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

Good day, ladies and gentlemen. This call is not for media representatives or BofA security investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for BofA security investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. Thank you. Good day, and welcome to the conference call with Gunnar Wiedenfels, CFO of Discovery. Today's call is being recorded. At this time, I turn the conference over to Jessica Reif Ehrlich. Please go ahead.

Thank you. Thank you all for joining us today for a conversation with Gunnar Wiedenfels, the CFO of Discovery. Gunnar, I know you are in a quiet period, and there's just so much going on in the industry. There are things I know that you can't discuss, but we really do appreciate your time and your availability to go over some stuff. There's just so much within the industry and then other things that are going on with the company specifically. [Operator Instructions] We won't be opening up the lines today, but I will be checking for e-mail as we continue the conversation.

So Gunnar, let's just start -- there's so much news in the last few days, but there were reports out earlier this week that Discovery renewed its Sky deal. And it seems like this may be a different type of renewal than in the past. Could you discuss the nuances of the deal?

For sure. And first of all, thank you, Jessica, for hosting us this morning, and good morning, everyone. I hope everyone's well and holding up. Yes. To your question, the Sky deal, indeed, was announced earlier this week. We have been working on this for a while. It's a very interesting deal. It's obviously an important affiliate partner of ours in the international space, and I'm really glad about our joint ability to build on the existing partnership and actually grow that partnership. It's a new form of the deal. We're increasing our cooperation on the ad sales side. Sky is now on the back of this deal also sort of fully invested in being a great distribution partner for us in the direct-to-consumer space. We're working together in the promotion of our existing D2C products, Eurosport Player, Motor Trend, et cetera, and then whatever else might be coming down the pipe in the future. And it's also the -- obviously the core of the affiliate relationship in the traditional space that we renewed. So I think a great example, top to bottom, of how in an evolving ecosystem we're able to find very attractive, mutually beneficial deals with our existing and then -- and with affiliates and partners.

And then is there anything unusual -- sorry?

Go ahead. No, go ahead.

Just wondering is there anything unusual or anything different about the length of the contract or the pricing?

No. Really, what's different here is structure of the contract with more than an ad sales focus, more of a partnership focus from the perspective of driving our direct-to-consumer products, but the core, it also has the core traditional linear affiliate deal included, so really nothing fundamentally different from that perspective but just sort of a great platform for future growth in the years to come here.

Great. And before we come back to -- come to domestic, are there any other significant deals outside of the U.S. that are more recently done or are coming up?

Well, clearly, Sky is one that sticks out not only from the coverage of territories but also the size of the relationship, of course. Remember, we're in more than 200 territories globally. We have a number of deals constantly under negotiation, but that's part of our business. This one, again, is slightly different in nature maybe -- could maybe be a template for future deals as well. We usually don't disclose discussions on an individual deal level. But as we said before, when we told the Scripps transaction, we obviously inherited a number of deals as well. So we've been going through a couple more renewals and discussions than before the merger not only in international -- in the international footprint but also domestically. We've been able to close a couple of deals, principally renewal.

So let's talk about domestic. On your first quarter conference call, there was commentary that several domestic distribution deals being completed. And your prior guidance, meaning before you pulled it following the COVID-19 pandemic, but your prior guidance was for low single-digit affiliate fee growth. Given the 4% to 5% sub losses in the universe, this implies pricing of roughly 6% or 7%. What color can you provide on how you obtained these pretty considerable price increases? And can you talk about some of the other key deal points that we should be aware of, like distribution across the board for your networks? Is there anything different there? Any other key deal points that we should think about?

Well, I mean let's take a step back. I mean we have been convinced all along that we have a wonderful portfolio of networks, absolutely fascinating content, and the value of this content has just been underpinned again by the performance of our networks through the ongoing COVID crisis. And we've always been very clear about the fact that this portfolio of content has tremendous value for our affiliates as well. That's why we have always had a lot of confidence in our ability to renew those deals at very attractive terms. And we don't comment on individual deals every time we close one. But since the beginning of the year, we've worked through a renewal of Cox, one with Charter, one with Comcast. Those are all done, and rest assured that they're all done at mutually beneficial, very attractive economics for us. And based on the guidance that we have given at the beginning of the year, which we now retracted, of course, given the environment, but I think you can sort of deduct some of our thinking about sort of sub losses and rate increases. You mentioned the point about other factors in those deals. One thing that I think is really great is the fact that we've not only maintained carriage for our whole portfolio in these renewals. In some cases, we've even expanded distribution for individual networks. And again, I think all this shows that there's a lot of value in this ecosystem for both sides. And I think that gives me a lot of confidence looking forward over the next couple of years. We also, as you know, have always valued flexibility. We own all our content. We're not renters. There were a lot of great businesses built in renting, but it's a little more difficult now. We've always been -- or at least for many years, been in the camp of own more content really from the perspective of maximizing flexibility. We've also always paid a lot of attention to having that flexibility in our affiliate agreement. We've made that more of a priority in the discussions over the past 12 months or so. And that way, I really do feel that we've got a powerful vantage point here as we look forward over this certainly changing ecosystem. And again, I think this shows that we're great partners to our affiliates. Whatever we're working on in the B2C space is always going to be with a sort of win-win partnership with our affiliates in mind, and frankly, I think we're well positioned.

All right. So I mean the sharp declines in the traditional bundle have been alarming to investors for the last few years. What are your plans to address this segment, the non-pay TV bundle universe? And maybe this is what you mean by flexibility. Is there a way to provide content to the segment that doesn't subscribe to traditional bundles but could be interested in -- whether it's Food Network or ID or Oprah, HGTV? Is there a way to address that universe without cannibalizing your 60% margin traditional business?

Yes. I mean that's obviously the big objective, Jessica. I mean we -- to some extent, in the traditional ecosystem, we're taking whatever market trend from a subscriber perspective. We're optimizing our relationships with affiliates, and we're ensuring as much as we can the best possible carriage for our networks at fair prices. And again, I think we've been successful at that. The virtual MVPD growth has been a positive contributor. But there's no doubt there's a growing segment of households in the U.S. that currently doesn't have full access to our content or, in many cases, any access to our content. And that's why David has been talking about this for a while. We're looking into opportunities to serve that segment. If you look at our GO apps as one indicator, we're seeing a lot of attraction there, a lot of traffic on that platform. A lot of people are downloading and checking in with us. So there is a lot of interest in our content, and we will continue to work on a way to make this great content available to that growing part of the population, especially here in the U.S. And as I said before, I'm pretty confident that we'll be able to find a way that we can deliver that in a partnership approach with our great partners in the traditional ecosystem. So stay tuned, but certainly, it's one of our priorities to be able to put something out that allows these people that don't subscribe to cable anymore to still be able to enjoy our content, which is performing on a level that's just outstanding.

Right. I mean your ratings have been really good. So there was an article today on Amazon, and it suggested that they're looking for licensing deals for live linear channels based on job listings, job postings. So I guess would Discovery be willing to license channels to someone like Amazon on an à la carte basis?

Well, this is -- it's a bit of a difficult question at this point because, as you say, all I've seen so far is just speculation on the basis of job listings, right? Generally speaking, we've -- we obviously make it one of our priorities to distribute our content as broadly as possible, but it obviously needs to fit the overall business model. So again, this is speculation right now. An à la carte offering with individual channels in our portfolio is very, very unlikely. But again, I mean we're speculating here. It's really unclear what they're going after. And certainly, we will entertain discussions and see if there's a deal that gives us adequate value for our full portfolio of networks. So we'll -- I think we'll have to see when this becomes a real announcement or when they firm up their plans. So far, I think it's speculation and rumors.

Right. Okay. So maybe switching gears a little bit. But another recent piece of news from the company -- I mean this is not even a week old, is -- I think it was Friday afternoon. There was an announcement that Peter Faricy is leading Discovery. And it was surprising because he had a year left on his contract. Can you provide any color on this specific management change?

Yes. I mean, listen, the -- as we said in the release, Peter would have had to move to New York, and I think he's been thinking about that, and that was not his preference any longer. So we respect that decision. If you take a step back here and look at it from the Discovery perspective, I think -- my view is Peter has done a phenomenal job in really laying a fantastic foundation for our B2C efforts. If you look at our platform that was put in place over a period of 2 years, he's really taken that to the next level. We've got a much better technology footprint, much better speed to market, app store ratings, data analytics overall, et cetera. He's put in place a couple of great products and put us on a good track with the upcoming products that are still in the hopper, such as Magnolia. At the same time, he has maybe been most successful in also building out a phenomenal team. The list of people that we brought in into David -- into Peter's leadership team is just a very, very positive development over the past couple of years. And we have a firmly established direct-to-consumer leadership group now. And so to some extent, it's almost -- you can look at it as Phase 2 with those leaders that used to report to Peter now reporting more directly to David. And I think we're in very good shape to take it to the next level now even without Peter. So we may even be able to get, to some extent, decisions a little faster, et cetera, where they'll be in our organization. So great, great achievements, great position. I mean some of the people that we have been talking about, Avi Saxena, who continues to globally drive that entire technology footprint, great leader, great success with us over the past 18 months; Karen Leever, who's been with us for a while and has driven a tremendously successful story for our TV Everywhere products, Discovery GO. As we've pointed out many, many times, GO has been contributing very nicely to our advertising sales growth over the past 8 quarters or so. That obviously is product technology and a product that we will be leveraging going forward. Karen is now reporting directly to David as well. Lisa Holme, who joined us from Hulu, had made great contributions already. And then on the international side, JB is going to get a lot more involved in our key products like Dplay and the other smaller direct-to-consumer offering. So I think a great structure that can be very efficient for us and positions us very well for the next couple of years.

Okay. And Peter was also very involved with the launch of Food Network Kitchen and its integration with Amazon. Is there anything that we should interpret from his departure as a signal of reduced opportunity in that regard?

No, no. Please don't. The Amazon partnership is very exciting. As a matter of fact -- again, it's early days, but we have been excited about that partnership, great traction. It's a great funnel into our product. And again, I mean the Food Network Kitchen has so many opportunities for us really, as we've discussed many times before, this idea of combining ad sales, subscription and commerce into one product. But keep in mind, it is still early days. We're working through those different features that are required to make that formula work. There's more product features coming online. We've got a quarterly milestone plan and we're still in the process of figuring it out, but we got a lot of engagement. And certainly, the deals with Amazon shows the excitement on their side about this product and let's stay tuned.

Okay. And then your investment in general and direct-to-consumer was climbing, but again, you're going back to your old guidance, your pre-COVID-19 guidance of roughly, I think, $600 million investment versus roughly $300 million. Should we expect any strategy shift or timing of future launches with the management change? Will you change spending plans? Will you change rollout plans for Food Network Kitchen, Motor, Magnolia? I mean what will change? What won't change?

Well, number one, as you know, we've pulled our guidance, and I don't want to put out any new guidance. But just a couple of building blocks for you guys to think. So number one, clearly, COVID has had an impact here in multiple dimensions. Number one, regarding our sports-focused products, in Eurosport Player, golf but also some premium sports here on Dplay, et cetera, obviously, has seen a hit. We're not charging people in the cases where events are not on, et cetera. But -- and certainly, we haven't seen the growth that we originally planned. Number two, we've also -- given challenges with content availability, hiring, et cetera, we pushed back some launch dates, for example, for Magnolia. So that's another point. But other than that, we have continued investing. We've continued to hire people to the extent possible. We further build out the team, and this is the strategic priority that shouldn't be impacted -- or these big decisions shouldn't be impacted by a hopefully temporary health and macroeconomic crisis. So we remain committed. We have continued to invest. Again, as I said, obviously, the top line has gotten a little bit of a beating as well as in many other parts of the economy, but we remain committed with these -- committed to these investments.

And then I guess...

If you remember the guidance that I gave on the last earnings call was that we're managing expenses so that we're expecting them to come in flat for the consolidated group and -- whereby we continue to shift budgets from the traditional business into the B2C business.

And then just to round the outlook. So you mentioned Dplay. In areas where -- Europe is just starting to open up, sports is starting to come back. Have you seen any notable changes since -- in the last couple of weeks with -- as Europe begins to reopen?

Yes, we have, maybe less so for Dplay. I mean Dplay had seen some very nice subscriber growth over the entire period of the lockdown, as you would imagine. So there's not a huge change there. But the area where we're seeing those changes is really in ad sale. I think David spoke about it last week. In countries where we've seen government reopen, we've also seen ad sales come back. Again, overall, ad sales have been very much correlated with the news flow and the overall sentiment. So we have seen significant improvements in individual countries. At the same time, I just want to be clear on -- caveat, in countries where we've seen governments open up, it's still down but much less so than previously. And then if we go through region by region, obviously, that...

Well, that's actually -- sorry, all right, sorry for interrupting. I'm getting questions. Like people have questions. And so just to -- let's get to advertising in a second. I'm really sorry for interrupting, but just to finish like the whole direct-to-consumer, there just seems to be a lot of interest on this topic. So somebody is also asking for color on -- I guess you did a recent deal in Italy with WWE. And can you talk about just the financial impact and the opportunity with that? I just don't want to leave this topic and get to advertising because we'll never get back to it.

Yes. So I mean the -- if we want to talk about the European portfolio for a second, clearly, the #1 product here is Dplay. And then we've got the joint ventures. One that's already fully established in Germany with our partner, ProSieben, joined. We're working on something in Poland with PULSAT that's in the process of being finalized. And we're obviously looking into further rollouts in other territories. From a general strategy perspective, you can expect us to go at it alone where we have significant market positions and to partner with others where we think that is helpful for a compelling consumer value proposition. And we will continue to drive for partnerships, as discussed at the very beginning of this call, with our new Sky deal. And talking about content, to the core of your question here, you will see us continue to shift budgets. Specifically, a lot of that has already happened in the Nordics, where there's a lot of dedicated Dplay content budget. Obviously, with the windowing strategy tied to it, a lot of it goes on the direct-to-consumer product first going forward. And we're in the process of ramping that up as we build out the subscriber base. And you will see us add those budgets and try out new content investments on top of that.

Right. I mean it's a completely evolving area. I didn't mean -- I'm just really -- again, I apologize for cutting you up, but there seems to be a lot of interest in the investment and what you're doing in D2C.

Sure.

And it's a pivot for the company. But in any case, so let's go back to advertising, which is the bulk of -- it was a good portion of your revenue right now. And as you alluded to, David did say last week, you seem pretty upbeat on sequential advertising trends. So maybe just sort of domestically and then we'll move -- well, actually, wherever you want to go. I mean you started to say, I guess, Europe would be a better indicator since it is starting to open up. Maybe we should start there.

Well, yes. I mean -- again, I mean in essentially every territory, we've seen the same pattern that countries opening up, we saw part of the ad sales coming back. Again, I mean I do want to be cautious here. I'm also carefully looking at the COVID case numbers, et cetera. And as I said in the past, a lot of the ad sales activity has been very sentiment-driven and news-flow-driven. But I found that encouraging to see in those countries where we've seen opening up, Poland as an example, and we're looking at a completely different level post opening than previously. Now again, I do want to be cautious here. We have very limited visibility, but I took that as a positive data point. Clearly, as we said, in other territories or Latin American business, as you would imagine with the news over there, probably hasn't seen the bottom yet. So we're keeping a close eye on that as well. And then in the U.S., as we said on our first quarter earnings call, we did expect May and June to come in better than April. That still seems to be the case, actually even more so. Again, I want to be a little bit cautious. If we look forward to the third quarter, there are a couple of other factors in play. We obviously had a little bit more risk from a top-down perspective regarding upfront cancellations. And we also will have to see how our ratings trends develop coming out of the lockdown situation. So far, I think both are mild positive. I do think we've seen a little less cancellations than maybe originally expected. And from a ratings perspective as well, I mean we have really benefited from the focus on our stay-at-home content and our content genres in general. And we're not seeing, obviously, the top-level increases anymore that we enjoyed in the month of May -- April, May, maybe to some extent. But we have still come out of this much, much better than many of our competitors. Many of our networks are doing very well. We've got some real juggernauts. I mean if you look at the 90-day franchise, pulling 4.5 ratings in the female demo right now, I mean there's a lot of stuff that's going very well. Food Network, HGTV, DIY, et cetera, on an individual network level as well, have benefited from the COVID situation. So hopefully, we can continue that into the third quarter, but again, we don't have a ton of visibility.

Can I just check for a second? You mentioned the cancellations. And it was -- when this crisis hit -- when the pandemic hit, it was -- the cancellation period for the second quarter had already passed, which is just kind of a lucky timing issue. But third quarter, I mean our understanding is cancellations could be really significant. I mean the options could be 50% or more of commitments. What was the -- where did they come in? You said it was better than it could have been but...

So yes, certainly, certainly much better than that. Again, I mean that was -- those were some of the scenarios that obviously we were expecting initially, I think a lot of players in the market as well. It's coming a lot better than that. Again, I don't want to get into guidance here, but certainly, we're not seeing that scenario play out. And the other thing as well is scatter pricing has been holding up very well. There's not a sort of race for the cheapest dollar here. And so to some extent, initial cancellations of upfront dollars are coming back in scatter at better prices. So again, I mean by no means a strong ad market overall but significantly better than what we originally feared might be the case. But again, it's also early days. We're watching how this COVID situation unfolds, but I'm actually -- I feel a lot better about this right now than I did before, let alone 8 weeks ago.

Right. And what are you seeing from an inventory standpoint? What's on that...

Well. Yes, I mean obviously, we, not unlike others, have taken down some of our ad inventory and have used that opportunity to add promotion to our networks, which, so far, I think, seems to have a positive impact as well. So we'll see how that evolves. But we've taken down capacity a little bit for the benefit of your experience here, and I think others have as well. We'll see how that unfolds over the rest of the year and next year.

And then in the markets that have opened up domestically, are you noticing any big changes? Can you tell?

No. I mean, as I said, overall, we've seen a bit of a better trend since some of the restrictions have been eased. I don't want to comment on sort of individual or local markets, which are not that important for us anyway compared to the overall...

Right, right. So not sure you can even tell, right?

Yes, yes.

Right. And then -- and one more thing. The loss of the Olympics hurts you guys in Europe at least from a revenue standpoint, but it actually should help the summer in the U.S. I mean it's just less competition because it's when the Olympics would have been on. Do you expect U.S. advertising to perform better without that competition from the Olympics? And then how...

Well, listen, again, I don't want to speculate. But if you just take a step back, I mean, we're on. That's the learning for me here and then counting my blessing from that perspective. But we have been -- we have not missed a beat on the programming side. I mean we're going to be looking at a fall season with a lot of repeats on other networks on the scripted stuff that isn't going to be available, sports, to your point, Olympics missing, lots of other sports for a period of time missing. We have not missed a beat on the programming side, and we're going into the fourth quarter with a pretty robust pipeline. Number one, we had already put up a lot of replacement content, partially shot at home, partially acquired, partially remakes, et cetera, and all that has worked very, very well for us. We're also starting to ramp our production back up. Again, it's slowly but steadily starting. We've, probably in the U.S. footprint, restarted roughly 20% of the production that were put on hold. So we're going into the fall and into the fourth quarter with a robust pipeline of content. And I think that's going to continue to differentiate us. And that's -- our content has resonated very well. We've got much shorter production cycles. It's more efficient anyway. So it's really -- it's a huge differentiator right now not only domestically but also internationally. I mean we're growing ratings in all of the key markets, and I do think we're set up well for further outperformance in the remainder of the year just because we didn't have to deal with any disruptive impact of displaced supply chain.

Okay. And then just to kind of talk about the Olympics for you specifically. You now will have -- hopefully, you'll have summer in 2021 shortly followed by Winter Olympics, I guess, early '22 in Europe. Can you talk about the pros and cons of airing these major events in the shortest window probably ever?

Yes. I mean, let's see. Obviously, we were ready with our planning and done and everything for this year, so -- but it is what it is. To your point of potential opportunity, yes, maybe, hopefully, you could see advertisers who normally wouldn't invest think about this from the perspective of being able to cover the topic for a period of 9 months, 3 quarters of nonstops with Olympics buzz. I do think that, that is a benefit. Clearly, the second angle or the second lens through which we look at this is really also the -- with the acceleration of our direct-to-consumer pivot and from that perspective, clearly having that long, building up to the first games and then building up for the winter games, but that's definitely going to be helpful. And yes, we're -- the teams are on it. And remember, in many of the European markets, we're still building out the Olympics as an advertising product. But I feel very good about our position now, and hopefully, yes, we can get some benefits out of that timing for the Eurosport Player, for a linear portfolio and for a premium Dplay peer.

And then I know since you mentioned Eurosport Player, big -- as sports but just say the here and now, so away from the Olympics, but can you give us color on this -- what the impact is of sports starting up in Europe for Eurosport, GOLFTV? What is the ramp for you? And how do you begin charging again? You said you weren't charging when there were no sports. Are you beginning to sell advertising already? I mean can you just give us a kind of state of where you are?

Well, yes, I mean maybe 2 different levels here. One is on the subscription side, clearly, we're not charging our subscribers in the period when there's no sports available, and that's obviously going to change immediately as soon as events are coming back. But so -- that's why to some extent, our sports-focused products have been in a little bit of hiatus from the top line side but also from our -- from the perspective of performance marketing, et cetera. And that's going to turn around once those events come back. Overall, for -- regardless of what platform we're talking about, clearly, the products are part of our advertising sales strategy, and we will start selling as soon as we have the visibility into what's coming back when.

Right. And then I guess we'll switch gears, Gunnar, and just kind of like final topic, but a conversation with you would not be complete unless we talk about the balance sheet. So what do you think is the right level of debt leverage for your business in this environment?

Well -- so listen, first of all, I'm very glad to -- with how we restructured the balance sheet here going through the first weeks of COVID. We've paid off every maturity for 2020. We've got very, very small maturities coming up in the next 3 years in '21 through '24 -- or 4 years. And even if you look a little further out, there's not a lot of debt coming due, which I think was the prudent thing to do. As you saw, we also drew down on our revolver initially to be on the safe side of -- paid that back in the meantime and really, to some extent, been able to take advantage of these market conditions. The $2 billion that we issued in May with 10-year and 30-year tenures have essentially added 2.5 years to our weighted average maturity at an expense of 18 basis points of weighted average cost of debt. So that was good, puts us in a very strong position where we've got a very healthy balance sheet. To your point about the debt level, we're -- we continue to be committed to our investment-grade rating. Not only it is better than BBB-, but certainly, that rating has a lot of value for us. Given where we are right now and with the rating agencies looking at our plans and everything, I have no doubt that we will maintain that rating. And then listen, the truth is we're generating cash flow even through the toughest month of the crisis here. We did our $250 million in the first quarter and then we've been pacing at roughly that range on a monthly basis now going through the crisis, again, I think, speaks to the cash flow generation capacity of this business with a very high conversion rate of our AOIBDA number. And so right now, we're really building up cash. We're probably roughly around $1.5 billion in terms of cash on hand. And as we work through the rest of the year, as we increase visibility and build confidence in the business, we'll make the decisions to see what we're going to be doing with this cash, but the priorities are the same. We've talked about leverage. We're in the right range -- in the right ballpark for our rating. We've talked about investments in the business. I've already said we're not slowing down the direct-to-consumer investment. That's a big part of the future of our company, and we'll continue to be committed. We have been talking about M&A a lot in the past. You'll always see us involved in every process, but you should also note that we're putting a very high bar to every investment opportunity. And it's just not easy to find the next Scripps type of acquisition, so really nothing coming down the pipe there. And then the final question is the capital returns. And as we said before, I thought it was the prudent thing to do to dial that back a bit. And by the same rationale, as we get more confidence in the remainder of the year and the beginning of next year, we will certainly start looking into that question again and decide when we inch back into buying back some of our own equity. Again, we continue to think that Discovery stock is very cheap. So it's a great use of capital. It requires some more visibility though.

Yes. I'll check on a couple of things you just said. But you mentioned strong free cash flow, and historically, second half free cash flow conversion has always been higher. Will this year be any different? Are there any dynamics because of COVID that will change that?

Yes. And so I want to be careful here again with forward-looking statements given where we are at the end of the year. But I think one thing that's different this year is that working capital is so much more of an unknown. And the -- both receivable, payables, small movement can have a pretty significant impact. So that's one of the key factors. The second factor that we have already touched on is the sports schedule, and that is likely to change the cadence a little bit here as we go through the year because we've -- obviously, from a pure free cash flow perspective, we've benefited from sports rights not hitting the second quarter as events got postponed. My assumption is that a lot of that is going to come back in the third quarter events happening and then, obviously, our payments coming back in as well. So we'll see. Another question is content production. As I said before, we've been able to really navigate very well through this period here. We've replaced all of the content with -- we started home content acquisitions that were a lot cheaper on a per-hour basis. Clearly, they'll -- as I said before, we do see huge value of being one of the few programmers in the market that's really able to talk to advertisers with a pretty detailed and good understanding of what the grid is going to look like in the fourth quarter. So we will continue to push for the delivery of our pending content productions that obviously might have an impact on the seasonality as well. But again, I mean the way I look at it right now is -- I don't want to guide. There is more variability in here than maybe in other years. But just looking at what I see, I have no doubt that we will continue to be converting a very significant amount of our AOIBDA to free cash flow, and we will refine that view as we go through the year.

Right. And then did you say -- I just want to clarify what you said a few minutes ago about the free cash flow for -- you said it was $250 million in Q1. And then I thought you said that it was $250 million a month? Or do you mean it's $250 million again for Q2?

Yes. It's ballpark per month. I mean don't nail me at -- but -- so we're roughly, let's say, $750 million year-to-date May. And again, I do not see a significant disruption of that trend right now. But again, I do want to caveat that small changes to working capital. In a crisis like this, we always have to expect some slowdown in the overall cash cycle, et cetera. But those can all be meaningful impacts, but bottom line is so far, so good.

Wow. And then I guess when you mentioned kind of priorities for excess capacity, just what do you -- signals are you looking for, for capital returns? I mean you said something about next year, but what do you need to see to begin your buyback program again?

Well, number one, we have a pretty large liquidity cushion right now, right, as I said roughly $1.5 billion in the bank plus $2.5 billion of undrawn revolver capacity and no maturity coming up. So that's certainly a great setup to be going through this crisis. It's a little bit rich for an environment in which things look to improve. So that's really the kind of signal that I'm looking at. As I said, here domestically and to some extent in some of the international markets we've seen, sort of May, June sequentially be better than April. We'll keep looking at that. And if we see that trend continue, then that's going to give me a lot more confidence regarding our capital allocation. And then -- so maybe we're bringing this cushion down at some point later in the year. But again, I mean this is speculation. We'll take it month by month, but that's one of the main signals that we're looking at. I mean keep in mind, almost half of our business is in long cycle affiliate money, and that has been very -- has seen very little impact. And so it's really about that other half and signals about money coming back, right?

Great. I mean it sounds like all the trends are getting better and there being still the crisis, but we really appreciate all of your time today just for clarity on some of the stuff that's been going on for the last couple of weeks. It's very, very helpful.

Yes. I mean if you -- maybe just to sum it up. If you look at it from the perspective of our IP and our affiliate relationships, I think we're in a -- at a very good place. I mean the past couple of weeks have shown how well our content resonates, have shown the quality of our content or getting much better share even coming out of the crisis than going into it, and that's not a domestic-only pattern. It's something that we see in virtually all of the key international markets. So that's fantastic. We own all of that content. We continue investing in that content. And then again, from a carriage perspective, I mentioned those couple of deals that we've gone through in the first half, all of which are mutually beneficial, very attractive economics, and they have continued carriage across the entire portfolio of networks, very well-protected carriage, to some extent even expanded carriage, and full flexibility regarding future development. So I think if you look at those 2, content and affiliate position, as 2 of the pillars of our business, I think we're in good shape.

Right. That's a great -- kind of a great update, very clear and very specific. Thank you. Thank you so much for joining.

Yes. Thanks for hosting us this morning.

Great. Okay. Thank you very much, everyone. Thank you, Gunnar.

All right. Keep safe, everyone. Thank you.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.