let me talk to HBO because this business that we're in about telling stories and the magic of it is all about the best creatives behind the screen and in front of the screen. And we all know it starts with script, but it's also the ability to work with the best creatives to tell the best stories. And if you just look at the track record of [indiscernible] and Amy [indiscernible] and Frannie and Sara [indiscernible], Anita Rosenstein and Nancy and Lisa and Docs, this team has been together for almost 15 or 20 years. They love what they do. That they wake up every day and fight for the most compelling story and people love to work with them because there's a shared passion. There's also -- at HBO, when you're working with KC and Amy and Frannie and Sarah, and that -- we get that series. We fight globally that everyone -- that everyone should see it, that we believe in it and will this idea of community of putting that on every Sunday night or every Monday night or every Thursday night and having a real community conversation about story, it feels on fashion, but it's extremely powerful. Whether it's Guild at Age or whether it's a Task or whether it's White Lotus for the 8 weeks or 12 weeks or the pit, 15 weeks, it becomes something that we could all talk about. And in that process of selecting the most compelling stories and then fighting when we put it on HBO to have -- to really cherish these shows that it's also when people are thinking where they want to go.

We get a lot of the best product for less money because they want to be on HBO and they want to be seen. And so I think it's all about Casey and Amy and Frannie and Sarah. They're exceptional. Their teams are exceptional. And even the docs, we get a huge viewership of our documentaries. And when we do research, a lot of times, people say, I didn't love Billy Joel, but it was an HBO documentary, so I watched it. And wow, was that great. And so this idea of fighting for real quality and telling the best stories is something that is best exemplified by HBO.

And we added Channing and the whole team to it. When we got here, Warner Bros. did not produce for HBO And the relationship between Casey and Channing and the fact that they're working together with JK on Harry Potter and they worked together on the Pit and they worked together on the Penguin just elevates us. We're the biggest and best producer of TV and motion pictures in the world, and we're much more efficient about making sure a lot of that great content gets to KC and that it gets nourished before it goes on the air.

Your next question comes from Rick Prentiss of Raymond James.

I want to look at ARPU trends in the streaming. There's been a lot of moving pieces there, but can you walk us through a little bit about how you see that playing out domestically and internationally? And then I want to circle back to the earlier question about the monetization of IP. I think last quarter, you mentioned moved up from $0.22 to $0.30 versus like Disney doing $1 dollar. Can you lay out some of the items that you think you could achieve there? Because that might be part of the valuation gap, if you will, as far as where the unseen increased value in Paramount or other people might be missing as far as what you can really achieve even on your own. So ARPU streaming and that monetization question.

Yes, Rick, it's JB. On the ARPU streaming side, obviously, in the near term, as we sort of disclosed on the second quarter call over the summer, on the U.S. ARPU trend, because there are really 2 factors. One is the reset back to market rates of an affiliated party transaction that had happened starting in the back end of the second quarter this year flowing through to the second quarter of next year. We do see some pressure on ARPU in the U.S. for the next 3 quarters, but then have high confidence of returning back to ARPU growth starting in the back half of '26 in the U.S.

The second component that is changing the dynamics of the ARPU a little bit, both internationally and in the U.S. is obviously, we're about 12 to 18 months into our rollout of our ad-supported SKU, which is particularly internationally, has been in the U.S. for a couple of years, internationally, really only started rolling out in 2024. And in that build-out, naturally, you're going to see some ARPU pressure as that lower price distribution SKU ramps and rolls out and gains more share of our total subscriber base. And in the monetization, we're being -- on the ad piece of the monetization, we're being very judicious because we do see ourselves, just like we talked about in the quality of content and storytelling side, we also see ourselves as a premium service and want to make sure we keep our premium rates in the marketplace.

And so the opportunity and the good news there is we are seeing very good pricing across the globe. But we also are holding on and fighting for that premium pricing and not just throwing in the towel to drive volume. And so over time, as we increase fill rates, particularly internationally, we continue to see a good upward trajectory of ARPU internationally. Not to mention, obviously, that we are also continue to have a good cadence of price increases scheduled, both you saw 1 obviously in the U.S. recently, internationally, the same will happen on a good regular cadence. And so the combination of better monetization on the ad sales side pricing increases and then continued enforcement on the password sharing side of the house, which both between the add-on member as well as generally just new subscriptions is going to drive further ARPU upside.

And so a little noisy for the next couple of quarters because of those 2 points and then getting back to healthy growth in 2026.

And then, Rick, on franchise management and the opportunity there. I think the most important change is that for the first time, now we've had a team to oversee the coordination of everything -- every activity related to our content franchises across the company, not every franchise, but but the most important 1 is to make sure that we really leverage those brands and the content in the best way possible. We've got 1 phenomenal example. The company has always done a great job with Harry Potter. And you can see what's possible with the full coordination between licensing, consumer products, experiences, now soon a series, the films, et cetera. So that's always been a stronghold. But the team has now sort of worked actively and systematically to prioritize the next set of franchises. DC is 1 example that you already see in real life with Peter Safer and James Gun taking to fundamentally different approach soup to nuts from an integrated Canon for the storytelling, coordinated approach to what stories become theatrical, what stories become serial, what stories become interactive in the gaming space. And they're embracing all forms of monetization from the get-go, thinking consumer products during production already. And the team is already looking forward what the next priority franchises could be with Game of Thrones, with Hana Barbara, Unions. It's just a fundamentally different approach than what the company has done historically. When we first came together as Warner Bros. Discovery , there was a complete disconnect and sometimes the consumer products team would read in the news about a release date changing for a film, which would throw a monkey rent in their entire annual plan. So we've made a lot of process changes, brought in a new team, and I think this is going to pay dividends over many, many years to come.

Thank you. Ladies and gentlemen, there are no further questions at this time. That concludes today's conference call. Thank you for your participation. You may now disconnect.

Great. Thank you, everybody. Welcome to the Warner Bros. Discovery fireside chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing and hosting David Zaslav, who is the President and CEO at Warner Bros. Discovery. My name is Mike Ng, and I cover media here at Goldman Sachs. We have about 35 minutes for today's presentation.

Thank you so much for being here, David. I'll kick it off over to you for some introductory remarks.

Great. Thanks, Mike. It's a great time for us to be here at Goldman, a little over 3.5 years in. And I just -- I thought I'd start off by talking about where we are because I think we're in a really good place.

It's a long-cycle business, the creative business. And I've said for a long time, we're just a storytelling company. And so over the last 3.5 years, we've invested an enormous effort in getting the best creative people at the company, behind the screen, in front of the screen with the idea that we're already -- we're the biggest maker of TV content, we need to really build that studio up. We need to build HBO. And we need to rebuild the Motion Picture studio. When we got there 3.5 years ago, AT&T had a different strategy, direct to streaming of movies. And so here we are 3.5 years later, where we have strategically repositioned our assets.

And our primary focus was launch HBO globally. It was losing $2.5 billion. And across the company, this creative focus of it's not how much, it's how good. And here we are 3.5 years later, we're going into Emmy weekend with HBO having more hits than it's ever had. Casey and the creative team there's superb. And the business will make $1.3 billion or more this year. And we're global with, I think, the best kind of growth metrics to come as we launch in the U.K., Germany and Italy and around the world for next year.

Our TV business, which Channing runs is very strong. Also the most Emmy nominations they've ever had. We haven't lost any talent at the company. We've brought a lot of great people along for the ride.

And then we have the Motion Picture business, which was in last place for many years. It is a long-cycle business. We're going to talk more about how we've attacked it because I think we've really built a very strong infrastructure there that takes advantage of the great creative people we have and the great IP. But we're the #1 studio domestically and globally now. We've had 8 hits this year. And there's a lot of confidence and a lot of excitement about what's to come there.

All of this happening when we paid $20 billion of debt down. We kind of view the company as in half. The left side is all of our cost and infrastructure that's not related to platform or actually storytelling and creative. And the right side is the growth, creative storytelling and platform. And we've paid down $20 billion in debt, and we're -- as of last quarter, we were net $3.3 billion of debt with $20 billion paid down. So I think that puts us now in a really formidable position to split the company.

The 2 companies, as we split, will be self-funding. The Streaming and Studio business with very strong growth metrics and some real momentum. And the networks -- global networks business has a really diversified global set of assets, news, sports, free-to-air, cable. And I think there'll be a lot of shareholder value creation as we split. Things are going terrifically well. We expect that, that will happen as we discussed in the second quarter. There are no approvals required. We need certified financials, and Gunnar and the team have been working very hard on that.

The structure, I think, is quite compelling. The objective is that up to 20% will go to the Global Streaming business in terms of a starter interest. That may -- some or all of that might get sold before we split, but the intention is that, that would be short term and that would be a meaningfully delevering event for global networks to give even more acceleration to a business that has very good free cash flow metrics. And the overwhelming amount of debt will be going over to there.

And finally, our business is really -- it's about storytelling, but it's about people. And I think we've got the best creative people at the company. And we got some of the best business leaders in the business. Brad Singer, he's here today. He's joining us. It's not a small thing. Brad and I were a team for many years together. We created a tremendous amount of shareholder value together at Discovery. He spent 1.5 months looking at the business. I kept saying, "Are you coming?" And he said, "Give me -- let me look -- spend some more time. I'm looking at the business." And he's here now. He was at the studio last week. And I think he's going to add a lot of value as we embark on the split. And once we do, we'll be looking to show you guys how this could be a meaningful growth company that's really unique. So that's where we are.

Our guidance for the Streaming business is $1.3 billion or more, and we're doing very well with that business. Our guidance was $2.4 billion for the Studio. It was as low as $1.4 billion. We said we were going to get it to $3 billion and growing. We're more confident in that. And you should expect that we'll meaningfully outperform the $2.4 billion on the Studio side with the success that we're having at the Motion Picture studio, including Conjuring and Weapons that are hugely overdelivering. So that's it for -- as a starter.

That's a fantastic overview, and there's a lot that I would really love to dig in there. Let's start with Studios. As you mentioned, the Studios business is on its way to over $2.4 billion of EBITDA this year. That's a result of several years of operational transformation, a more analytically rigorous green lighting process, more marketing, more distribution. And the company is targeting 12 to 14 theatrical releases annually in future years. Could you just talk a little bit more about those operational initiatives that the company has instituted in Studios and the momentum in the business?

Sure. Well, first, we restructured the Studio business to put a real emphasis on the Motion Picture business. At a time when many didn't think the Motion Picture business was coming back, for us, it's about the Motion Picture business. But it's really the top of the creative funnel, getting the best creative people working with us on the Motion Picture side and then we can move them uniquely with our set of assets on to HBO, which -- Max, which we've done in many cases. And I'll take you through that.

But we did a number of things, I think, to increase the likelihood of long-term sustainable growth and taking advantage of what we have. One is, we broke it into 4 studios. Newline has been historically the most successful [ Harris Studio ]. Instead, they were doing things like The Flash & Aquaman. And we said get back to what you do really well. And you have great IP in that area, whether it's Conjuring or none, let's get back to what you do. And that's what they've been doing, and they're having a great year. They have a ton of great stuff coming up next year. And I think we have the best team there.

We're also going to be doing some of the younger comedies. They did the hangover franchises and the wedding crashers. You'll see some of that. All of those are for a price. We're very focused on the economics and that we've changed the whole green line. We could do those movies for between $10 million and $50 million, and there -- many of them are known, and we can make real economics on it.

Two is animation. We brought in Bill Damaschke, who ran Pixar. And you'll see the hard work. This is a long-cycle business, but Cat in the Hat next year and the places you go, and we're working on Little Kitty. So we have a whole group of -- that we think are broad appeal family films coming out of that.

James Gunn and Peter Safran have been working on DC now for 2.5 years. We did Superman, which was a great triumph for James and for the whole team. We have another Superman coming in '27. We have Batman coming, Super girl next week, next year. Clayface. We did the Penguin with great success on HBO. So DC is off to a great start. And I think the value creation of DC could be really enormous for us with James Gunn and what he has in the pipeline.

And then finally, is the Warner Studio itself. And we purposely brought -- said we're the place for original stories. That's what Warner has always been and Warner will always be that. And that's how we get Paul Thomas Anderson and Ryan Coogler. And there were a lot of people looking at those films and saying they may be too expensive. And maybe some of them we did put too much money against. But we wanted them to get the best creative people back with us. We wanted them to become part of the Warner Bros. family.

Of all the movies we did this year, we've made a lot of money on all of them. Sinners was a big hit for us. Minecraft was a big hit for us. So -- and then on top of that, we're doing tentpole movies where things like Practical Magic and Minecraft. So simplistically, we've divided them into 4 for diversity, and that's working for us. We've been really aggressive about the green lighting process. We completely changed the marketing team. And we're now marketing these movies for a lot less money, but we're using the contemporary platforms. We saw companies like Neon and A24 promoting movies with 5-second spots and only 5-second spots. And getting as many people to come to some of the horror films as us when we were spending 10x as much money. So we have a new team. They're working very well, enormously creative.

And finally, we have some of the greatest storytelling IP in the world. And we had the advantage that a lot of it hasn't been -- most of it is underused. So we set out how do we take advantage of DC, Lord of the Rings, Harry Potter. And then how do we deploy it strategically. So for Mike and Pam, you should expect to see we have a good -- very good slate next year. There'll be 2 or 3 tentpoles, with James Gunn working with us. It will be either Batman, Superman, Wonder Woman, Supergirl. Those are at -- or Lord of the Rings. There'll be big tentpole movies than many tentpoles, whether it's Practical Magic or The Fugitive, movies that you've heard about and then finally, original.

So with all that, the Studio is going to have a hell of a year. We think we're on to something. It is an up and down business. But we've got the best creative people, and we've got a great pipeline. So it's -- we've worked on it for the last 3.5 years, and I'm quite confident that we'll get to that $3 billion pretty quickly. And then you're going to see that there's real upside on the Motion Picture side and the whole studio as we take advantage of all the work we've done.

That's great. And Studios and Streaming has been very closely tied together, whether that's the Warner Bros. Studio content that goes to HBO or the very valuable pay-1 relationship that HBO has with Studios. I think over the first half of 2025, more than 50% of the Global Streaming content on HBO or viewing hours came from Warner Bros. So could you just talk a little bit about how Warner Bros. approaches this relationship between Streaming and Studios and the synergies there? How do investments in Studios help streaming?

Sure. Look, we're the biggest maker of TV and Motion Picture content in the world. It used to be run and it was a different time, and it might have made a lot of sense that each of them be completely separate. Channing runs a business that does almost 100 TV shows, series, and many of them we sell to Apple, Shrinking, Ted Lasso, we sell to ABC, Abbott Elementary. We sell a lot to Netflix. But they didn't do much business with HBO. They were primarily a third-party high-quality vendor. And we brought them together. The relationship between Casey and Channing is very strong. They're working together with J. K. Rowling on Harry Potter, which is coming along great, which you'll see soon. Channing and Casey envisioned this idea of The Pitt with Noah Wyle and John Wells. That's a Warner Bros. production.

So a lot of what you -- The Penguin is a Warner Bros. and HBO collaboration. So we have this great amount of talent at Warner. And a lot of that is, it might be Chuck Lorre, Bill Lawrence, Mindy Kaling. Why shouldn't a lot of their great content also be on HBO? And it gives us real optional leverage going forward. As HBO Max continues to grow, which it is growing in a meaningful way and as we roll it out globally, the ability to just decide, all right, the next Bill Lawrence show is going to be on HBO, and it looks terrific. So we can make that decision. Should we take that out to market? Or do we use it for ourselves?

And having that ability to make content is something that very few companies have. And that ability to make it and then decide where we're going to put it. So I'm very happy about how Warner Bros. TV is -- production is working with HBO. And of HBO's close to 150 Emmy nominations and then you had Channing had over 60, and we decide where all that stuff goes. And they have a creative meeting once a week, all the creative people at the company, which I go to often, and it's about what are we doing? Who do we have? What are the stories we're telling and what's the best place for it to go? And where could we create the most value? Sometimes it's asset value with HBO Max, where could we create the best economics?

Yes. And when I look at HBO, I see a tremendous amount of visibility over the next couple of years because of, in part, the international expansion. Earlier this year, HBO Max launched in Australia as we head into 2026. I think it's Germany and Italy and then U.K. and Ireland. Could you talk a little bit about the learnings from the Australia launch that you can apply to the rest of the international expansion that's coming over time? And maybe just talk more broadly about the global distribution strategy for HBO Max?

We have a firm belief, and we spent almost 3 years driving this internally aggressively to get real sustainable growth as a streaming service and to be able to really accelerate and take advantage of great content that you need to be global. It took way too long. We had to fight really hard internally to get the right platform and get it working. But we're -- right now, we added 3.5 million subs last quarter, 3.3 million were outside the U.S. It's going to be a big year for us next year. We're going to launch in markets where our content is loved.

In many markets, we're launching new, but in markets like the U.K., Italy and Germany, we've been in those markets for many years. If you take away sports, 50% of the viewing on Sky is HBO content. So within those markets, people are waiting for euphoria to come back. They want to see the next season of Gilded Age. They want to see the next season of Last of Us. They've loved watching our content, and it's been branded at the end as HBO. So we're nonexclusive in all 3 of those markets. We'll be in over 150 million homes next year. It could be a lot more than that. We're seeing tremendous demand in a lot of those markets as we roll out. So it feels really powerful.

And maybe what the biggest accelerant, I believe, is going to be that the marketplace is really challenged with too many players in each -- in the market. And when people turn on -- the consumers put on their TV, it's a terrible consumer experience. In almost every market in the world, there's just way too many choices. And you're Googling where is it? How do I get from one to the other? How do I get into that platform? And so I believe over time, it's going to rationalize. And a lot of our internal strategic drive is that there's going to be a table on this.

Right now, there's only 5 global players. There's Amazon, Netflix, Disney, us and YouTube, which is a slightly different business, but a very strong company and very powerful. Maybe that will be 6, maybe it will be 7. It's not going to be 20. And you start to see the challenge of being a local player. And it's one of the reasons why you see us market by market starting to bundle because some of those local players, whether it's global or Televisa or all across Europe, that were on their own, building platforms with engineers, Netflix is accelerating away. And they -- many are looking to us or other players to say, "Let's bundle together." And I think bundling will be one piece, but we've had a lot of offers, many of which we've taken, many of which we haven't where people have raised their hand saying, "I'd rather be part of a global platform. Can I be part of you, because I'm losing a lot of money just trying to play this game in my own market." So I think you'll see different types of consolidation, but the fact that we're now global, profitable and growing. And this idea of splitting the company at this time, we think will bring a tremendous amount of shareholder value because the ability to look at a set of growth assets on one side, gaming, streaming, biggest studio in the world, biggest maker of content, great IP in one company gives a chance, I think, for real multiple expansion, which particularly if we could prove that this has real sustainable growth.

Yes. So Warner Bros. Discovery, HBO traditionally viewed largely as a content company. Increasingly, it's becoming a content distribution and technology company. So maybe you can just talk a little bit about some of the technology initiatives and some of the distribution efforts for HBO in terms of bundling, paid sharing, recommendation engines that the company is pursuing to help improve lifetime value, churn?

Sure. Look, some of it we're doing on our own. But again, these bundles, like the bundle we have with Disney here in the U.S., the churn is extremely low. Usage is much higher for both of us. And overall consumer satisfaction with the product is much higher. So I think you're going to see a lot more of that.

I think building a stronger platform and recommendation engine is all important. I'm really a believer that the best content wins. And the fact that we're seeing is the highest quality streaming service in almost every market and that when people see that brand, HBO Max, whether it's distributors that feel aligning with us could really help them hold customers or grow customers or consumers wanting to watch us. Our strategy has evolved a little bit. We -- I would say Netflix has been very, very successful in being everything for consumers. And people may go to Netflix, but ultimately, they come to HBO Max when they want to watch something really special at 7:00 or 8:00 or 9:00 at night with their family and they're finding real satisfaction. So I'd say the biggest push for us has been get the quality of the content up, which Casey and the team is doing.

We have a lot of local content around the world that's helping us. We have local sports with local in language, which is helping us. And so the overall menu of global recognized high-quality content, together with local content, together with local sports, we're finding is just a very powerful consumer offering, and it works well with in almost every market with its peers. We're not trying to be everything to everybody. And the fact that this is quality, and that's true across our company, Motion Picture, TV production and streaming quality. We think that gives us a chance to raise price. We think we're way under price. We're going to take our time because we're really growing now and people spending more and more time with us. But we think that there's real upside to that. And it's hard to replace quality content that people love.

And we're less and less dependent on sport. And I think the more we could be dependent on our IP, when we launch Harry Potter, it's ours. When we launch Lord of the Rings, it's ours. If we just did Conjuring, there's going to be a Conjuring series on HBO, it's ours. And I think that's a big differentiator in terms of our ability to capture margin and growth because no one's going to come back 4 years later, like in sport and say, okay, we need more for Conjuring or we need more for Batman or Superman because it's doing so much better.

Yes. And bringing it back to the financials, as you mentioned earlier, Streaming profitability is on track to exceed $1.3 billion this year. And the segment has shown very good operating leverage, margin expansion and should continue to do so.

We haven't been pushing on the password sharing and the economics yet. People are really starting to love HBO Max. That's the key. We want them to fall in love with our content, with our series, with the differentiated offering outside the U.S. And then over time -- and it's a little tricky with the password sharing. We're going to begin to push on that. And I think our ability to raise price as people become more and more in love with the quality that we have and the series that we have and the offering that we have. We'll have, I think, a real ability because I think the pricing across the board, not only is there too many players. But in order to stay alive, a lot of the players have just decided to drop price aggressively.

Consumers in America were paying twice as much 10 years ago for content. So people were spending on average $55 for content 10 years ago. And the quality of -- the amount of content they were getting, the spend is up like 10 or 12 fold. And so -- and they're paying dramatically less. I think it's -- we want a good deal for consumers. But I think over time, there's real opportunity, particularly for us in that quality area to raise price.

Great. Let's go back to some of the comments that you made earlier on around the company pursuing the separation between Warner Bros. and Discovery Global. How is the progress towards setting the company up for separation going? You talked about the appointment of Brad, which is a big win. How...

Do everybody agree with Brad being a big win?

There you see yourself. So maybe you can talk about the separation progress and what else do you have on the time line?

Everything is going very well. We've been working super hard. Everything is on track for it to be in the second quarter. We expect sometime in April that the companies will be split. There's no approvals required. And the company is outperforming pretty aggressively, which I think will help us the debt. We'll have more debt that we'll pay down before we go. And we're working hard now on having the trajectory of the businesses being stronger. And I think by being split, there'll be a real focus like the focus on CNN, for instance. Mark Thompson has hired a huge team from The New York Times and from Amazon and from Google. We've been hard at work quietly for the last 2 years. We have a new product that's going to launch in the next 6 weeks. We've got 2 more products out of CNN that take advantage of CNN as the globally most trusted vehicle to get your news, people pretty soon within the next couple of months, you'll be able to get CNN for a price. It will start first here in the U.S., but you'll be able to get it everywhere in the world for price as well as some of these other products.

I think they got a lot of upside Gunnar does with their sports portfolio and how they put that together with TNT Sport, Discovery+. There are a lot of businesses that we just -- we were really focused on how do we turn around HBO is domestic only and losing $2.5 billion. How do we rebuild the creative culture? How do we rebuild the Motion Picture slate? How do we do all of our carriage deals? The good news is all those carriage deals are done for Gunnar and for that business. And they could focus on what's the future of food and HG. People still love that, love that content. What's the -- we're the dominant player in natural history around the world. What's the future for that?

And a lot of the free-to-air business in Europe and the cable business is actually quite good still and is on a different trajectory. So I think that's a diversified group of diversified assets that will do well. Our job is to -- when they split in some time in the second quarter, to have the businesses in a position where, strategically, they're both taking advantage of all the assets they have. And the overall majority of debt, as I've said, will go with the network -- the global networks business, which has huge free cash flow still. And there'll be a low debt on the Streaming and Studios business, which will allow Brad and Bruce Campbell and JB and the whole creative team to spend a real focus on just how do we continue to be the best high-quality storytelling company. And it's an exciting time as we become really global, global in terms of production and global in terms of streaming.

Great. Let's dig a little bit deeper into Discovery Global, the global linear networks business. Once it's spun off and separated, how does it effectively navigate some of the challenges in the linear media ecosystem, which I think is well understood? And what are some of the things that it could do more effectively relative to being part of the larger organization? Do you see the need for a more reordering of assets and consolidation within linear media?

Well, first is, I would say, focus, being able to really focus on these assets. What is Food Network in the future? How does CNN become a global business? How do we create a future on streaming for sports that really takes advantage of all the global sports that we have? So I think focus.

It's a global diversified business. Some of the businesses like free-to-air in Europe are doing really well. If there was free-to-air channels trading at low multiples, when we're one big company, would we buy a couple of those businesses and take advantage of the synergy and the fact that, that may have more sustainable, longer, more short future? Maybe not because we're figuring out how to rebundle businesses that might be trading at 15, 20, 25 multiple. So I think they'll be able to really focus on taking advantage of their assets, rebuilding them for the future, but also maybe buying some low multiple assets that could further solidify their ability to generate a lot of free cash flow long into the future.

On advertising, there was a lot of concern earlier in this year about the macroeconomic environment, the impact on ad demand from tariffs. And I think the ad market has been much more resilient than feared. Could you just give us an update on what you're seeing on the advertising market?

Sure. It's -- the advertising market has a lot to do with the type of content that you have. So sports is super strong. And it's pretty strong globally, particularly in the U.S., it's really strong. And we've taken on a lot more sport. We did that. I think that, one, because we were able to get it for a good price. We walked away from the NBA, and we were able to replace it with a lot of good stuff. We recently picked up one of the semifinals college football playoffs.

But things like March Madness and the Big 12 and -- we're just having a baseball playoffs are sold out. And so we're doing quite well. I would say that's picked up over the last year or 2 to really be an advantage with the sports that we have. Our free-to-air across Europe has been quite strong. Some of the traditional entertainment on linear cable has been softer. It helps to have the diversity of live news, live sports and be able to offer a broader package. On the other hand, HBO Max is just -- it's doing really very strong, very high sellout, very high pricing. And we've kept it very limited. If you want to be in front of White Lotus, The Last of Us, Gilded Age, and we've been able to get advertisers that really want to pay a premium to be part of that as well as some of the high-quality broader series that we have that are things like Friends or Big Bang Theory. So Max has been -- I'd say, sports and streaming really strong and some of the other areas weaker free-to-air strong.

So I'd say it's a mixed bag. But overall, dramatically better than we thought, much more stable than we thought. And even the ones that are a little soft are doing better today than they were doing 1 month, 2 months, 3 months ago.

Yes. As we wrap up our conversation, I was wondering if you could just talk a little bit about where you see the industry heading through the end of the decade and how Warner Bros. Discovery is positioning themselves to make sure they succeed in that new environment?

Our journey really is about having people see that Warner Bros. Shield and see HBO Max and the HBO brand as the place to come when at 7:00 or 8:00 after a tough day and you want to watch something that where we could tell you a story and it could be an escape, it could change the way you see the world, we do it differently than almost everyone else. I remember when I was at NBC and we did Must See TV, we built that entire network around people come to us on Thursday night. We built the entire network around that and football. And this idea of story shared in the community, that's what we believe on the Motion Picture side. That's a real impact when you go into the theater and you're surrounded by friends and people you know, the lights go out and we tell you a story. And you see that shield and you have a chance to have an impact on how people see themselves and see the world.

And at HBO, you saw it with White Lotus, you saw it with The Last of Us, you saw it with Gilded Age for 8 weeks, 10 weeks. With The Pit, 15 weeks. It becomes something people look forward to. It's a different philosophy. The Silicon Valley philosophy and a lot of other companies are get people what they want as fast as you can. We don't have that philosophy. We want you to wait and see the next episode of The Pit, of White Lotus. And it explodes on social media. And people are talking about it. They go into friends' houses to watch it. And it creates this energy and excitement about a differentiated shared experience. Most of what we do in the world today, we do alone. And a lot of content consumption now, it's more than ever, but a lot of it is alone.

And there's nothing more powerful than a great story with great friends or a great story with community. And I think that's why you see Warner Bros. Motion Pictures as the #1 studio in the world. We believed in that. We fought for it. We wanted to get people back into the theaters on Main Street. And we thought if we could tell the best stories, with the best filmmakers, with the best talent, the people are going to come back because we want to be together. They came back for Sinners. They came back for Minecraft, 4, 5, 6 times made almost $1 billion. And so they came for Willy Wonka, they came for Barbie. And we believe in it so much, we've built a global marketing team to drive that and then it goes on to HBO and it drives HBO.

So for us, I think the future is be the best storyteller, take advantage of Harry Potter and DC and Lord of the Rings and The Fugitive and be the place that people want to turn to when they want to tell a great story. And then whatever happens in the world, if we can do that globally, we're going to be a force. And in many ways, we'll be a force for good because that's what Warner Bros. was doing 100 years ago, and that's what we're doing today. And it may be old fashioned, but we still all have a great story.

David, it's been such a pleasure and a privilege to have you on stage here with us. Thank you so much.

Thank you.

Thank you. Glad to meet you.

Okay. Great. We'll get started. We're thrilled to welcome Gunnar Wiedenfels back, currently the CFO of Warner Bros. Discovery, but on to other things as well.

Let's focus a little bit on Warner Media and Discovery first, but it's been 3 years since the merger, and you spent a great deal of that time restructuring, transforming, realigning the company across every single division. You've accomplished a great deal.

However, as you've done that, the industry continued to evolve and change. So you've announced plans to split the company into Warner Bros. and Discovery Global, where you will be the CEO. What is the time line of the split?

Yes. Look, first of all, welcome everyone, and thank you, Jessica, for having me again. We have publicly said Q2 of next year is when we want to get this split done. And I will start by saying that we're seeing great momentum on all fronts right now. And that is for the separation process, that is for the business fundamentals and financially.

So maybe allow me a minute or so to talk about those 3 separately. So from a separation perspective, again, I continue to see a very significant value creation opportunity here. We are well on track. We have that Q2 '26 time line. The timing is perfect in a way. We have done so much hard work since that merger to delever the company. We're at net debt of roughly $30 billion at this point. We will be significantly lower than that at the end of the year.

So that's been one key priority in the past. The tender offer was a great success that has helped us. And we've got one more creative tool in the box here with the retained stake for Discovery Global in the Warner Bros. company, and I'm sure we're going to talk about that. But that's something I'm starting to focus on a little more now. We have about a year after separation to monetize that, but it's already -- we already have serious people asking about ways to get their hands on that maybe before that.

So there's a lot of interesting activity there. And we had a very busy weekend. We substantively completed our intercompany agreements that we need to put in place, TSA's commercial agreements. And we got that broadly done through that entire weekend. And you saw the announcement that we hired Brad Singer, who is going to be David's CFO for the new company. We worked with him for a month or so as he sort of did diligence on all the numbers and plans, et cetera. He's tremendously experienced and is going to add a lot of value and is excited to come on.

In fact, he's already soft starting so that in October -- on October 1, he's going to hit the ground running. So that's all going very well. Fundamentally, a great momentum also across the board, creative success right now, maybe more visible than anywhere else in the film business. We're now at 6 for 6 film openings, above $40 million. I'm not going to jinx it, but I'm also positive about the upcoming Conjuring installment. So that's all going very well. On the network side, we have the unique situation right now of no major affiliate deals upcoming for a while. So the team is really also focused on the creative side, but also Luis Silberwasser are making a lot of progress putting together a streaming solution for the new Discovery Global company in the sports space. Mark Thompson is going to come out with more specifics within a matter of weeks on a CNN streaming solution, et cetera.

So great momentum there as well. And financially, we're continuing to generate the cash that we need in a major way. And I have full confidence in our guidance elements, the at least $2.4 billion for the studio, streaming at least $1.3 billion for the year and then a positive outlook from there. So we've chopped a lot of wood. We still have a lot on the agenda, but we're checking it off one by one.

So maybe just a follow-up on what you just mentioned, the up to 20% stake in Warner Bros. going to Discovery Global. So it sounds like you can entertain bids before the split or you are entertaining bids before the split is complete. Can you talk -- like is there -- can you sell it now before you split? And also, can you -- you've mentioned that you've already had discussions. What kind of interest has there been?

Well, we could. And if you take a step back, it's going to be a trade-off, right? Because we want to get full value for it. It's a huge building block in this whole transaction to get an equity injection at the right valuation at an accretive multiple to help with the delevering path. So that's definitely going to be a priority. But -- and again, we've been very clear from a tax perspective, we have a year, potentially a little longer, but let's say, a year. But we have had some interest in discussions earlier than that. And technically, we will be able to monetize part of it, all of it, whatever before we even close the transaction. Again, there's nothing specific here yet, but definitely something that I'm going to be a lot more focused on over the next few months.

What's the process to establish opening leverage for each company?

Yes. So one of the big building blocks from here to the closing of the transaction in the second quarter is getting pro forma financials in place and carve-out financials. So the team is working really hard on that. There is a sequence of steps that we need to get through on that basis. And as part of that with an eye towards the budget for next year and updated long-range plans for both companies, we're going to work with the Board to make the final determination of what goes where.

We've already said and that hasn't changed. If you look at the takeout financing for the bridge loan, the $17 billion bridge loan that we have in place. The majority of that is going to go to Discovery Global. And if you add the existing debt, so the vast majority of the debt is going to be with Discovery Global, where the free cash flow is to service that debt as well.

Okay. So let's go through the pieces. Let's start with the studio, which is obviously one of the crown jewels in all of Hollywood. And it still appears to us at least effectively that there's a significant opportunity in terms of profitability. You guys have targeted $3 billion in EBITDA potential and not as an endpoint. Can you break down the drivers that get us from here to at least there?

Yes. And I'm glad you said it in your question already. It's not an endpoint. It's an interim step. I think there's significantly higher potential there. And the changes in that business take a while. And we've been working really hard over the past 3 years of -- on implementing that change. And it really starts with the creative, both on the executive side and in the talent community. David has made a real point of bringing talent back to working with us. And I think we're seeing some of the benefits now in our performance. But it also expands into just the professional management, the process of decision-making from a budget through marketing, through production execution to windowing.

And then third, embracing franchises, the 360-degree nature of the monetization opportunity. So those are some overarching points. And we have already seen some steps forward here, again, $2.4 billion at least for this year is a significant step towards that goal. And from here, there will be further growth opportunities.

On the film side, again, it's always hit and miss, but there's a little bit of a pattern now. And the slate structure across the 4 distinct categories of films and everybody staying in their lanes and doing what they are best at is going to be a driver for us. In Channing's business, the Warner Bros. TV production, I'm sure we're going to talk more about it, but we're seeing great success, especially in the growing SVOD space where she's in business with all of the key platforms. Games has had more difficult years last year and to some extent this year, but there is tremendous opportunity. We know where that business can perform and JB has restructured the business into 4 franchises that have $1 billion-plus potentials, and we're going to see some of that come through. So there's opportunity in every one of these units.

Gunnar, you've said that in success, there is no greater upside, but in failure, there is less risk. Why is that the case?

Well, it comes back to a strategic and professional approach to managing the studio, right? It starts with the slate composition. As I said, we're going to have a what we think is going to be the right balance of tent-pole films with some lighter budget films. The right mix of using our own IP, but also embracing the creative genius of original film makers. But it has to be -- it has to fit and dovetail together in the right mix of a slate.

The operating discipline and rigor is a major point. When we first started working together, there wasn't a lot of detailed budget focus, discipline, daily hot cost reports. And I mean we're actually coming in below budget for all of our productions now on average. That's something that was unheard of before. And then, frankly, just professionally looking at the data, analyzing how to best make those windowing decisions, what goes on to what platform and embracing, again, all cash registers that help us monetize our content. Those are all important factors.

And again, it is a hit-driven business. We will make great movies. The past 6 films that we released all had 90 audience scores. It's probably not going to continue on like that forever, but that's a factor as well. So we have a great run right now, but I believe that what we have put in place in terms of how we manage the studio is also going to limit the downside in the inevitable cases where we have some creative failures.

So I mean, you have a ton of franchises, but just a few months ago, you released Superman, which successfully kickstarted the DC Studios launch, and it's obviously very important to the company. How meaningful can the halo effect be on the rest of your business? And how does it flow through?

It's tremendously important. I think DC is maybe one of the most undervalued and underappreciated parts of our portfolio. And I think the DC franchise has billions of dollars of greater potential than what we're seeing right now. And again, back to the point that I made in the very beginning, it all takes time. It was 3 years ago that James Gunn and Peter Safran defined their vision, laid out that 5, 10-year canon. And Superman on the film side was really the kick off of that. But it's more than just the films. We're going to have a film cadence from here on out, but you've also had The Penguin. You have Peacemaker's second season right now, tremendously successful on HBO Max. And it's all integrated. It all fits together. And I think that is going to create opportunities beyond the individual titles. I'm super excited about DC.

Right. Do you expect content spending to be structurally lower now as the entire industry is focusing more on profitability?

Look, it's true. The entire industry is focused more on profitability. And I think that's good because it will drive sustainability in this industry. Where does that matter for us? It's Channing's WB TV production business. And what we're seeing here is that it's actually helpful because with greater budget pressures everywhere in the industry, people are focusing on quality, and that's what always takes them to Warner Bros. TV. Channing is in business with all of the leading streaming platforms. In fact, is producing some of the biggest hits on those platforms. We just recently announced a couple of green lights with Amazon. So she's very, very well positioned, and we haven't even started expanding into some other areas where she still also has a right to win.

I mean, we can stay on Warner Bros. -- I mean the studio forever, but let's move on to streaming because we have a lot to cover. The profitability in at HBO Max has been a source of outperformance from an EBITDA perspective. Can you talk about the building blocks from here and what the long-term margin potential of the business is? Can it be a 20% plus margin business? And if yes, what -- under what time frame?

Yes. We made that -- we set out this 20% bogey a while back, I still believe that it's very, very achievable. At the same time, margin isn't an objective in and of itself for that kind of business or growing that kind of business, right? The way we manage it is much more focused on looking at customer lifetime value relative to the subscriber acquisition cost. And one of the reasons why I wouldn't want to put a timestamp against this is there may be investment opportunities to drive towards greater value that may have a short-term margin impact.

But we have -- look, we have invested billions and billions of dollars in the technology platform in the global launches and rolling that platform out everywhere around the globe and the content that we need to drive through that global platform. And I expect very significant operational gearing from here with a lot of the incremental revenues dropping down to the bottom line or allowing us to further invest in more of that successful content. Again, we've been very, very open to driving content investments because I do think we have a process that works and that allows us to drive great ROI with limited downside potential.

There's been a significant increase in pricing just across all of the streaming business. Are we approaching a tipping point from a consumer perspective? And has the increase in prices driven downgrades to the advertising tier?

So look, I think -- first of all, of course, you're right, there is a trend towards higher price. We just had Apple increase the price of TV+ pretty significantly. And look, I think it's healthy. We're coming off of a period where enormous amounts of quality content were given away below value. And so I think that trend has been pretty consistent, and I expect will continue to persist. In terms of how that drives viewers to one tier or the other, I'm not sure that pricing is the most important driver. And frankly, we want to be indifferent, right? If you have a greater tolerance or even an interest in advertising, wonderful, take our ad-light tier. If you want sort of the uninterrupted experience with no ads, pick that product.

And ideally, we adjust pricing between the options in a way that gets us profitability on both fronts. For us specifically, there is significant opportunity on the advertising side. In many of the international markets, we have only recently introduced ad-light tiers, and also in the U.S., I think there is greater engagement, greater scale, maturing technology that's going to make this one of the growth drivers for the mid- to long-term plans.

On the other side of that, HBO Max has been leaning also into wholesale agreements that drive subscribers, but obviously lower ARPUs. Why is that the right approach?

It's the right approach as one approach in a mix of approaches, right? It all comes back to we want to drive shareholder value. We want to drive customer lifetime value and make sure that we are acquiring profitable subscribers. So wholesale partnerships are one way to very quickly build scale, especially in new markets. And it's typically a financial profile whereby we have lower subscriber acquisition costs, sometimes lower churn initially, but you pay a price for that with lower ARPUs. But it's definitely one legitimate way to grow.

And then over time, as you're more established in certain markets, you might shift that, the weight between the various go-to-market approaches. But we've always been very open. We want to be as widely distributed as possible. Wholesale partnerships are part of it. We also like our Disney partnership. That's been a great success here in the U.S. and has tremendously attractive economics. So all of these approaches play a role in the mix, and it's always falling short to just look at, this is the number of subscribers or this is the ARPU. None of these metrics matter in isolation.

Right. So in the first half of '26, you're going to have some pretty big launches, U.K., Italy, Germany. What are the milestones investors should focus on?

Well, for the U.K. and Ireland markets, we're essentially locked and loaded. I think we've always said publicly that we're expecting 10 million subscribers through the Sky relationship, the Sky partnership, but it's also important that we have flexibility beyond that, other partnerships and then a retail go-to-market approach. Germany and Italy are other key markets that we're -- as we speak, working through the approach to cover those markets. But there's big opportunity. Those are some of the most relevant markets in Europe, and we have the benefit of our content having been known and sort of iconic in those markets for years already. So we're going to hit a fertile ground there.

There's a view that DTC consolidation needs to happen. What role does WBD play in these discussions?

I'll give you the same answer for this as always. We'll be looking at everything, Jessica. And in fact, one of the reasons why we are splitting the company is that we are going to create 2 entities that are going to be much more nimble and able to respond to opportunities in the market. That said, we're also very focused on creating 2 very viable companies. And I think that HBO Max has what it takes. We've got a great process in place, a great platform. What Casey is producing is working really well. But that said, we're always going to look at whatever opportunity arises.

Right. Do you believe you may need -- let me say that, do you think you'll need to accelerate content investments to further drive engagement on the platform? Were you like a steady cadence at this point? And do you have to expand?

Look, it's a growth business. And as such, we have increased the content spend in our plans. And by the way, that applies to both HBO Max and the studio. And again, as I said, I have great confidence given the process that we have put in place that we're able to deploy capital in a very accretive way in both of these businesses. That said, and David has made this clear from the very beginning for us, for HBO, it's much more about quality than quantity and that's going to continue to be the focus of our content strategy. But yes, we are going to continue spending more.

So last thing on DTC. But when you put all this together, as we think about the growth algorithm for streaming, how do -- how should we think about subscriber growth versus ARPU growth over the next few years?

Yes. With different nuances, it's all of the above, right? We will see subscriber growth predominantly internationally in those markets where we have launched and are still in the early stages of penetration in those markets that you just mentioned earlier, where we are about to launch next year. So that's definitely the -- the non-U.S. markets are those where we expect and plan for a significant subscriber growth. ARPU growth over time is going to be a factor in all of these markets. You already mentioned pricing as an industry-wide trend. We also see pricing opportunities in international markets. And advertising as an overarching opportunity is only going to grow in importance over time. And then again, I do think we now have a platform in place that allows us to convert a lot of that revenue into profit growth.

So last question on the studios, Warner Bros. side. Can Warner Bros. be cash flow positive in its first year as a stand-alone entity?

Well, we've already -- when we announced the separation, we told the market that we expect that asset perimeter -- the Warner Bros. company to be cash flow breakeven around the time of separation. That's one of the reasons why we're able to do the split now. And given the billions and billions of investments. And by the way, both on the Warner Bros. side and on the HBO Max side, I do think that there's tremendous growth opportunity and that we're going to see nice cash flow conversion for the years to come after the separation.

So moving on to Discovery Global, where you'll be CEO. In many ways, the focus of a consolidated WBD was to reinvigorate the studios, scale streaming, drive synergies, perhaps some of the linear assets suffered as a result would tell us, but it does seem like maybe it was underinvested to drive some of the other businesses. Also, there's a widely held view that the linear business for all intents and purposes is in this perpetual state of decline with kind of no end in sight. But here you are signing up to be the CEO of Networks business that will, as you said earlier, will have the bulk of the leverage. So what are investors under-appreciating about these businesses? Or maybe what do you see that you think represents an opportunity going forward as a stand-alone entity?

Yes. Let me start by saying I've never been as energized as I am right now. We had our second workshop with my future leadership team last week, and I was saying earlier, we started at 8 a.m., took four 10-minute breaks, went through 6:30 p.m. and then after dinner and could have gone on for another 10 hours. And there's a lot of excitement in the team because, as you said, we had for the very right reasons, very clear priorities that we're focused on in Warner Bros. and HBO. There is a lot of opportunity that we can tackle on the Discovery Global side.

And if I should summarize it, to me, it comes down to 4 things. One is the focus, right? This is all we do now. And there are areas, pockets of growth, pockets of investment opportunity that we just wouldn't have tackled as part of a WBD conglomerate, but that make a lot of sense to tackle now. And that's really what's energizing the team right now. We have the opportunity to do that now. That's tied to the second point, which is we have cash. The business continues to throw off an enormous amount of cash. Now granted, part of that will be used to pay down the debt. As I said, we're going to carry the majority of the debt of the combined company, creating equity value that way. But there will be excess cash that we can now put to work within Discovery Global as opposed to handing it off to HBO Max and the studio.

Number 3 is the fact that we have enormously valuable content brands. And we have to reimagine those as actual content brands and not linear networks. And that's something that applies across all of our genres. It applies to our unscripted entertainment. It applies to news, it applies to sports. And the teams are hard at work to leverage those beginnings of digital expansion that we have in all of these genres, right? We're going to get discovery+ back over to support the entertainment networks. I mentioned earlier that Mark Thompson and Alex MacCallum are very close to launching a CNN streaming product, an all-encompassing news product that I think is going to be really exciting.

And in the sports space, we've got a massively successful social media set up with Picture Report, House of Highlights. And we're working on creating our own TNT Sports app, which is going to be available as a streaming product, but importantly, also as a bundle option internally with discovery+ or not so internally anymore, HBO Max, but also open to other partners in the industry. That's going to be a great additional monetization opportunity.

So -- and then there's other avenues we can take, content sales might take a more prominent position going forward. Long story short, just thinking way beyond just the core linear monetization. And then the last thing I want to point out is international. We -- actually, I think you took a group of investors to Poland once. And I remember that trip because it was so eye-opening for a lot of our investors, how -- what massive positions we have in some of these markets. And that's true across a number of the key territories in Europe, a very different top line trajectories in the more free-to-air dominated markets, and we've got very strong positions. I think we have a lot of assets there that we can build out, that we can build on and that we can build around.

There's a lot in there. But -- so I mean you mentioned the focus and valuable content brands you have. I mean is the plan to invest more in the brands? And where would your content spending be going?

Well, again, we're in the process of detailing out that strategy with the team, and it's too early to give financial projections here. Bottom line is I don't think that we're going to see dramatically higher or different spend, but the way we allocate and reinvest might look different going forward than it does today. But bottom line is we have investment opportunities that I think will have a tremendous return on investment and actually surprisingly short payback period.

And is there any more you can do on the -- I mean you've restructured a lot, but is there any more you can do on the cost side if revenue continues to be pressured?

Well, look, as you said, we have already done a lot. And I always stress that it's not a reasonable assumption that for every dollar of revenue that comes out of the linear ecosystem, we're going to find a dollar of cost, but that said, this team is scrappy, is very focused and disciplined, and we will continue to look at efficiency opportunities wherever we can, as part of managing -- as part of anyone's management in this market environment.

And then before I switch gears a little bit, but is there any more that you like to add -- you just kind of alluded to these apps, is it anything you say on time frame or how robust they will be? Or...

Well, these are big priorities. And Mark and the team have been working on the digital strategy for CNN for quite some time. And again, it's a matter of weeks before they will come out and give a launch date for that app. And as part of the separation, we decided that sports here in the U.S. are going to come off of HBO Max, and that means we need to have our own streaming home and Luis and the team are driving that hard right now, and it's going to take a little longer than a matter of weeks, but we'll hopefully have that ready right around the time of our separation.

And then on sports, when you were in that path of like negotiating and sort of with the NBA, you're figuring it out, you were able to add a lot of -- like actually quietly, but a lot of sports. Are you -- is your portfolio where you want it to be at this point? Are there more things that are on your radar?

Well, remember, the most important purpose of that sports portfolio here in the U.S. in the context of that discussion was to secure enough premium, high-value content to assure a sort of continued great partnerships with our affiliates. And we have achieved that. We have worked through all of these deal renewals. That said, sports is a core part of our strategy. We're always going to continue looking at everything that comes to the market. And in many cases, you're going to see us say no, because you have to be incredibly disciplined in that space. But I think as Luis and the team have shown you can be very successful with that strategy. I love the portfolio as it stands right now. And if there are rights that become available as everybody is kind of reshuffling their strategies, we'll be there, and we'll take a look. And if we can generate some shareholder value off of it, we'll be in business.

There are several linear assets coming to the market that we know about. And naturally, there's been a discussion of a linear roll-up vehicle. Do you view your linear networks as a consolidator or maybe a target?

Look, same thing as public companies, you will always see us in every one of those processes, right? We always want to learn. We always want to see if there are opportunities. I do think specifically in the U.S., it's not as simple as it looks on the face of it. The question I would ask is, does a transaction make us better or just bigger. And I think that's a tough question in this market. I think internationally, there are a lot of opportunities. I mentioned this earlier, we have very strong positions in some really attractive markets with very different core business trends. And I think there's a lot that we bring to the table that goes beyond just cost synergy. And again, so you'll see us look at everything, but we'll continue to be disciplined and make decisions with an eye towards real value creation opportunity.

Right. So it sounds like the international opportunities far away what you see domestically. You have a pretty big scale here already. Can you -- are there opportunities to scale up in Western Europe and Latin America? Like where would you?

Yes. I mean, let's -- wouldn't get very specific right now, but I would certainly hope so, yes.

Right. Okay. On the last earnings call, one of the things that came up was double sports rights cost in the second half. Can you help us think through the magnitude of this impact?

That's -- unfortunately, you always need to -- you can't perfectly time all this. And that has led to some confusion with us bulking up a little more on rights as we prepared to walk away from the NBA. But in a nutshell, if you exclude the Olympics in Europe for a second, $300 million higher sports expenses in 2025, bundles from that sort of redundant set of rights with a lot of that hitting the second and the third quarters. In the fourth quarter, we're actually going to start to see some relief. We're going to be losing roughly $100 million from changes in the portfolio, among others, the NBA going away. And the bulk of that NBA driven cost saving is going to hit in Q1 and Q2, predominantly in Q2 of next year. So there's going to be a tailwind. And again, as you mentioned, I think the team has done a great job accumulating a portfolio, and we're going to see some increases next year as well. We're going to have 5 college football playoff games, including a semifinal. And -- so it's a great portfolio. You can't always perfectly time the financial impacts tied to it.

And then just on sports and then I'll go to kind of last set of questions. But with ESPN launching their DTC services, it seems -- and I guess they announced this bundle with Fox, it seems like there's a lot of opportunity to kind of bundle or reassess like how you market sports, like from your perspective, for your assets, how are you thinking about it?

Yes. Look, I think that's right. And I think you do need to have an all-encompassing monetization strategy in order to refinance these rights. That's why it was so important for us when we made the decision to separate to quickly get something started that Luis can use in order to utilize our streaming rights. But as I said earlier, very much also with an eye towards the flexibility to bundle this with other products as we see fit or as the opportunities arise.

So I realize there's still some time before the separation is complete. Could you talk about what the key priorities are for you and David ahead of the separation?

Well, the top priority is any separation is a time of uncertainty, disruption for people, not keeping our eye -- or keeping our eye on the ball and continuing to deliver. I talked about the tremendous underlying momentum that we're seeing right now. We've got to keep that going. Number 2 is to work through the practical reality of separating this company. Again, this is hundreds of work streams, thousands of people working on this. And I do want to give a shout out to the thousands of people that have worked tirelessly on this in times of uncertainty, including a lot of people taking the labor and Labor Day quite literally and getting through these work streams, that's a second priority. And again, we're seeing great energy everywhere in the company, specifically on both sides of this upcoming split. And David and I and the teams are ready and can't wait to get started.

Okay. So last question, when can we expect to hear more about the go-forward strategy and the key priorities for each company post separation?

Yes. As I said, this is an ongoing process. We're actively working on strategy. We're actively working on very early budget process for next year and a refreshed long-range plan for both companies. We're going to begin terming out the bridge loan at some point. We need carve-out and pro forma financial statements. So closer to that second quarter date of next year, we're definitely going to be in front of investors, both on the debt and the equity side with a lot more detail.

Right. With that, thank you so much.

Thank you.

Ladies and gentlemen, welcome to the Warner Bros. Discovery Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. 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 Strategy. You may now begin.

Good morning, and thank you for joining us for Warner Bros. Discovery's Q2 earnings call. Joining me today is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games.

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 [indiscernible] can be found in our earnings release and in our trending schedules, which can be found in the Investor Relations section of our website. And with that, I'm pleased to turn the call over to David.

Good morning, and thank you all for joining us. Our top strategic objectives have always been clear to be the premier home for the world's most creative talent both in front of and behind the camera, to operate as the world's largest, highest-quality maker and producer of film and television. And to distribute those stories to audiences worldwide through a globally scaled, profitable streaming service.

In the second quarter and in the early weeks of the third quarter, Warner Bros. led with strong momentum in delivering on all 3 of those objectives. We're seeing that momentum at Motion Pictures, where Warner Bros. became the first studio ever to open 5 consecutive films with more than $45 million in domestic box office.

We're seeing that at the Emmys, where Warner Bros. TV led all studios in nominations and HBO set a new record with 142 nominations. We're seeing it in the strong critical and fan response to Superman. Which begins an exciting new era for DC Studios, and we're thrilled to share that James Gunn is already writing and preparing to direct the next installment within the Super Family.

And we're seeing it at HBO Max, which again added more than 3.4 million subscribers in Q2 as it continues to launch in markets around the world. This pattern of creative success is the result of a 3-plus year attack plan aimed at enhancing every dimension of our creative culture and storytelling business. From HBO to Warner Bros. Television to Warner Bros. Pictures, and from animation to DC Studios, we've invested in our studios creative and operational capabilities. As a result, our Studios business is now on track to deliver at least $2.4 billion in adjusted EBITDA in 2025 with our site set on our $3 billion goal.

We have transformed HBO Max and have our Streaming business on track to exceed $1.3 billion in adjusted EBITDA in 2025 and reach over 150 million subscribers by the end of 2026. And from CNN to TNT Sports, we are bringing innovation to news, sports and unscripted programming as we work to optimize our global networks. All the while, we've dramatically delevered our balance sheet from over 5x net leverage to 3.3x now, the lowest since our merger closed. As we continue to navigate generational disruption and move forward with splitting into 2 independent publicly traded companies in 2026, our current momentum will help position both future organizations for long-term success. With that, we look forward to your questions.

[Operator Instructions] And the first question comes from Robert Fishman with MoffettNathanson.

I have one question for each company, Warner Bros. and Discovery. Can you talk about your content licensing strategies? David, you shared in the letter that the $5 billion annual library revenues from Warner Bros. TV and Film and balancing that trade-off. So would you be more open to licensing the Warner Bros. and HBO content to third-party streamers now going forward? And then for Gunnar, can you talk about your approach to overall content licensing, but especially with regards to your sports rights especially in light of the potential of sublicensing these rights to ESPN or other streamers.

Thanks, Robert. Well, look, one of the great building blocks of our studio business is we have the largest TV and motion picture library in the world. And that is like a long-cycle business that we can look at as a steady stream. Having said that, we've made a number of judgments, including this year, where we've opted to sell significantly less than we could into the streaming market as well as the traditional market, because we're seeing such growth and we're driving towards such growth for our Studio business, which includes our streaming HBO Max.

And so we think in order to differentiate HBO Max, it's important that there are a wealth of properties, quality properties that reinforce you only get this at HBO Max. And that's working for us in terms of driving growth. It's working for us as people more and more seeing HBO Max as the premier quality service around the world and storytelling. And so it's really a decision to fight for asset value and growth rather than near-term value. And we did walk away and I expect that we will continue to because we're seeing very good trends as we grow around the world.

Yes. And Robert, maybe just to add 1 point to what David said, and we try to shed a little bit of light on this in our letter this quarter as well. It is important to understand that we have very significantly shifted the mix between external and internal content sales over the past 3 years. And that has sort of put pressure on our near-term financial results, but we have put a 10-digit figure of value in terms of intercompany profits parked on the balance sheet. That's going to come back into the P&L over the next few years as JB utilizes this content and case utilize this content on the HBO Max platform. So there's -- we have taken a short-term financial hit for some real value that's going to flow through, and that's a significant amount.

One of the real, I think, advantages of running Warner as one company is HBO was the premier producer of quality storytelling and Warner Bros. television was the premier producer of TV series. But they didn't work together very much. We now have Channing and Casey working together. So we innovated with The Pitt as a procedural that was very, very successful for us. And that will be coming back in January, 9 months after 15 episodes came off.

They're working together with J.K. Rowling on Harry Potter which is extremely promising and is already in production, and we'll be doing 10 consecutive years. So this idea of aligning the best TV production -- quality production company in the world and having some of that best work, not all of it, Ted Lasso, Shrinking, Presumed Innocent. We do a lot of content for others, but more coordination going to HBO Max for a net value and a net positive that will drive sustainable growth at HBO Max.

And then, Robert, for Discovery Global, there were really 2 questions. One on general content licensing and then the sports question. Let me start with the entertainment content first. One thing that has already happened and that I expect to become more of a factor going forward as a separate company is we are reimagining the U.S. Networks portfolio really as a content engine around very strong unscripted brands and not so much as sort of just traditional linear networks.

And as part of that, certainly, all monetization forms will play a greater role and content licensing is definitely one factor or one tool in the box here. So it's going to be a meaningful contribution going forward as we think about recovering our content investments. I will say that for the current trends, 2024 was a year where we really started firing that up a little bit in 2024, also had some unusually high content licensing numbers. And that's a factor that I also I wanted to call out for the second half year, we had $580 million of Networks content sales in the second half of 2024. That's above a more normalized run rate of roughly $200 million a quarter or so. So that's definitely a factor as we think about the rest of the year and going forward.

On the sports side, again, never say never, but I will say the following: we love the sports portfolio that we have. Luis and the team have done great work restructuring this over the past 2 years, and we've got a very, very strong portfolio -- all the key franchises. And it's going to be even more important as we look at Discovery Global as a separate stand-alone entity. So we will continue with an important sports strategy.

We will continue to be looking at investments with the same discipline that we have in the past. And with that, I think it's unlikely that we will sublicense rides out. In fact, if you look at what we've done recently with the college football playoffs, the 2 games this year growing to 5 games next year, we have, if anything, taken on a little more.

And then the final thing I'll say is I don't think there is a need to sublicense if that's sort of the direction of your question. In fact, Luis and the team are working hard on developing the go-to-market approach to utilize our streaming rights going forward. And the broad strokes are. It's going to be a stand-alone product that we will be able to take direct to the consumer, but also bundle with HBO Max, with Discovery Plus, potentially third parties. Again, all in the spirit of making our content available to as many people as possible. So lots to work through and stay tuned.

Next question comes from Jessica Reif Ehrlich with Bank of America Securities.

I have two questions also. David, look, you've been developing a lot and have a lot of franchises. You mentioned Harry Potter, now Superman. Can you talk about what else you see as future franchises and kind of the halo effect that the success can have on the entire organization from theatrical licensing, streaming games, merchandise, et cetera.

And then Gunnar, like now that you're becoming the CEO of Global Networks, it's a segment that's obviously been challenged from just the secular challenges. Can you talk about what you see as the like underappreciated opportunity for growth in this business?

Thanks, Jessica. I've said all along that one of the assets that we have at this company is that we have such -- so much compelling storytelling IP that people know everywhere in the world, whether it's Batman, Superman, Wonder Woman, Lord of the Rings. And then we'll call those the big tent poles, Harry Potter. And then smaller tent poles like The Fugitive, Goonies, Gremlins, that everybody knows. And a piece of our strategy is light up strategically those big tent poles so that we have 2 or 3 of those a year, which provide real stability. We got a great script on Lord of the Rings with Peter Jackson that we're already -- that we're moving forward on, and we'll be giving you more detail on that.

We're working very hard on Wonder Woman. We already have a big piece of the DC strategy laid out. But we effectively have 4 studios. So we have -- so one is developing DC. We've talked about that. The second is Warner, and half of what Mike and Pam are doing is things like Lord of the Rings or Gremlins or Goonies or Practical Magic going back to things people know. And the other half is new stories, like Sinners. And then we have a New Line which -- New Line is back to what they do better than anybody in the world, which is horror. And if you -- for those of you that have a free moment this weekend, it -- go see Weapons and just hold on to your seat because it's an incredible ride.

But they're having -- New Line is back in its lane, and we expect to do a number of those a year, together with some comedies which is part of the great heritage of New Line. And then animation. We have Cat in the Hat coming in January with Bill Damaschke. And so we have a very balanced portfolio that's much more focused on the economics of each of these. And having that -- and since our IP has been underused, no Superman in 14 years, no Lord of the Rings in 13 years, to go back and to be able to bring a lot of those franchises back to life and also tell new and original story. So we feel really good about where we are. And when we project this year for the Motion Picture Group, we're conservative.

We understand that the Motion Picture business, in the end, the audience will decide. We've had an extraordinary run. We were in last place and we came -- Mike and Pam and DC and New Line together went from last to first. Disney a little bit ahead right now, and we're looking forward to we think -- what we think will be a good weekend but we're having -- we're really making the turn. It's been 3 years of investment, and you're going to start to see these products roll out, and you'll see them roll out strategically and with real focus on cost.

And finally, we have a big advantage, I think, in the way that we're marketing these films. We've spent years getting them ready and we have a real global attack that you saw with Barbie, you saw with Wonka, you saw with Superman. You saw it with F1, when Apple came to us uniquely and wanted us to take it on. And so I think that we have real momentum there.

Okay. And Jessica, on the global network side, look, it's a legitimate question, of course and the #1 question maybe. I have to tell you the thing that excites me the most about the future here is I will have the privilege to work with maybe the greatest team I've ever seen in my career. I've known many of these people for years and it's a team that has a track record of fighting to win. And it's a team that's everywhere in the world. And I've spent a good part of my time over the past 8 weeks traveling around and meeting a lot of the people across the Discovery Global footprint. I can tell you the level of excitement, creativity and energy that's coming through in these meetings is off the charts.

And one big factor here is that people understand that we're building a group of assets here that is set up to thrive and continue to prosper on a stand-alone basis. We've already talked about the changes we're making to the [ Perimeter ] all of U.S. sports coming with Discovery Global. Discovery Plus moving over, we have Bleacher Report, and we have an international free-to-air footprint with very different secular trends than what you're seeing here in the U.S. So -- and the ability to focus on these assets and nothing else is exciting me and is exciting the team everywhere and with everybody I've spoken so far.

And it won't mean that we're going to change the secular trends. But I do believe that there are very significant pockets of growth and opportunity, and we'll work really hard over the next half year here to identify those and get in position to deliver what I think is going to be a much -- a business with much more longevity than what the market sees right now.

Your next question comes from Michael Ng with Goldman Sachs.

I just have two. First on studio and live events. I was just wondering, given all the investments that you're making in DC and the early success of the DC reboot -- are you -- would you -- are you revisiting what DC is doing in terms of theme parks and live events. I know there's the licensing deal with Six Flags, but against the backdrop of something like the success of Harry Potter at Universal. I was just wondering if there was an opportunity to revisit what you're doing with the DVC franchises in parks. And then I have a quick follow-up.

Thanks, Michael. We think there's a tremendous amount of untapped value. First, generically, we have a lot of upside. We make about, when we took over 3 years ago, about $0.22 for every dollar that Disney makes in circulating their IP through the system. We're up to about $0.30 now. Harry Potter is different, where we're extremely effective in monetizing that through gaming and through a very mutually beneficial deal with Universal and the Harry Potter parks that we have. And that was kind of a framework for us to go on the attack.

Bruce Campbell is running that business. He -- we announced he will be the COO of our new business. And we think that's a real growth opportunity for us. We've gotten back some of our rights that were given to Six Flags and freed up DC in a way that we think can be very compelling. A lot of those rights weren't tied up at all outside the U.S. and we're in different stages of deploying those assets.

We're not going to build theme parks ourselves. But there were some like Harry Potter, those are -- it's not a theme park, but it's -- that's a -- that's -- if you look at Leavesden, we went into Japan. Japan is -- both of those are sold out for over a year. We're looking at expanding that. And some of it will be either a little bit of ownership or licensing. We're already doing something like that in Saudi Arabia, which is quite lucrative. So the answer is, yes, and there's more than just DC and Harry Potter. And you saw it with Superman the way Bruce and the team deployed Superman across all the merchandising elements, and it was quite effective, and we ended up with a lot more economic value.

Great. That's very helpful. And then for Gunnar, I was just wondering if you could talk about the comments in the letter related to the HBO Max U.S. distribution deal restructuring. What was the nature of that? And what drives the reacceleration after the first half of '26.

Michael, it's essentially as we laid out in the letter, we had a legacy deal with a former affiliated party, and it's not unusual once those come up for renewal, that priorities shift and we've taken a bit of an adjustment of the rates, and that we wanted to call it out because it's going to have a meaningful impact on our revenue growth for a 12-month period until we lap this deal. But it's also important to note that we expect a reacceleration, not only once we lap this deal, but also from the various market launches that we have in the pipeline. Beginning Q1 of 2026. I don't know JB [indiscernible]

One quick thing. It's not Saudi Arabia. It's Abu Dhabi. So sorry about that. But go ahead, JB.

Yes. I think in terms of the HBO Max and the streaming profile, as Gunnar said, it will certainly dampen the growth rates for the second half of '25. The reacceleration drivers are going to be starting in the first half '25, obviously big new international launches coming from Europe. So on a global basis, we'll start to see revenue reaccelerate in the first half and really in the first quarter of '26 and then the U.S. growth will reaccelerate starting in the second half of '26 as we lap that reset.

Your next question comes from John Hodulik with UBS.

Two if I could. First, can you talk a little bit about some of the underlying drivers of ARPU you've seen some more dilution as we move through the year here. And David, just your thoughts around pricing power of the MAX product. And then maybe secondly for Gunnar. Just with the NBA law coming up in the fourth quarter, you called out the impact there. Just any other sort of color you can give us from either a revenue or overall profitability standpoint as you -- because you lap that contract.

So let me just start. The #1 objective was to establish HBO Max as the premier highest quality storytelling platform and have it be the place that people go. And Casey and the team, HBO Max or HBO itself has never been stronger, has never had more hits. And so we're really -- they're having a great run. And when we talked about, it's not how much, it's how good. We've really delivered on that and consumers are seeing it, and it's translating into real demand and growth. But our strategy hasn't been to try and raise a lot of price. We want the market to accept the product, to recognize it as high quality.

And then first, to start to narrow down the ability for multiple users to be using the product. But yes, that when you have the highest quality product in the market with big branded stories, that people want to come back to that they feel very passionate about, that gives us what we think is a very big upside over time to raise price on the highest quality service. But JB, why don't you talk a little bit about what you're seeing in the market and how that will lay out.

Yes. I think the -- to add on to it, I think the exciting thing for us is that, obviously, post both COVID and then the strikes. I mean, look, we've always taken a little while to get our sea legs back and more consistent. And the combination of those being through and a refined and much more rigorous content strategy that's based on 52 weeks a year of programming with a constantly iterating and better data sets to look at what's working and what's not working. We feel, as we look ahead at the next 24 months of our slate, '25 as we said, I think, on previous calls, the slate was stronger than '24, '26 looks stronger than '25. And as we look at '27, the early parts of '27, the engine just keeps getting better.

And so A lot of that, to David's point, we want to be smart around still making the product -- we think there's still a lot of upside in terms of the scale and penetration of the product. So we want to keep it affordable and grow penetration in these markets. But at the same time, with the quality of the slates, the return obviously to HBO Max as a brand and what that stands for from a premium standpoint. We do think there is obviously meaningful growth also coming from price acceleration over the next couple of years.

Right. And then on the NBA deal, look, as a reminder, obviously, for many of these sports rights, the main monetization engine is the affiliate revenue. So if you look at just advertising and content cost as a differential those deals are loss-making from that perspective, right? So there is going to be a benefit from the NBA coming out of our financials. If you think about how the season plays typically over the quarters, it's important to note that Q2 with the playoffs is by far the biggest chunk, both of content costs and revenue generation on the ad sales side followed by Q1 and then the smallest quarter is Q4.

So with that in mind and the fact that we have reinvested some of the savings into other sports rights. We mentioned called football playoffs already big 12 in the fourth quarter. Now -- the -- what you can expect is roughly $100 million sports cost benefit in the fourth quarter. And then as we turn to 2026, there will be a net benefit of hundreds of millions of dollars from the rights cost coming out and some offsetting revenue losses from an EBITDA perspective. So a very significant improvement.

Your next question comes from Richard Greenfield with LightShed Partners.

I wanted to ask JB, as we look at the streaming landscape, there's been a clear push towards wholesaling to MVPDs. I'm curious does the engagement look for those ad-supported subs that you're bringing on versus those that sign up for HBO Max directly? And are you thinking about how you market to those subscribers who may not even realize they have Max because it seems like there's a substantial advertising opportunity if you can engage those wholesale subs in the service and certainly in the app.

And then just for David, one of your oldest pieces of IP that probably doesn't generate a lot of revenue is going to be getting a pretty big makeover in a few weeks. I'm curious whether you've seen Wizard of Oz in the Sphere and any thoughts would be great.

Let me just start with Wizard of Oz. Jimmy Dolan in the spirit of the great Chuck Dolan as an entrepreneur I've been to the Sphere many times. I've seen in the smaller Sphere, the Wizard of Oz. We work together with them. They really get the credit -- it's a credit to Warner Bros. and the library that we have. We're also looking at our own project around Wise of Wizard of Oz that we'll talk about at some point. but it feels really great. It's very exciting. It's very innovative, and it premieres at the Sphere on the 28th. So very exciting. JB?

Yes, Rich, as it relates to the wholesale partnerships, I guess a couple of thoughts. Number one is when we look at any of those deals, we always look at it as -- on an LTV basis and sort of a net ARPU basis, when you expect the natural stack we would use to try and actually acquire those retail subscribers. And so every deal starts with a very healthy LTV profile, a wholesale sub versus what we think we could get and what we have to spend to get on a retail basis. So that's sort of the underlying. Then we do work, to your point, increasingly on partnering with our -- with the different MVPDs, the non-MVPD partners on activation, and we spend more and more time with them with their customer service teams, with their UX and experienced teams on activation of the product, and we have seen great strides and improvements on activation across the board.

And frankly, in all of -- some of our biggest, most recent partnerships, both in the U.S. and outside the U.S., we are trending above what we expected in terms of activations. Obviously, then once we're activated, the engagement is subject to both in-app marketing and merchandising as well as continued partnership marketing through the different partners. And then the other thing that we've seen that has been very healthy and also leads to better ARPU is in most all of those deals, we have upsell capabilities. And so we go from an ad-lite product to an ability to actually upsell the customer where we take the majority of the economics on the upsell to ad-free, which also has an ability to drive more ARPU for us, particularly outside the U.S., where ad sales, obviously, is still a growth business, but it's starting off a lower base. So we have a full attack plan. We have a team actually that we put around the world globally to go after trade marketing and partnerships to try and drive activation and engagement. And we're seeing a nice pickup in growth and acceleration of those as we do those deals around the world.

The only thing I would add is that it's different in different markets. For instance, in the U.K., a huge -- majority of programming outside of sports on Sky that was loved was HBO programming. So there's some markets where people have been watching The Last of Us, Euphoria, White Lotus, House of the Dragon and it was on a different platform. And now it's going to move to HBO Max. And so you'd expect in that case, when you have a huge engaged population that has been watching through that, that group will be spending a lot more time watching. We're seeing that in Australia. And then when it's available on a platform as HBO Max, the retail picks up significantly because it's like a marketing vehicle to say, oh, HBO Max is here.

And so JB has been seeing that in Australia, and we're getting very powerful pull-through in terms of consumer demand in the U.K., Germany and Italy, and we're in a lot of discussions in Italy and Germany as well as we're nonexclusive in the U.K. So you'll be seeing those markets is quite powerful. Coming into next year because it has that unusual dynamic of an embedded audience. JB, I don't know if you want to add a little more to that on Australia, what we're seeing practically.

No. That's right. I mean in Australia, the launch was essentially a dual track launch, but we're going to obviously retail as well as through our partnership with Foxtel, which is, as David has mentioned, our long-standing licensing partner. And so we love that double track of fishing in a pond that's already stocked with our wholesale partners with good economics. And at the same time, you're going direct in a smart way to expand the reach of the product. And Australia has been a great success story for us in these early months and we exceeded our expectations. So we're -- it makes us even more bullish on what we expect to see in the beginning of next year as we launch in these big European markets.

Your next question comes from David Joyce with Seaport Research Partners.

As you went through your upfront advertising negotiations granted you still have a combined company for the next year, but how are you contemplating -- addressing marketers' desire to advertise across platforms. Do you have something -- some structure in place to sell the advertising on streaming and your global networks?

Yes. David, it's a great point. And that's one of the areas that we looked at really hard as we contemplated the separation. And we concluded and we've said publicly, we're going to continue to go to the market as business as usual. We will have a structure in place. This is one of the areas where there is significant synergy. When we announced the separation, we made clear that after all that hard work went into generating the synergy, we're going to continue to work as hard to maintain a synergy opportunity where it is present.

Ad sales is definitely one of those areas. So nothing is going to change from an advertiser perspective, and we're working through the process to set that up internally. And with the upfront in general, since you mentioned it, we obviously had some concerns going into the year with the macroeconomic and geopolitical environment. And fact of the matter is, the market held up very well. We've seen prices up across all categories, more so in sports than in general entertainment. On the digital side, there is some price pressure, but we've maintained a very strong price premium for the quality of inventory that we're delivering. So net-net, I'm very happy with the outcome.

Your next question comes from Bryan Kraft with Deutsche Bank.

JB, I was wondering if you would comment on where the business is and bringing churn down to what you view as a healthy, sustainable level. And also how you're going about driving that churn down. And then, I guess, somewhat related, I was hoping you could provide an update on where you are in the effort to convert unauthorized account shares into paying customers? What inning would you say you're in there? And how meaningful do you see that opportunity as you go forward?

Yes. I'll start with the second, which is on the sort of account sharing. I'd say we're just in the first inning. The reality is we've done -- we spent a lot of the last several months making sure that our data sets on figuring out who is a legitimate user and who may not be legitimate user and making sure that we test it sufficiently so that when we turn on the more aggressive languaging around what needs to happen that we were actually putting the net in the right place, so to speak. And we feel great about where we are. Starting in September, it'll actually start to see the messaging, which right now has been a fairly soft cancelable messaging start to get more fixed and such that people will have to take action as opposed to right now sort of having a voluntary process. And so the real benefits will start probably in the fourth quarter and then kick in, in 2026 as we tighten the messaging and drive that in a much more aggressive fashion starting in the fourth quarter this year.

As it relates to churn, look, we continue to drive churn. I think one of the things in terms of the levers of how we go after it, there's a number of different ways. First thing, obviously, you've heard David and all of us talk about the importance of bundles. We've been very successful, obviously, and you'll see this more over the next few months. And as we prepare to roll out in Europe, obviously, we've had a very successful relationship with Disney here in the U.S. We're in active conversations with a number of other leading streamers in international markets around bundles and the profiles of those users see in some cases, churn cut in half, if not greater, and LTV is double or more.

And so bundles is one way we've seen great expansion of LTV and reduction in churn. On engagement, obviously being the #1 thing and the engagement driver that obviously matters most is around content. And as I mentioned earlier, as we look at the content slate and more of the consistency of our content slate. We have had a couple of years that we've had great content but bigger pockets of time throughout the year with more gas. We're now getting to a rhythm where between Casey's slate, the theatrical slate, some third-party acquisitions, we have a much more consistent 52-week a year schedule where we're doing a much better job of handing off consumers and subscribers from one set of content to other sets of content.

And so we're doing a much more aggressive job on managing the programming and scheduling throughout the year to reduce that. And then there's enormous amount of work still to go on the product itself and the personalization of the product which, as I said on previous calls, we went from not good to good, but we still have a ways to go in terms of feature set and we're developing and launching small and new features and A/B testing, a bunch of features every month to try to get the product from good to great. And we know we still have progress there, which is both obviously a challenge but also an opportunity that will help us drive that engagement.

And so it's -- on the overall churn, we feel like we are -- and we actually saw in the early sort of May -- the March, April, May, June time frame, some really positive improvements on the churn side. But we're not satisfied with where we are, and we're continuing to attack it aggressively across product content, marketing -- all the marketing levers that we have.

Your final question comes from Peter Supino with Wolfe Research.

I wanted to ask you, David, please, about your better together view for DTC. At this point, it seems like it was present as the industry has continued to expand bundling. So could you discuss the contribution to gross adds and maybe the churn of your wholesale or third-party strategy in contrast that to your retail strategy? And maybe comment on how the partnership with Disney has tracked versus your expectations?

Thanks, Peter. Look, I think one of the things that really drives better together is common sense, a more robust slate that appeals to more consumers. But most importantly, the consumer experience. You put the TV set on and -- or you put on your device and there's 18 apps. And you're Googling to find out where your show is, where your sport is and where the movie you want to watch is. And in all the research we do, it's -- people have adapted to it, but it's a very clumsy consumer experience. And one of the reasons we have thought so hard over the last 3 years to be a truly global player. And there's really only 4 or 5 global players right now, truly global players.

Amazon, Netflix, Disney, YouTube and us. And YouTube is a little -- is a different business now, but they do have a very powerful global attack. And being global really allows us to take things like Harry Potter to billions of people around the world. And as more and more of these regional players are looking at the cost of building a platform, the engineers, the marketing and also how differentiated in many cases, we are from them and how much stronger we are together. That it's a much better consumer experience if we're together in Latin America with Global. We have local content in Brazil. We have local sports, but they have a huge amount of local content, and we have tremendous quality with content that's loved down there. And that's true as you go across Europe.

And so I think a big piece of this will be cleaning up the consumer experience. We really expect or I at least expect that we'll look at this business 4 or 5 years from now, and it won't be 18. And I think the companies that are most successful will be global. Maybe there are some regionals that could eke out some profits. And there will be a lot of those smaller players that want to become part of the global players. And that's what we're seeing. And we're seeing it on an accelerated basis. It may start with bundling, and that's very effective. We're doing much better with Disney than we thought. And I think then that -- it's not just the churn, it's consumer satisfaction, consumer experience. They're going after -- they have demos that we don't have.

We have demos that they don't have. So it's just better together. Some of it will be a result of consolidation in some markets and some will be white flag. I don't want to lose money anymore, and I want to get back to what a lot of companies want to get back to what they do, which is just produce content and leave the direct-to-consumer fight to that global fight to others.

Ladies and gentlemen, this concludes today's conference call. We thank you so much for your participation. You may now disconnect.

Ladies and gentlemen, welcome to the Warner Bros. Discovery Investor Call. [Operator Instructions] 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 Strategy. Sir, you may begin.

Good morning, and thank you for joining us this morning for our investor call. Joining me today from WBD management is David Zaslav, President and Chief Executive Officer; and Gunnar Wiedenfels, Chief Financial Officer. This morning, we issued a press release on the announced separation and associated investor presentation as well as materials related to the debt tender offer and consent solicitations. You can find these materials on our website at www.ir.wbd.com.

Today's presentation 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 may include statements about the benefits of the separation transaction, including future financial and operating results, the separate company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of WBD's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current 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.

I will turn the call over to David and Gunnar for some brief remarks, after which we'll be glad to take your questions. David?

Thank you all for joining us on short notice. I hope you are as excited as we are about the transaction we are announcing this morning as Warner Bros. Discovery continues to evolve with the rapidly changing media landscape. When we formed Warner Bros. Discovery, it was because we saw 2 companies, Discovery and WarnerMedia that were uniquely well suited to come together to not only navigate but transform within an industry going through generational disruption. 3 years later, the core of that original thesis continues to hold today.

Our global networks is a worldwide leader in live sports, news and entertainment programming. The work of bringing the Discovery, Turner and Scripps Networks together was a complex transformation and integration process. Through that hard work, we now have a portfolio of networks with an unrivaled global footprint and industry-leading operational efficiency. Today, we're delivering engaging content to 1.1 billion unique viewers in 68 local languages across 200 countries and territories, supported by a unique global infrastructure comprised of boots on the ground in virtually every market around the world.

And in the U.S., we now have renewals complete with all of the top 6 pay TV distributors, further solidifying our distribution revenue profile. With HBO Max, we've rebuilt, launched and dramatically repositioned our streaming offering in about 80 markets. When we formed WBD, HBO Max was largely a domestic streaming service that lacked scale, basic technological proficiencies and a differentiated content strategy as well as losing more than $2 billion.

Today, it's a far more relevant direct-to-consumer offering viewed globally as the highest quality streaming service in the world, blending popular global tentpole titles, select local language productions and a wide array of sports in a way that has clearly defined it as a unique, compelling offering in a very competitive streaming market. In part, helped by HBO's recent string of content successes and a robust slate ahead, we remain on track to surpass 150 million subscribers by the end of 2026 and to deliver at least $1.3 billion in adjusted EBITDA this year. That's more than a $3 billion adjusted EBITDA improvement in just 3 years.

And in our Studios, we're now seeing the managerial and operational enhancements we implemented over the last few years bear fruit. Warner Bros. Television continues to be the most prolific and highest quality TV supplier and producer with an irreplaceable library of globally resonant hits. While Warner Bros. Motion Pictures, home to many of the world's most iconic and beloved franchises, is enjoying strong momentum. In addition, DC Studios is set to debut Superman next month, kicking off the complete reboot of a multiyear plan to share its beloved characters across film and TV.

And our Experiences segment, home to our studio tours and Harry Potter Experiences has both a strong financial trajectory and impressive economics and is positioned to enjoy a healthy boost from the opening of the Wizarding World Experience at Epic Universe and our third Harry Potter studio tour opening in Shanghai in 2027. And we've restructured our Games division to focus on key billion-dollar franchises. A narrowing of its aperture, which we believe will aid to focus and drive future upside.

All of this together puts us on a strong trajectory to lift our Studios to its $3 billion plus adjusted EBITDA target. All the while, we've paid down $19 billion in debt and realized $5 billion of noncontent-related synergies, both of which met or exceeded expectations when our merger closed. By bringing together WBD's combined strengths, we've achieved measures of transformation that otherwise may not have been possible, and we have delivered substantial appreciable benefits to each aspect of our business. Now we're focused on the next stage of transformation and how we can capitalize on our momentum to unlock greater shareholder value and to allow each of these strong companies to achieve their maximum potential.

As we've continued to analyze how our industry is evolving, the right path forward has become increasingly clear. To strengthen our focus and flexibility and maintain leading positions within our industry, we have decided to separate Global Networks and Streaming and Studios into 2 independent publicly traded companies. Each company will have its own dedicated management team and public company Board that will be hyper-focused on setting and executing against each organization's unique objectives and priorities. Both companies will have more latitude to quickly identify, evaluate and act on investment opportunities and other avenues for value creation.

We expect all these factors will come together to unlock value. These companies will be better aligned with shareholders based on each business' individual dynamics and growth prospects, more agile, more aggressive and creative in pursuing growth and sharper in their ability to deliver consumers more of the stories and entertainment they demand.

Before I turn it over to Gunnar, I'm appreciative for his continued work as CFO of WBD until the company splits in 2026, at which time he takes on his new and exciting role as CEO of Global Networks. Gunnar is hugely talented, and he brings a strong, broad and diverse skill set, evidenced by his impact, not only financially, but also strategically and operationally over the last several years. I'm confident in Gunnar's ability to drive shareholder value and to lead Global Networks successfully into the future.

I'll now turn it to Gunnar to provide additional details on how this transaction will come to life.

Thank you, David, for those kind words and well wishes as I transition into my new role. I too thank you for your support, and I'm so very appreciative for your partnership over these past 8 years. Of course, I'd also like to thank the Board for the confidence they have instilled in me, both as CFO of WBD, which I will continue to be until this deal closes and in this next chapter as CEO of Global Networks. I truly cannot wait to get started, and I'm as excited as ever to hit the ground running with such a world-class and bold team.

As David noted, we see this transaction as a natural progression for WBD, positioning each of Global Networks and Streaming and Studios comprised of Warner Bros. and HBO to maximize their respective potential as 2 distinct and focused entities. I'd like to briefly touch on the 2 businesses in more detail.

With leading sports and news properties, Global Networks will have a prominent live presence complemented by leading general entertainment brands. Note, the U.S. sports rights will reside at the Global Networks and its management team will determine how best to monetize the streaming and digital rights over time. Internationally, sports will largely coexist, both on linear and streaming as they do today. Global Networks enjoys a strategic blend of powerhouse brands and global juggernauts, delivering culturally relevant content across an unrivaled global footprint. In many markets, we are a leader in viewing share such as EMEA, in which we have a top 3 position in certain key European markets and are the #1 in pay TV viewership across Latin America.

Moreover, we believe there is an underappreciated digital-first opportunity for our verticals, such as in news with CNN's digital makeover, sports with Bleacher Report and House of Highlights and of course, in streaming with discovery+, all of which will be part of Global Networks.

Streaming and Studios clearly has strong underlying momentum. Its strategy will continue to hinge on further scaling HBO Max through additional international market launches and strong monetization potential. Key launches in the U.K. and Ireland, Germany and Italy scheduled for early 2026 will underpin the next phase of growth and help address the 40% of our TAM that remains untapped. The primary focus of HBO Max will be continuous excellence in content development, further global penetration and effective monetization, all of which should culminate in further subscriber and financial upside. At Warner Bros., we have implemented a more disciplined, focused and balanced content production framework. At the same time, we have taken a more rigorous and collaborative approach to monetizing our franchises and current and library content across windows, consumer products and experiences. Together, these will be key building blocks in the Studio achieving its $3 billion-plus adjusted EBITDA target.

Turning to the transaction summary and capital structure as outlined in the press release and investor deck. Streaming and Studios will become a separate publicly traded company via a tax-free distribution to WBD shareholders with Global Networks retaining up to a 20% stake in Streaming and Studios. This retained stake is designed to enhance the deleveraging path for Global Networks. Additionally, we launched a tender offer this morning to enhance our debt portfolio funded by a $17.5 billion committed secured bridge facility. We believe the tender offer facilitates the best path forward among several options we considered, and it is an important step towards setting up both companies with tailored capital structures for future success.

Prior to the completion of the separation, the bridge facility will be refinanced with secured debt raised at each of the companies. We expect both companies to have strong liquidity through cash and revolver availability with a clear deleveraging path. Global Networks will continue to generate significant free cash flow, which will be primarily used to delever the balance sheet and monetization of the retained stake will further enhance the deleveraging.

We expect Streaming and Studios financial momentum will continue to drive meaningful top line and profit growth as well as free cash flow generation, which will help to reduce leverage. Transition services and commercial agreements will be utilized whenever possible to facilitate a smooth transition and to capture continued operational efficiencies.

We anticipate the separation to be completed by mid-2026, subject to certain conditions, including final approval by the WBD Board, receipt of opinions and/or rulings regarding the tax-free nature of the transaction and market conditions.

I'd now like to turn it back to David before we take your questions.

The decision to bring Warner Bros. Discovery together and the work we've done to integrate and synthesize our assets has importantly put us in a position where we now have 2 companies with the scale, infrastructure, resources, culture and talent to effectively compete independently. 3 years later, it's again time to make a bold choice to reach the next stage of transformation. The decision to separate Warner Bros. Discovery reflects our belief that each company can now go further and faster apart than they can together, and it represents an evolution of our ongoing efforts to evaluate and pursue opportunities that enhance shareholder value.

Gunnar and I are now happy to take your questions.

[Operator Instructions] With that, our first question comes from the line of Mike Ng with Goldman Sachs.

Congratulations on the announcement of the deal. I just had one on capital structure and allocation. I was wondering if you could talk a little bit about the target leverage for each of the 2 companies. Any thoughts on free cash flow profile? Warner Bros. has talked about the 60% free cash flow to EBITDA conversion. What does that look like for each of the individual companies?

Thanks, Michael. This is Gunnar. So look, it's too early to talk about a target capital structure. We haven't made final decisions yet, and there's a lot we need to work through between now and when this deal closes. A couple of things can be said, though.

Number one, it's safe to assume that the majority of the debt is going to live with Global Networks and a smaller portion but not insignificant portion on Streaming and Studios as well. Number two is I do think that we will continue to see strong cash generation. Obviously, more pronounced in the Global Networks space, where we have a mature business with content amortization and investment in balance, and we have shown over the years very strong free cash flow generation. But it's also important and as we've laid out, all the work we've done in the past put us in a position to be able to execute this transaction now.

And for the Streaming and Studios business, I definitely expect this to be a self-funding business and a fully funded business plan by the time this deal closes. We have used a lot of that free cash flow from linear over the years to build a scaled streaming platform that's now operating in 80 countries globally. And so even that side of the business will start from a self-funding position and will exhibit strong growth and cash flow generation going forward to have a very strong and stable balance sheet.

The next question comes from the line of Ben Swinburne with Morgan Stanley.

Congrats on getting to this point. I wanted to ask you about your distribution relationships. You've been going to market around the world with a lot of scale combining streaming and linear. How does this separation change your approach and also sort of the opportunities and maybe some of the risks around kind of unbundling your offer from an MVPD point of view. I can think of the Charter and Sky deals as specific recent successful renewals that leverage both Max and linear. So what does the separation mean for the global distribution revenues at the company?

Yes. Thanks, Ben. And look, the first point I want to make is the whole concept of this separation here has been to create 2 very strong and well-positioned companies in -- and of themselves. And Global Networks has a powerful portfolio with amazing brands, entertainment, news, sports. And Streaming and Studios has a globally scaled streaming platform at this point to take to the market. So we feel very confident about the compelling nature of both of these portfolios.

You are right, we have been very successful in renewing our affiliate deals over the past year. Specifically in the U.S., we've worked through 6 of the top deals, and we have actually an unusually long runway ahead of us now having worked through all these deals with success and rate increases. And as I said in my prepared remarks, to the extent that there are opportunities for operational -- continued operational efficiencies and benefits, we will hammer that out over the next few months to make sure that we're creating a structure that protects that.

And we also look, there are times when you have distributors that really just want HBO Max. And we've ended up in protracted discussions trying to create alignment around more of our products. And there are times when people just want the free-to-air and the linear services. So I think there's likely to be, I think, some upside as we can work together and work together and we'll be able to in the future, but we'll also be able to take each of the products that we have and go to market with those with more flexibility.

Your next question comes from the line of Steven Cahall with Wells Fargo.

So David, I think this is something you've all been working on for a bit now. I'm just curious, as you went through the process, what you learned that gave you that increased conviction that this will unlock value for shareholders. And as you think about the future of Streaming and Studios once separated, do you see HBO Max as increasingly more of a hub for exclusive content? Or do you think it's something that will maintain content like sports and some of the legacy discovery+ content?

And then, Gunnar, I know this is a tax-free transaction, and that has some implications for M&A down the road. I'm just wondering how we think about the tax basis for these assets? Were those stepped up in the WarnerMedia merger back in 2022 since that may play into maybe how we kind of think about some of the M&A potential for these assets over time?

Thanks, Stephen. We're in the midst of this generational disruption and things are changing. They've changed significantly in the last few months, and they continue to. But when we put these businesses together over the last 3 years, we've really built out the businesses. We've paid down almost $20 billion in debt. So we've delevered significantly, which gives us more flexibility. HBO Max was a U.S.-only business. We built that out globally. It was -- as we said, it was losing $2 billion. We're now making over $1 billion, and we're going to be in over 150 million homes with real growth into the future. The product is very strong. And we needed to fix the creative side of the business.

We now -- we brought a lot of creative people back to the company. We haven't lost any creative people. And the Studio itself has a real path to meet and exceed $3 billion. And so -- and in addition, we were very effective in getting real efficiency around our free-to-air and cable businesses around the world to drive margin. And so when you look at the overall business now, and we've juxtaposed that against the disruption, that's where we now have that flexibility to have a very strong growing studios and streaming business with great brands, maybe the biggest library in the world, maybe the biggest studio in the world with Warner and HBO and together with all the iconic IP that we have.

And this -- the Global Networks business is a real business. And in many ways, I think there's likely to be different investors because they have different growth metrics and different trajectories. But the Global Networks business, having the free-to-air and as well as all the cable and a leader in sports around the world, I think, will be very strong, and Gunnar will be able to build that. And we also are in the position now that we believe the benefits of a separation now into 2 scale businesses really give us a lot more strategic flexibility for the future, which is important.

On the question of content, we really like this mix of a strong HBO Max with the TV and motion picture library and the great content that Casey and the team at HBO is putting together, and that's being augmented by Warner Bros. Television. Channing with a lot of great content like working together on Harry Potter. But the secret sauce for us is the highest quality content and library together with local content together with local sports. And that will be our global recipe because it's working for us. Inside the U.S., sports has been less critical. It's viewed, but it hasn't been a real driver for us. And so it will continue to be on HBO Max, but the Global Networks business will evaluate over time where the best place for that is.

Yes, we should talk about the tax question. Steve, I don't want to talk about a tax basis here. But what you should assume is that I'm convinced that both assets here by the time this deal closes are going to be free and clear from a transaction perspective. And we do believe the transaction provides each business with greater agility to capitalize on potential opportunities that may arise. But I also want to stress that there is no such plan, and I love the asset perimeter of both companies, and we'll execute.

[Operator Instructions] Your next question comes from the line of John Hodulik with UBS.

Maybe first for Gunnar, more of a housekeeping question. Just any early way to think of the allocation of corporate overhead. You got about [ $1.2 billion ] a year. Just anything high level about which goes with streaming co, which goes with the linear co. And then maybe for David, any early conversations you're having about that -- or you've had about that equity piece of Studio Streaming co? And in your view, how should we think of valuation there?

Let me start, John, with the corporate allocation question. So as I said, we still have some work to do. We need to create carve-out financials and pro forma financials. To some extent, we're also working through a, let's say, putting the fine strokes here on the operating model for the 2 companies. And that will determine the answer to this. That said, for your modeling purposes, I think you could probably broadly assume a 50-50 split.

And on the equity valuation, look, the -- part of the thesis here is we have a very unique and incredibly valuable Streaming & Studio asset, globally scaled platform, one of the most -- the most iconic portfolio, IP library, creative talent team output. And we believe that it's going to attract an adequate valuation. And we've also been very clear that we believe that our current valuation does not reflect that. But really, that's for the market to determine as we come out of the gate.

Your next question comes from the line of Robert Fishman with MoffettNathanson.

Hopefully, you can hear me okay. David, do you think this changes the strategy for competing against the larger streaming platforms? And then on a related note with the Studio, given your recent success at theatrical, can you just talk more about your confidence in the sustainability of Streaming and Studios cash flows going forward?

Great. Thanks, Robert. So we feel like we've found a very compelling strategy of quality. We talk to people around the world. And when they -- we've put HBO back in for a reason. People see us as the highest quality streaming service out there. We have the highest quality library, motion picture library, TV library as well as all the HBO content. And then we have the ability with Warner Bros. Television in order to augment which we did with -- which Channing did with The Pitt, which we're doing with Harry Potter. So we're the biggest maker of television.

The majority of the economics of the -- as we look to approach $3 billion and growing is coming from monetizing that very strong motion picture and TV library together with the television -- the Warner Bros. Television business, which has over 80 shows as one of the highest quality suppliers to our peers. And so...

So I mean, for the cash flow part of the question, Robert, I want to reiterate what I said a while ago. We have made the investments that were necessary to build that scale platform. We have made tremendous and we will continue to make tremendous investments in content creation. And taking all that together, as I said, we're still working through exact pro forma financials, but I absolutely expect this business to be approaching a cash flow breakeven and be self-funding. And then we've mentioned before that there is an expectation here on our part clearly of very dynamic top line growth, profit growth and cash generation.

Just your last question about the Studio itself. The Motion Picture business is probably the smallest part. It's very hit driven. We're very excited about Superman. We're almost wrapped with Supergirl. There's a great plan around DC, a 10-year plan. The Warner Bros. has had 3 consecutive hits. We're going to be distributing F1 in the next 2 weeks. So we really like the Motion Picture business. We think it's critical to have those movies. We also have the A24 movies coming into HBO Max. And we're -- we put real discipline. And so we have confidence in that business, but it's probably the more difficult business in terms of margin and swings.

Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities.

Just a couple of follow-ups. On the tender offer, could you -- is there any comment you can make about expected rates and maturity like the refinancing? And then on places you overlap, advertising content, whatever, how -- will you have a service agreement? Or will you actually have 2 separate -- completely separate companies?

Yes. Let me start with the latter, Jessica. That goes to the point that I made earlier. We will absolutely try to maintain as much of the operational and go-to-market benefits as possible. And specifically for U.S. ad sales, I firmly expect to continue going to the market together. Rep agreements in this industry are pretty standard, and I think that's straightforward. On the content side as well, we're benefiting from using each other's content here. We will -- I'm sure we will put agreements in place and for content licensing, it wouldn't make sense for Global Networks to create their own unit. David?

Yes. And we have rep agreements in a number of markets, which we find very effective, and they're very efficient. So we should be able to really take advantage of that. Tender piece?

Well, yes, the tender, there's a separate press release, Jessica, laying out in all detail the various components and the various offers that we're making. But just to take a step back, the conceptual idea here is to use this tender offer in order to reduce our overall gross leverage, adjust the maturity profile to create the right capital structures here for both companies and to give us an opportunity to issue new secured debt to be able to really target the capital structures for both individual companies by the time we close.

And I'll say this, we have looked at every permutation and various ways of getting this separation implemented. We believe that this tender offer is really a great way to do this. I have full conviction that this is going to go over very well with bondholders. It's a very fair offer. It's also good for our shareholders. And so I think we're -- this is a sweet spot. There are many other ways to do this, but none of them are as attractive as this approach.

Your next question comes from the line of Rick Prentiss with Raymond James.

This is Brent Penter on for Rick. On the strategy at Global Networks, can you elaborate on the opportunity you talked about to take those digital? Obviously, you announced the CNN streaming service a few weeks ago. Will there be other plans for the rest of your networks that we should expect soon? And then what percent roughly of viewership on HBO Max comes from the networks being spun off?

Well, look, let me start, and then I'm sure David will add perspective as well. I want to take a step back. We -- I have full conviction that we will see very successful networks for many, many years to come. The desire for people to consume content, especially from recognizable and iconic brands like TNT Sport, Food Network, CNN, et cetera, none of that is changing. We have a global footprint that is unrivaled, 1.1 billion unique viewers each quarter. We're in 200 countries and territories -- 200 million countries and territories, 600 million homes. So we have a very, very strong starting position in the portfolio itself.

The important point here, and we noted this in the press release and in our prepared remarks, the perimeter for this company is going to be broader than what's in our Network segment today. We will have discovery+ in there. You mentioned the strong start that Mark Thompson has had with CNN's digitization, the sports portfolio in the U.S. being under control of this company. So there are a lot of things that are not in scope today. And if you combine that with what's already there, the strong positions in free-to-air internationally, I think there is a very, very strong starting position with a lot of assets that we can build on and build around.

On that question of percentage of viewership on HBO Max in the U.S., it's about 25%. There's different metrics that you could look at. There are metrics that where we would call first looks where it's more likely that people came in and subscribed in order to see content. And then there's percentage of overall viewership. It's much more for the original series and the movies that people come in for on first look, which is one of the metrics that we use to try and understand how many subscribers we're gaining for a particular piece of content.

And then you need -- you want people spending more time with your service. Outside the U.S., really nothing will change. We'll have the local content and the local sport. And inside the U.S. we'll continue to carry that content because it's valuable for us, and it will be valuable for Global Networks.

And maybe one financial aspect I would like to add to that discussion as well is I don't expect any dramatic dislocations in terms of the content financials either because you got to remember, already today, we are dealing on an intercompany basis at arm's length and at fair value. In many of our IP, we have third-party participants or people receiving residuals, et cetera. So we have paid a lot of attention to it. And so there isn't going to be a very significant shift of utilization of content that doesn't make sense anymore going forward. It's going to be -- I think it's going to be pretty close to what we're seeing today.

Next question comes from the line of Peter Supino with Wolfe Research.

Congratulations. You mentioned in your comments this morning that the Studio business has its ups and downs. It's a more volatile business. It's the nature of it. And I wondered if you could help us value it by sharing a rough profit margin for your library function since that's a really steady cash generator. And then also on studios and streaming, I wonder if you could just talk about the 1-year time line to close and how you thought about that.

Sure. Gunnar, do you want to take it?

Yes. Look, I mean, the -- The studio valuation question, again, I would say that's something for the market to figure out. I do think that there is a lot here. Again, one of the most iconic IP libraries, an amazing creative output. And I agree with you, the thing that sometimes overlooked is the steady nature of the revenues and profits coming out of that library. We have been clear about that in the past that it is a very significant driver of profitability. In fact...

Steady over a period. We still -- it would get lumpy when we go to market with Big Bang or when we go to market with Seinfeld. But over a period of years, you could really model out that steadiness. The TV business is also relatively steady, and you can -- it's easy to model because you get long-cycle renewals. We have 80 series. We get renewals early in the process, and we can model out over the next 2 to 3 years where we're going to be with very little downside and ability with -- to get new shows picked up with some upside, but those also take time. So the piece that is up and down is the Motion Picture business. And between -- I think the thing that I feel best about is we put real discipline around it.

But we also have our overall content is underused our great iconic content rather than overused. So we'll be going more and more to the best content that we have that people see and love all around the world, whether that's Lord of the Rings or DC. And Mike and Pam are really looking at mining the big brands. We're still going to do a lot of original, but mining those big brands that give us a real advantage in the marketplace.

Yes, maybe just one quick one on the 1-year time line. Look, as we have with everything we've touched, we're going to work as hard as we can to get this done as quickly as possible. I would say the long pole in the tent here is the fact that we need to get our Form 10 or proxy done, and that will require carve-out and audited carve-out and pro forma financials, and that will just take some time. So the intention is to get this done mid next year, can be a little faster, we'll definitely try.

Your next question comes from the line of Rich Greenfield with LightShed Partners.

Gunnar, as you look at the global linear, could you give us a sense how many employees are still at global linear networks? And how should we think about the overall cost base? I guess maybe from a high level, what inning are we in? You've been doing a lot of cost cutting really since you took over the assets. I'm curious like how much more cost cutting do you think there is on a relative basis as you think about this as a stand-alone business and driving free cash flow, specifically out of the global linear piece?

Rich, I apologize. You'll have to repeat that question. We just -- we have an interruption [Technical Difficulty] give us 30 seconds and then -- sorry, go ahead. Repeat the question, please. I'm sorry.

So I said how many employees currently still work? If you look at the global linear networks business, leave off corporate, but a global linear networks, how many employees are there still in that business? I'm just trying to get a sense of really understanding the cost structure. You've been cutting a lot of costs since you guys took over the company a few years ago. And I'm trying to get a sense of what inning we're in, in terms of cost cutting. Obviously, the industry headwinds are not going to change. And so understanding sort of the cost-cutting ability is obviously critical to getting a real feel for the sustainability of free cash flow, specifically out of global linear.

All right. Thank you, Rich. And again, apologies for that interruption here. Look, I want to be very clear, 2 things are going to have to be true. We will -- and frankly, on both sides of this company, continue to be very focused on efficiency. We have turned WBD into the most efficient media company, I think, out there, and we will continue with that mentality. That's been one of the big factors that's driven us.

Which has yielded about $5 billion in efficiency outside and which -- that's not related to content, which we're going to be driven to invest more in.

Right. And so for Global Networks, again, you can look at the segment financials that we started putting out at the end of Q1 and trending schedules going back to at least get a directional ballpark here. As I said earlier, the perimeter is changing a little bit with discovery+ moving over, et cetera. But that gives you a starting position. And look, the important point for me is, yes, we will have to continue to focus on efficiencies and drive efficiencies as that -- the traditional part of that business continues to see secular pressure. But I also think that we do have very significant investment opportunities, and there will be more opportunity for driving efficiency and transforming those brands into a digital future.

And on the streaming side, this strategy that we laid out almost 3 years ago, not how much, how good has Channing and Casey working really hard on spending more money on the content that we think is going to break through in the market and it's going to be representative of what we are and what our strategy is, which is the highest quality streaming service.

Your next question comes from the line of Michael Morris with Guggenheim.

I want to ask you 2 things about flexibility, which is a term that you use a lot in talking about this. I guess the first is, as you look at the Streaming and Studios side of the business, what is your view for further partnerships and bundles and I guess, bundle partnerships with respect to driving growth in the number of subscriptions? And then the second question is about that the structural flexibility. So because this is a tax-free structure, I would assume there is some limitation in terms of the amount of time before you could do something on a larger scale. Is that accurate? Would it apply both to Streaming and Studio and to Global Networks? Or could there be differences between one or the other businesses?

So let me start with the bundles. We were out talking very early about the value of bundles because it provides a better consumer experience. And we started talking about bundles as an economic value, but we really see it differently right now. It's a way of creating a better consumer experience where you could buy Hulu and HBO Max and discovery+ and Disney+ and go very seamlessly between them. And that has yielded real growth and very low churn. We're doing things like that in a number of markets around the world. We're bundling with Netflix and Globo in Brazil. We're bundling with Televisa in Mexico. So the ability to create a better consumer experience together with a better economic. And in almost every case in these bundles, we're going direct. So there's no third party. So in many cases, we're actually making more money.

And the thing that I believe will be the real driver is consumers aren't going to put their -- they're not going to go to a device or put a TV set on and see 20 choices and then be Googling what they're going to watch. It's going to get consolidated in a way that's a better consumer experience. Bundling will be a big part of that. It's one of the reasons we were driven relentlessly to make HBO Max a global service. And the idea that we're now profitable in over $150 million by the end of next year and growing is critical because we believe that in order to be a long-term player that has real substantial and sustainable growth, you have to be global. And so I think we're well positioned in that journey and bundles will be a big part of it. And there may be some more consolidation along the way where some of the regional players or local players find it difficult to build platforms and promote them and provide a nourishing offering. On the...

Yes. Look, on the tax side, I said this earlier, I want to be absolutely clear. Once this deal closes, both companies are going to be free and clear. There is no minimum time. There is nothing -- that's a function of the fact that there is no plan for any transaction existing at this point. And that means once the separation closes, they're free and clear.

And the objective here is the transaction provides each business with greater agility to capitalize on potential value-creating strategic options. And when it comes to looking at options during this period of time, if it's option -- if there's an option for less than 50%, that's something that we can look at with an RMT or a similar structure.

Yes. Your last question comes from the line of Jason Bazinet with Citi.

I just had a quick question on debt. I think you guys have around $33.5 billion of net debt today. If you think about the cash flow you expect to generate until the time of separation or the split plus the benefit you may get from the tender offer, what do you think a reasonable range is of the pro forma debt at the time that the company [ split into two ]?

Thanks, Jason. So yes, just below $34 billion of net debt as per end of Q1. Obviously, we do expect to continue generating significant free cash flow. And you're also right, we're expecting to pick up some of the discounts based on the delta between market trading levels and nominal values. As I said at the very beginning of the call, it's not the time to provide specific capital structure details.

Thank you. That's all the time we have for questions. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.