Warner Bros. Discovery, Inc. (WBD) Earnings Call Transcript & Summary

Our next session is with David Zaslav, a man who needs no introduction. But David, thank you so much for being here today. We really, really appreciate it.

I'll take an introduction from you, Michael. Just kidding.

No. You know what?

No.

But seriously. Thank you.

Hey, I like your lineup today, by the way. One of the great things about this business is the people. And Dave Watson, one of the great guys, Rutledge, Tom, both those guys friends for 30 years; Dexter Goei, really a great, great operating leader, super smart guy. So it's one of the pleasures in this business is you get to work with really great people. And when you do it over a lot of years, it does create a lot of value and try to figure out together how to do this.

Well, David, thank you for being here, because you know what, you're immense. You show up and you get things done. I really appreciate that. I really do. So...

It's easy to show up today. I just come downstairs.

Some people have bailed actually. They didn't want to talk today. But you're always up for discussion.

So first on a question I asked last week. On Friday, you guys raised $1.5 billion of debt, new debt. And I know that you've been getting questions, we've been getting questions of the reason for that. So given the strength of the balance sheet and the durations, what's the reason for that debt issuance?

Okay. Well, first, the pricing that we were able to get on the debt was extremely attractive for 10- and 30-year money. And so we would view it as sort of normal course balance sheet cleanup. The ability to go into the market and get 30-year money, which takes us out to 2050 at significantly below 5% and get 10-year money and just clean up the balance sheet is something that we would do in the normal course. It's prudent. We have a great team with Gunnar and Fraser. And so whether it was the covenants or whether -- the covenant was really because the world is crazy. So we're being -- let's be super conservative. One of the big advantages that we have in our company is we generate a lot of free cash flow. We're gaining share in this market. But we don't know what's going to happen over the next 1.5 years. And the strength of our balance sheet and the strength of our business, we think, is a real advantage. So we don't want to -- we want to make sure there's no hiccup. We don't have full visibility. But I think the $1.5 billion went very smoothly, very effective. We're very pleased with it. And it sets us up very nicely to just get on with running our business.

Okay. And then one of the interesting things from last week is you've got global visibility. You've always had boots on the ground. And as the markets start opening up on the ad side in real time, what are you starting to see? So what is the shape of market openings look like? Give us any kind of insight into what you're seeing right now as things open up.

Okay. This is going to be a in-the-moment insight because there is no way to really see what's going to happen for the next year to 18 months. It's very different than any environment that I have seen in my 30 years. Having said that, people are spending a lot more time with our content around the world. Our share is up dramatically. And they're spending a lot of time viewing our content live. And so from our perspective, we'll talk about this a little later, we have more to sell, and we have a particularly attractive product for advertisers. But generically, what we're seeing in markets that are opening up is that advertisers are coming back. The malls opened up in Poland over the weekend, and we were able to book some money from retailers. So we see some real green shoots. In Asia, we see some green shoots. In Europe, where the markets are opening up, we see green shoots. But it's very hard to tell. Is it going to be -- is money coming in and then we get it back. In general, the U.S. is doing significantly better than Europe. Europe doesn't have the structure of an upfront. We were very much helped by the structure of the upfront and the ability to do cancellations. So the U.S. is significantly better. And in the U.S., we're starting to see the scatter market picking up a little bit in the last 2 weeks meaningfully -- I wouldn't say meaningfully, but definitely better than it was before where it was almost where the conversations were about pulling money out and stopping. Having said that, we don't know where the upfront is going to be in the U.S. So I would say pretty unstable environment, if anything, leaning toward getting a little bit better. We mentioned that on the call. It's continuing to get a little bit better, but we're not -- we're not in any way in a position to say this is going to continue or it's going to start to escalate or we're going to head toward B. We're just going to have to see. To the extent that an advertiser wants to reach consumers in the U.S. or around the world, right now, we have more people watching TLC. It's the #1 channel for women in America. The numbers are massive. We beat -- we meet and beat American Idol with 90 Day Fiancé. There's a big article about it in The Wall Street Journal today. Food Network is super hot, HG cooking. So we come out of this, I think, with -- with sports gone, we're pitching to advertisers, you want to reach a scale audience of people and women, but even people that are watching TV live, all that money needs to go to some place, you should be coming to us because we can deliver very large audiences that are watching live in real time. And the other thing that's different about our audience to an advertiser is that we look like we're really in the moment. So we're not a scripted series, and people look and see everyone out in the play go on playing and they go, well, it's not like that anymore. When you watch our radar, you really get the feeling that this is sort of real time. And that 375 hours of original content shot at home, we're going to do a lot more of that. It's very cheap. So we think we've got a great product. And we -- unfortunately, we're not able to fully monetize the dramatic scale that we've seen in terms of share gain around the world, but we will, we will over time, we believe.

Okay. One of the things you started with the call last week was, look, you said you did subscribe, these are your words, to the view that consumption behavioral patterns will be truly disrupted by this crisis. So why do you think that? Why do you think this is not a game change in how all this consumed content spend our time?

Well, I guess what I meant was it's probably going to be a mixed bag. There's definitely an increase in consumption of direct-to-consumer products. We're benefiting from that with Dplay. We're benefiting from that with Motor Trend and Food Network Kitchen. So the people are spending more time and getting more acclimated behaviorally with Netflix, with Amazon, with Dplay, with HBO, with Motor Trend, with our authenticated -- with our AVOD product in the U.S., up hugely, dramatically. So I think when people are getting more acclimated to watch outside the TV, we're a beneficiary of that, but there are a lot of others that are beneficiaries of that in a meaningful way as well. On the traditional television set, I think we're uniquely advantaged in that people are spending a lot more time with us. And they're experiencing this very difficult moment on the news networks with, oh, my god, what's going on. And with us, with a lot of characters that are saying, I'm with you, whether it's Mike Rowe or Guy Fieri or whether it's Ina or whether it's Giada, all of our characters becoming very clear to people that just like when I was at NBC, that The Today Show in the morning felt like your family, we have characters that almost no one else has around the world. And they're meeting their families, and they're spending time with them. And so if it was for a week or 2, it would probably be a blip, but it's now over 2 months. And every week, the share of our content on our comfort channels are going up domestically around the world. So I believe that when this is done, hopefully soon, when we ease out of this, the behavior pattern of spending a lot of time with food, where people are watching that as much or more than they ever watched FOX NEWS or HGTV, the same thing or cooking, it will -- not only will it become a habit on the TV set, but the idea of spending time with our characters and our shows will be a -- we'll get a significant benefit out of that.

Right. So let's just...

And another way of saying that is we have the -- I think we have the #1 or 2 IP library in the world. We're bigger than Netflix in terms of our aggregate library. What this is doing for us is enhancing the quality of our library. People that haven't seen it before are seeing what we got. They're seeing our characters, and they're relating to those characters at a very difficult time in their lives, and we're connecting with them. And that's what they're telling us. And we think when it's all over, on an aggregate basis, the value of our library, our brands and our characters will be stronger, whereas I think most of TV will not have that same experience.

Right. Are there 1 or 2 things, assets that you think you can cap like that you use this time to make stronger? So like when you look at your portfolio, what are the 1 or 2 things where you sit down and say, we have to basically reassert ourselves or accelerate this. So what are those 1 or 2 things that you really need to...

Well, in Europe, we think we have a great strategy with local content, local sports, Dplay. And it already started to accelerate. And one of the reasons why I like it so much is that as consumers behaviorally get more acclimated to buying Disney+ or buying Netflix, they get used to watching content on different devices and paying for content. And so we've been the -- they've kind of plowed the road, but they are not a local product. That is basically a U.S. bigtime entertainment product. And so when you go into Poland and we have 40% share, and we have a library of 40% of the content that everybody grew up on in Poland or Norway, Denmark, Sweden, Finland or joined in Germany, we're seeing real traction. And so I think that is something we're pushing hard on. We can't -- we added sports to that as local language, local sports, which we still think is extremely potent, where you might have Netflix, you might have Disney+, you might have Amazon, if you're going to want local language, local sports, so we think that is a sustainable asset that will really benefit this company. And it's growing dramatically without sports now. So when sports comes back, we'll -- that will be -- we'll push on that. I would say all of our comfort channels around the world, we feel great that we launched a lot more food and home content around the world. That's doing extremely well. TLC is breaking out domestically and around the world. Our cost of content is very low there, the top-performing, most-scripted channels by a lot. So I think, in general, we want to drive our market share, drive our relationship with customers while they're spending more time with our channels, while at the same time driving Dplay and Food Network Kitchen and Motor Trend. So it's really 2 pieces of the company: benefit direct-to-consumer because of the road plowed by Netflix and take advantage of the fact that we have the right content at the right moment with the right characters to really engage our relationship with customers to make it much more sustainable than quarantine content.

Okay. And you've always had a really attractive cost of content. Your cost per hours are very, very low. I wonder, because of this crisis, what have you learned about content production? And you referenced the timing of your content cycle. So what learnings can you take out of this and you can then advance to the company for good basically?

Well, there's some content like Gold Rush or Deadliest Catch or a lot of the content that we do on HG that it's not going to be very different. But for some of our content, like on Food Network and on cooking, we're producing a huge amount of content with a family itself who's shooting it with a GoPro or an iPhone. And it actually feels significantly more authentic, like Pioneer Woman is doing better with content that Drummond's family is shooting because she feels very comfortable. Same thing with Guy Fieri, he's out doing pickup. He's picking up. And so I think that -- and the cost of that content is 1/10 or 1/5 of the cost of shooting at a studio. So I think we will do -- one of the takeaways, and we talked about it this morning with Nancy Daniels, Kathleen Finch and JB and Kasia and Fernando that we got to really assess what is the basket of content that why are we dragging everyone to a studio? Let's shoot it in the home. The content is dramatic. The cost is dramatically less, and the audience is lighting up on social media going, oh, look, there's -- Guy is in his living room or Mike Rowe -- why we're shooting After the Catch in a studio when Mike Rowe on his couch at home might be more interesting. And so we think we could do a lot more content for a lot less money. But more importantly, during this moment, we're probably the only media company that has a huge amount of fresh content that we're creating. And the audience is going with it. They actually feel more connected. They love the fact that Guy is in the car doing pickup because they're doing pickup. And when Guy is walking into a diner, it's well, like, he can't walk in a diner now. So we're kind of excited about the fact that we're in the moment.

Yes. And -- but to that point, do you think you start moving more and more to pseudo-lives to be as close as possible to -- like your Christmas show, you probably spend it months away from the Christmas season, just moving more to short-cycle production where you're on top of the current events? Is that part of the thinking, too?

Yes. And look, with our -- because some of the big stars, we have storytelling content. And then a lot of our content is based on the great characters that we have. And so seeing those characters in either live or close to live is a little more interesting. And so I had this experience when I was at NBC, we had bought National Geographic, and it had -- it was incredibly beautifully shot, 12 cameras and voice of god, and you got to see some animal that no one would ever get to see on earth. And then all of a sudden, Irwin comes out on Animal Planet and starts opening up the mouth of crocodiles and does very unpredictable jumps into the swamp, and it's getting 5x the rating. And what we realize then is that steady camera is not as attractive as the unstable camera because the unstable camera with the unpredictable host that wants to be close to nature, that's closer to real. People can relate to that more. So I think we're learning a little bit about getting more authentic is good. And we don't need to listen to the production companies about the high-level shoot. We can do it for much cheaper, some of our content, and get it out and this cycle could be much quicker.

Okay. As someone who -- let me ask you about the other operations, the other efficiencies. As someone who spent his life going around the world, being -- seeing people, touching people, going all your countries, what changes for the company in terms of efficiencies? What have you learned more broadly running your business the past 2 months on cellphones without being face to face? So what changes with the organization after this is said and done?

Well, one, the company is operating at an extraordinarily high level. The fact that we're getting share around the world, the fact that I think, country by country, on a commercial basis, we're doing a better job country by country than most other media companies. We're adding channels at this point. We're launching channels during this period. We're being rolled down all over Latin America and Europe. Here in the U.S., we gained 20 million subscribers for a number of our smaller channels because the brands and the value were -- operators called us and said, well, we went to them and said, why don't we roll cooking down? Why don't we roll DIY now? So we're operating at a very high level, which is kind of -- which is really surprising. People are working as hard or harder. It's -- we're working differently. I think that our real estate footprint is going to be dramatically different. Our efficiency in terms of technology because we're operating -- we used to have 12 people in the control room. We now have one. And in some cases, we've operated remotely with none. So I think there's going to be a lot of costs that we're going to look at completely differently now that we've been untethered. But we also are learning a lot on the content side. But we've also learned that having people on the ground in every country is -- we're probably the only media company that's doing business in 200 countries in the world. And that, in this moment, it got us -- we saw what was going on in China and South Korea. We were on the ground in Italy with 150 people dealing with this. So when it came to -- we were kind of repositioning this company to deal with this situation 2 or 3 months ahead of U.S. companies. And so we see things quicker. We're also able to take advantage when countries open up. We've got local salespeople in every country. We're seeing what worked, what is working. So I think the fact that we are probably the most globally diversified company in the world with commercial people in almost all the markets gives us -- makes us smarter and allows us to move quicker. And also from an investor perspective, we're much more diversified.

Okay. Let me ask -- you mentioned Rutledge, Watson, Dexter. You've been very honest about the cost of the bundle in America. We've seen the cracks. It's kind of shocking to see prices rise. Would you expect share will pick up? So how does the industry that you helped create back at NBC to today, has the industry changed relative to what consumers want and expect in packaging and pricing? So what's the evolution to improve offering at this point?

Well, look, I think every media business tries not to disrupt itself. But as an industry, we're in the middle of doing something quite compelling. We are disrupting ourselves. And Dave Watson and I have talked about doing a lot of creative things together. Rutledge and I talked about doing a lot of creative things. Those are really creative guys. They're entrepreneurial. They're balancing this challenge of having a very profitable broadband sub and a very expensive multichannel packaging. How do they maximize that value? And they don't like the idea of people leaving cable. And Rutledge is fighting really hard. He believes that the multichannel bundle is important. And so in the end, I think the biggest problem is sports. The idea of regional sports networks, and it is the only market that has all that. We trans the sports, regional sports networks, ESPN, ESPN2, ESPN3, FOX Sports where, if you take a look at what's going on in Europe, it's on a premium. And so in most cases, so there's an immediate faucet turn. So the customer is not paying $20, $30, $40 a month the sports that they're not getting. So the Bundesliga is going to start in Germany again. So that's great for Sky Deutschland. But it wasn't so good for Sky Deutschland when it wasn't on, and that's a good thing and that's fair to customers. So I think in the end, the egg is breaking, and I believe that there is going to be, over the next year, there will be a skinny bundle. Those distributors are really competitive. They want to win. And winning isn't broadband only. Winning is broadband and multichannel, and don't figure out a way to do it. We're talking to them right now about some creative things that we could do together that we think could be pretty compelling.

Okay. Okay. Part of the problem is just the minimum tiering, which you know, right, to have 90%, 95% of people on a sports tier on our sense...

But those guys got to look in the mirror and live with themselves. That was fine when America was doing great. When America is not doing great and you've got 30 million people out of work, and those 30 million people are going home and they love cable, and they're paying $30 a month for content that they're not getting, those -- the programmers that are in that business that are saying to the cable guys, you got a minimum and you've got to charge that, that's not going to last. It's just not going to last because it's just -- it's not American. You don't pay for something you don't get.

Right. Speaking of paying something that you don't get, you guys have done a great job of getting on everyone's platform, right? And you know I had written doubts, and you guys proved me wrong. What was the selling pitch? So walk me through how you achieved that in terms of getting on everyone's platform. What's the pitch? Why do distributors move on in a way that maybe we in the outside...

Look, we just extended some deals which we announced, including a very, very large one on favorable terms for us and the distributor. For most of last year, we were the #1 media company in America for women. That's the reason. The reason, unfortunately, is we could get a significant increase, and we're still way underpaid. If you look at what an operator pays for us, it's less than one regional sports network. And we deliver more women than Disney, more women most of last year than NBC Universal, great companies. Food Network, HGTV, TLC, Oprah Winfrey, Discovery, Animal Planet, we have great networks that deliver. And so we're kind of -- we don't have sports. And so because we don't have sports, we haven't had the bazooka. But because we don't have the bazooka, we have a very good relationship with distributors because we over-deliver for them. In order to continue to be successful, we need to do a good job. So our share is growing. And then they sell our networks as well. So the cost of our networks to them is very low, and our share of viewership in America is dramatically higher. And look, years ago, Rutledge, who's one of the great operators of Cablevision, dropped Food Network only, one network. One network, and it went back on. It went back on because people in his office weren't talking to him. They were like, I watch that network all day. The Food Network is watched as much or more in length of view as is HGTV as FOX NEWS. And so we have great networks, and I believe one of the things that's going to come out of this is DIY and cooking have much more distribution. The sustainable audience is growing every week. And we've got Chip and Joanna Gaines that have gone on DIY and exploded it. I mean they beat every one of our cable networks when they were on the air. They beat every cable network in America and every broadcast when they were on the air. The only one that beat them was 60 Minutes on Sunday night. So -- and one of the things that's going to come out of this, I think, is that we're going to have a hell of a network when Chip and Jo come on top of DIY and that becomes our -- that's our network. That's the Chip and Joanna Gaines network. And that's not going to be a network that's just available on cable. We have the ambition to make that available to everyone in America. And that was -- and the power of that couple and their ability to curate and connect with people in America, I think, really speaks to why we're successful right now globally. Because in terms of this generation, you had the greatest generation and then you had our generation, and our generation was the generation of me and the generation of stuffs and the generation of kind of you stuff up and aggrandize. Well, this is a cultural moment. This is a moment for people to think about what's really important in life, about faith, family, education, about being with your friends. It's not about stuff. And I think that's the reason why people are watching Food and HG and DIY at home and Science Channel and Discovery. It's about family values. And I think that's the core of what Discovery is. We do -- we're big. We're the leader in sports in Europe, and the great deal we have with Jay Monahan with golf and with cycling. But the core value of this company is great content that you could watch with your family and great content that are the core values of not just America, but the core values that most countries strive for. That's what we have, and people are coming back to that. So I think we're in the right place at the right time.

Okay. Something that Craig Moffett and I worry about a lot is, as prices go up in the bundle, it keeps the sports and news fan in the bundle. But women who may not be sports fans, like our surveys show that the more likely to churn would be non-sports fans, women, maybe younger folks, but that's your, in many ways, your core audience, right? So how do you crack the code? In 3 or 4 years' time, there's going to be a lot of people, even maybe the same amount, outside the bundle. So you kind of hinted at it, but what's cracking the code to reach people who are not part of the traditional bundle? How are you going to try and make that happen?

Well, one is have great content and great characters that they love. So Disney's front screen is they love Pixar and they love Disney and they love Star Wars. They go, I got to have that. But that's not the average woman in America. And when somebody looks at our front screen and they see Chip and Jo and TLC and 90 Day and Oprah and Food and HG, we're working hard on enhancing our IP, in elevating our characters. So when America sees that, they say, that's all the stuff that I love. And Discovery as a company has done a great job on that over the last 2 years. Think about -- even before this moment, we were #1 with women in America with our IP for most of last year. And so engaging and enhancing our content, but at the same time, we have 150 engineers working in Seattle. We got a great team that's building our platforms, and those broadband-only subscribers will get a chance. And we built this AVOD product, and it's available to authenticated subs. We get double the CPM, and it was doing hugely well before. It's exploding now. So our content is loved, and you will see us in the marketplace, the broadband-only subscribers, because we have the best library and I think maybe the most compelling IP for families and women in America and men. So you will see that. We will not be on the sidelines of that game.

Okay. So following up on that and ask you the next question, which is you're seeing some of your competitors do a freemium model with AVOD, right, a Pluto, a Tubi, even a Peacock. How you feel about those? And to your point, you've always been part of the authenticated world. So how do you navigate the freemiums that are out there versus what you want to do to maintain your economics?

We have an AVOD platform also which is generating hundreds of millions of dollars in profit last year and is still generating significant value for us, even when the sellout rate is down because the average audience is 26 years old and the length of view is significant. So the idea of people spending time consuming content on platforms is important. In the end, we have to reach everybody. And so I think it's interesting to see what these other platforms do. A lot of those platforms are doing okay with very old content and content that's dramatically less compelling than what we have. And so we're hanging in weight. Right now, it's a great moment for us. Our content is getting stronger, more important, better length of view domestically and around the world. Dplay, we're learning a ton from that, where we're actually in the market driving it. We have an AVOD product with ProSieben, we've joined, where within a few months, we had 7 million people spending time with us in Germany. So we don't -- we have Food Network Kitchen. We did our big deal with Amazon 2 weeks ago where them now making that available for a year and paying to make it available to -- so that anybody that has Fire TV have the ability to download that and get Food Network Kitchen. So -- and we're watching what everyone else is doing. It's a very dynamic and exciting moment. There's a lot good that's happening being driven by where we are today in terms of people learning how to get to different platforms and get the content they want. And we will be -- our ambition is to make sure that our content is available to everyone on every device. And we've done a good job with that in Europe, and we're leaning into that in order to effectuate it here in the U.S. I think the best way to do it, candidly, is work with those great guys that you're talking to today. I think a lot of people taking their lunch and trying to do end runs are going to find how good is that content, how much does it undermine the distributors. Those distributors are great customers of ours. And someone like Rutledge has 12 million broadband subs. Those are 12 million subscribers that could be paying for all of our content, and that would benefit Tom and I. Same is true with Watson. Same is true with Dexter. And so we think that there's an opportunity together. That doesn't exclude going with Hans and going with T-Mobile or John Stankey, great executives, also looking to scale up, or doing more with Amazon. But I think the key to us is we've got great content, make our content better and then figure out the best way to basket it in order to get access to everyone as possible.

Okay. Let me take you, in the time we have, some international questions, then we'll do -- then we move to digital, and then we've got some questions from the room. Internationally, I know it's hard talking about 200 markets, but give us your view of the speed of change internationally. Are we seeing the same type of cord-cutting behavior or linear shifts? And how would you frame -- how would you divide the world? Because I know it's -- you're in 200 markets. So give us your up-to-the-minute view of what's happening in some of the key markets around the world.

Yes. It's difficult because they're really different. We think about the U.S., it's one culture, one set of sports, all the same, one satellite. It's one of the reasons why it's such a great market, 340 million people. Europe and Latin America are the same in some ways and different. They're the same in that they have low-priced cable. And in the aggregate, cable is relatively flat. It didn't see the big decline. So it's more of a question of putt levels, the amount of time people are spending in their TV. So in general, in Europe and Latin America, it's not the decline of subs that's the challenge. It's that people are consuming more content, but they're spending more content off the platform. In Latin America, it's more driven by lack of wealth, economic challenge. The -- we saw a huge surge in Latin America up until like 3 or 4 years ago. And when Argentina, Brazil and Mexico got hit economically, it was more people disconnecting because they couldn't afford it. And you talk to those people, and they would die to have multichannel again, but they just can't afford it, or they've been sharing it with people in this piracy issue. That's more of Latin America. Europe is a mixed bag. In Europe, in areas like Northern Europe, it's one of the reasons why we decided to get aggressive with Dplay is that there's a huge amount of high speed, and there's a lot of -- there's a pretty wealthy environment that population that loves content is willing to spend on content. And we have football and sports and a huge share of original. That's why we decided to -- our affiliate went from plus 9 to relatively flat or plus 1 because we came off of a platform in order to, in Denmark, in order to see if we could really drive in a dramatic way our own business. But then there are other areas in Europe where broadband is pretty thin and there isn't much high speed. And so it's a mixed bag. One of the advantages to us is we have huge amounts of local content in every country. And the amount of local content that a Netflix is willing to do really depends on the language. We think Poland is going to be an amazing market for us because we have 40% share, but the cost of creating a lot of Polish content to someone like Netflix doesn't make sense, same for Italy. So that when it comes to Latin America, they've been aggressive because they can do Portuguese and general Spanish. So we think that there are some markets in Europe that don't have a lot of high speed, still have good cable. And when they do go to direct-to-consumer, we'll have a very unique advantage versus these other big guys that just can't program to those groups.

Okay. And you talked about this a couple of quarters ago. In some markets, you've got a broadcast -- a big broadcast business and cable, I think, with the Nordics and Poland, some you don't. What are the economics in those markets? And what you learned from being basically that much scale between broadcast and cable? Is that a blueprint for other markets down the road?

We're 2 kinds of -- we're broadcasting cable in almost every market in Europe and in some of the markets in Latin America. But we're really 2 kinds of broadcast. We're either cable with our -- with most of what you see here. And then we bought a broad -- 2 or 3 broadcasters and then we program that with a lot of our content because those are markets where there's only 20% or 25% or 30% to 35% pay-TV share. So we program our existing content to a broad audience without news, without sports, without scripted, which is very efficient and very effective. We do men's channels, women's channels, kind of entertainment channels. And then we have markets like Poland and Northern Europe where we have more traditional broadcast networks. In general, you can say for both of them that broadcast networks are more affected. It's advertising only. So about 40% of our company is affiliate, which is a very healthy kind of stern on the boat for us versus other media companies. And if it's broadcast only, by definition, we're taking more of a WACC because even if we lost 40% to 50% of our advertising, if we were all advertising, it would be 40% to 50% of our revenue in a particular market. If we're 40% of our revenue as a company is affiliate, and in Europe, it's much higher than that, then when we take a hit on 40% to 50%, we still emerge at 75% or 80% [ more so ]. I think that stability really helps us, but it is more leveraged. On the other hand, with broadcast, you get a massive amount of original content that you could then use to be much more aggressive with local language, local sports. So it's a bigger, more expensive play, but the ability to turn direct-to-consumer is scaling much more quickly because we have much more important content. The thing that I wanted to reinforce that we mentioned on the call, Gunnar and I, is one of our advantages is we don't have a lot of hot messes. Our biggest issue right now is how do we deal with advertising, which everyone else is dealing with. But on the distribution side, we're extremely solid and secure. And on the programming side, we're doing what we do, I think, better than any media company is we're programming in this very difficult time. We're creating new content that's delighting people. We're engaging all of our creative talent. Got plenty of time. We're at our home doing shows, and our share is growing. We don't have hot messes. Hotels, hot mess. Cruise ships, hot mess. Theme parks, hot mess. Movies, how do you open them? When do you open them? How many people are going to go? Hot mess. And so I think there are great companies that we have -- we look at them and we say that they have such amazing IP, they're such great companies. But this kind of black swan event, which just kind of presented droppings on all of us in different conditions, for us, it's a huge opportunity. It came in a moment where our balance sheet is great. It came in a moment when we -- in April, we're still generating some meaningful free cash flow. You saw our first quarter. We're generating content. We're growing our share of our relationship with the audience. But more importantly, from the perspective of attention, we're meeting every morning. We have a 1-hour meeting every morning, it started because of COVID, with leadership team, but we're not saying, what are we going to do with those empty buses? What are we going to do with the empty hotels? How are we going to social distance at theme parks? When are we going to open this movie? And so we're very focused, and I think we're going to come out of this stronger. We're actually spending more time talking about the question you asked. What are we learning about this about how we can do business for cheaper, more efficiently? We have 60% margins. Our conversion to free cash flow is so high. We're going to come out of this, I think, with better margins and better free cash flow conversion because all this is forcing us to do more with less.

Okay. And our last 1 minute, one of the challenges is that your digital initiatives are so -- there's so much going on in digital. And our conference call is really hard to kind of get us all moving in the same direction. So in this conversation, can you highlight a couple of your major digital initiatives right now that we should be paying attention to and things that you're excited about that we should be focused on as outsiders? 1 or 2 things.

Okay. So I just -- the ones I mentioned, Dplay, Motor Trend is really scaling around the world. Men, particularly in the U.S., we're seeing a huge growth of Motor Trend, a meaningful growth in direct-to-consumer. We're not in the channel store with Amazon. They love Food Network Kitchen. They love it so much that they did a deal with us to make it available. When you get a Fire TV, there's only one piece of content that you get for free, thanks from Amazon, and it's Food Network Kitchen. But I think the most important thing you should look at is, how good is Discovery's IP at a time when everybody else is offering a direct-to-consumer bundle. They're all struggling and trying to get oxygen into their lungs to get enough original content that people are going to want to hang out with, enough original content that when you go there for dinner, you're going to be able to be nourished. Now each of them before thought they didn't have enough. But now when they can't produce content for long periods of time, what could they accelerate in? What do they do when their offering is so thin? How do they hold on to people? How do they reduce churn? How do you launch new products when you hardly have a library? Then take another look at us. Who's got the largest library of great characters, fresh content? And what would Discovery look like, all of which we own globally, what would Discovery look like if they took that offering into the U.S. in a meaningful way? What would that look like? How would that compare with some of these other guys? How strong would that be with Oprah and Chip and Jo and food and home? And how relevant would it be at this moment of where the culture is now? And so I think we believe that continuing to grow that library is going to pay dividends in terms of our ability to work -- figure out how to make that offering to everyone on every device over time. But also, I think we're going to look more and more attractive when people say, well, what do we have coming up in the next couple of months to keep people happy on our platform? And then they're going to go, well, who has stuff? And they've been talking to us before, but I think there will be, I think, the elevation of the value of our library as well as our characters and our portfolio will become more and more clear to consumers who are spending so much time with it now. And it will become more and more clearer to other players that might say, hey, if I co-marketed with you, how strong would I be? And maybe that would hide the fact that I don't have that much original content today. So I think that the road ahead for us is stronger today because of the quality of our content and the scale of our content domestically and around the world. And that's what we are, we're a content company.

One of the things we questioned to other companies is, is the ROI of their decisions in digital making sense. I'm not going to bring the names up, but we've written about it. How do you determine -- how do you evaluate success in terms of where you put your digital dollars? And how do you measure that? And how do you allocate capital to that?

Well, look, the direct-to-consumer subscribers have -- you guys put a lot more value on, but we're in a completely different basket. Food Network Kitchen, we're producing cooking shows for the cost of a nice dinner with you and your wife. These are inexpensive, and yet they're incredibly constructive. The ability to see Guy Fieri how do you make a burger or how do you create a roast chicken, those are not -- that is not Game of Thrones. We are not in the business of $5 million an hour. We were in the business in general of $300,000 to $500,000 an hour. But now we're finding that we could produce a lot of that for less. And for some of our products like Motor Trend and Food Network Kitchen, our cost per hour is dramatically less. And so I think the good news for us is our entry point is lower in terms of our cost. Our speed to market of content that works is much quicker. And I just think it gives us a significant advantage. If people want more content from Mike Rowe or Guy Fieri or Bobby Flay, we could turn that content around very quickly versus a scripted series. And so I think it gives us a chance to get a lot more swings.

Okay. I have a couple from the clients. If you want to send any questions, please do. And David, thank you for doing this. I know Andrew Slabin is listening in, too. The 2 questions we have is, how are you thinking about cash content investment in '20 and '21? So what's the rate of change you think in cash for content investment for you guys this year and next year? Talk about it.

Well, for this year, it will be down because we do have a lot of traditional programming that we're not doing right now. We have a good bullpen of content that we can continue to run for a period of time, but we're not out shooting. We're not out shooting a lot of our content right now. The 3 -- the 50 projects and 375 hours that we're looking to lean into, that's dramatically less. A lot has been shut down, and our ratings are going up. So for right now, we see that rubber band being pulled. Our cost of content is going down. The amount of original hours we're putting on, we can keep up with or maybe grow because we're doing on some of our networks because we can shoot from home. But depending on how this goes, it'll -- we did not expect that our cost of content was going to be going up. Right now, it's going down unexpectedly. We'll have to see what happens in '21.

Okay. And then how do you think about marketing spending on linear versus your -- the investments that you've talked about? So you've given us all the guidelines on how much you want to spend. Do you see an acceleration to that going forward? And that's a question about measuring success and how you earmark money to some of the digital initiatives that you're doing.

Well, look, on the sports side, we're spending an awful lot less. And as I said, 90% of our deals provide either the opportunity to remit or force majeure. So the team, we've done a really good job on that piece. When sports gets back, we think it's important. But we'll -- on the sports side, we're not having to lay out the same types of dollars. We're continuing to invest into the acceleration of viewership and market share gain. That's the business that we're in. We're spending a lot less in some of the other areas. We can't hire another 100 engineers. There's a lot of things that in the company where we're saving enormous dollars, some of which we're happy about, and we're saying that's great. Let's -- it's great that we didn't do it. Let's not do it at all now. And then there's others where, because of this unusual moment, we can't spend. And so we're seeing really pretty dramatic savings, which you saw a tiny bit of in April, but you'll see flow through the balance sheet just because there's a lot less you could spend on. So we're in this unique moment where we can't spend a lot of money, and we're saving a lot of money at a time when our share is growing. We're holding on to most all, if not all of our affiliate money, but our advertising is dropping at the time that our share is growing, which is pretty healthy. We have a good -- and when that picks up, we should be there with more share to get it. But we need to invest in our content so that Dplay gets stronger, so that Motor Trend gets stronger, but we're not investing in golf right now because there's no golf. We're not investing in cycling right now because there's no cycling.

Yes. I'm bummed about golf. It's coming back in a month, though, we hope, right?

I hope so.

Okay. Last question for you. With real Olympics structure where '21 is Olympic year and '22 is Olympic year, what does that present as an opportunity for you with those 2 events literally 6 months apart?

Right. One of the things that I've been talking to Bach about as we look at all of Europe, that could really be like almost like a cohesive 9 months, 10 months or 1-year package. You've got all of the preliminaries leading up to the Olympics. When you build on the characters on Eurosport going right into the -- take it to the goal and you start with all of the qualifiers going into the winter, and so the ability before, one of the things that's a challenge with the Olympics is the disjointed nature of it. So this will be a very unusual test, but we added a lot of digital subs a couple of years ago. At that time, it was -- I think it's like 0.5 million subscribers we added in like 5 days. But then a lot of those subscribers we lost because after the Olympics, a lot of them stayed on Eurosport, but then some of them set out really after the Olympics. So imagine now that we have this big package to offer where you could stay for the gold and the rings for a longer period of time, it also advertises, I hope, we believe and we hope, fingers crossed, we'll be much more ready. It's like a big opening of the world again to spend a lot more money than the -- it would have been a real problem for us to do it this summer. We would have been facing the same issues that we're facing now. So -- and it gives us a lot more time, and it also gives us a chance to work with Bach, who's been very effective with us in trying to figure out how do we maximize the value of the Olympics.

Okay. Well, David, thank you so much for doing this. We really appreciate it. Stay well, stay safe, and we'll see you live one of these days. Thank you.

Okay. Thanks so much, buddy. Thank you.

Good. I'll see you then. Thanks.