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

Good afternoon. Hi, everybody. It's John Hodulik, a telecom, media and communications infrastructure analyst at UBS. And I am very pleased to announce what would have been our morning keynote speaker as our afternoon speaker is David Zaslav. David, as you all know, is the President and CEO of Discovery Communications. David, thanks for being here and thanks for being flexible today.

Thanks, John. I was just relieved that I didn't have the technical glitch this morning, but I've been there. So glad to be on.

Great. Yes. Thank you for sticking with us. So we've got about 40 minutes of Q&A here to run through. If anybody has any questions, please feel free to e-mail me or text me. I'll try to weave them into the conversation.

So David, before we start, one of the sessions that I think that may have worked or at least I hope it worked was our ad panel. And I think the main theme really coming out of that was that the -- their view that the U.S. TV ad market rebounded faster than expected coming out of the second quarter. And I know you guys gave a bit of an update last week at your D2C event, but is there any other sort of color you can provide us on the advertising and some of the current trends?

Sure. Thanks, John. Well, the advertising market is really coming back very strong. I'll take you through the U.S. and then maybe a little of international just to round out what we're seeing in the aggregate. In the third quarter, we were down 8%, and we had said we thought we were going to be down low mid. And last week, we said low mid -- low single to mid. And right now, it's -- every week is getting better. It's looking like, if things keep up, it will be low single. And we're seeing really good pricing. And I think some of this may be -- there's a lot of volume out there. And we've performed particularly well around the world in the last 9 months where our share is up significantly. We've been able to have a dependable flow of live, fresh content -- well, not live but original fresh content. And it's reinforced the strength of what we've been able to deliver, terrific in the 18 to 49 and 25 to 54. And we're seeing real CPM growth. We're seeing, in general, that scatter is about 30% above upfront. And for the upfront, we took a very strong stance. Jon Steinlauf, who does a terrific job leading our sales team. Since we did Scripps, we always had the philosophical view that we deliver -- we're one of the top media companies, if not 1, #2, for women in America and that there was a historic spread we were getting in the low 20s on CPM and the broadcasters were getting in the 60s. And so for the last 3 years, we've been out there really driving that initiative that you can buy, reach women and men with us in the aggregate and that we could create a Discovery Premiere package that was in the $40-plus CPM range. And we got a little in. We got a little in. We drove our CPMs. But now we're getting loads of advertisers that are coming to us, that are seeing us as a dependable place for original content, big scale with women. And so we're seeing both volume increase and pricing increase. And we also saw that in the upfront. And we look at the cable package in the U.S., which looks more like news, sports and mostly us. And we see the spread between us and the broadcasters. And our goal is to either catch them or flip it. If we're doing more original content and the length of view on our networks and the type of advertisers that could really align with our brands are stronger, then -- and we're so core to the bundle, then why shouldn't our CPMs be up where the broadcasters are, because we're so valuable? And we've made a lot of progress on that. So we're thinking probably low single for Q4, which is a meaningful improvement with very good pricing going into next year. Outside the U.S., we're looking at probably -- we had been saying low to mid. It's continuing to look better there, too. And we're actually finding that as you look at Europe, most of those markets are flat to up. And if it wasn't for LatAm, we would be up in the fourth quarter internationally. And so we're seeing a very strong market outside the U.S., inside the U.S. We have a little bit of a difficult comp in December in the U.S. But in October and November, we're actually up in advertising. So we're doing -- part of it is share, part of it is price. But the advertising market in general is quite strong around the world. And so those that thought TV ad spending was kind of drying up, the agencies that we've spoken to say it's the best way to move product. And the more of that share we could get, the more value we could create. So that's the advertising roundup.

That's good news. Were you surprised it's come back so strongly? And I guess there's really no impact. And this is what we heard from the ad panel, too, that the fourth quarter here with additional lockdowns in Europe and in the U.S. is nothing like what we saw in the second quarter. Everybody's evolved and is looking for a longer term.

Well, I think the vaccines are keeping the -- we're certainly going through a very tough period, and we're still operating Discovery remotely. We're keenly aware of that. Having said that, we're not seeing it on the advertising side, and the bookings are up. It looks very strong. So I think our decision to continue to produce a lot of original content during COVID, which ended up having our shares grow around the world, people spending more time with us, is really paying off now as we're able to sell more inventory at higher prices.

Great. So thanks for the update. I think why don't we pivot and sort of dig into the D2C. Obviously, big event last week.

But before we get there, John, maybe just to round it out on the distribution side, just to fill out the full commercial side of the business.

Sure.

On the affiliate side, we've said in the U.S. that we're going to be up mid-single. We feel very solid about that going into December. And we think that our overall position in the bundle, we were able to get the Comcast deal and the Charter deal and the Cox deal done last year. But we think our position in the bundle has only gotten stronger because of our -- because of the scale that we have. And really, we have a lot of comfort food in our brands that people love, Food, HG, Cooking, Discovery. If you look at across all of our brands, TLC has never been stronger. We'll talk about that later. So we feel quite good about the affiliate side. And with sports coming back, the numbers look better. We can't predict where it will go. But I think for us, we got -- we probably provide the most value to distributors. And as we're seeing significant increases in pricing and sell-out with our U.S. channels, they get to sell our channels. And we're not particularly proud of this, but we haven't been able to get -- even though we got very -- we got meaningful increases over the last couple of years, we're still -- we represent 20% of the viewership and we get like 8% of the money. And so when the distributor looks at us, we're very low price for them in the aggregate for our 18 channels. And as our scale has gotten up and as pricing has gotten better and advertising market has gotten better, we know from talking to the distributors, they're all doing very well with our channels and they're selling our channels aggressively. So we think our hand with distributors has gotten stronger. And they view us as a very good actor that produce great content through COVID and that they have a very good deal with and they do very well with. Outside the U.S., we continue to have a strong distribution business. And it's trending up. And we feel good about that as well. Our biggest issue internationally is Latin America, where the market has just been tough, but it's also starting to turn around. It's just that it's still a negative territory on the ad sales side.

Got you. Okay. All right. Yes, thanks for the update. There's couple of other points that I will come back to. But for now I want to again dig into a lot of commentary and announcements you guys had last week around the discovery+ and the D2C strategy. Maybe, David, if we could rewind a little bit. Could you take us back to when sort of you and the Board realized you needed to go OTT? I mean as you guys look at different ways to attack this, did you always think that you needed a sort of overarching discovery+ platform? Or did you look at other ways before landing on the strategy?

No. We've been committed to this. It's one of the reasons why for the last 5 or 6 years, we haven't been selling content to third parties. About 5 or 6 years ago, we sat and -- we were doing -- we had double-digit growth. Our channels were doing well around the world. And Malone asked me a very basic question, we're doing great on our channel and free-to-air business, but if people could watch anything, they could watch any IP, how would we do? And it was a moment where John could see the future. Today there's over 3 billion smartphones. John saw that coming. And there's going to be a moment where people could watch anything. Do we have the right IP? Not that we have the right IP for our channel business. Do we have content that people will watch when they could watch anything? Do we have content that people will pay for before they pay for dinner? That's why we went into the sports business in Europe and doubled down. And now we're the leader in sports. That's why we bought the Olympics. We'll talk about that later. But that's why we aggressively went into sport. And that's why we started producing 5 years ago significant local content in-country in both the entertainment space and the cable space. And we also expanded in free-to-air. But in each of these cases, whether we went into free-to-air, whether we bought Scripps, whether we bought more IP, we weren't looking at this as just how is our traditional cable and free-to-air business. The driving force was what IP is there. So when we bought Scripps, we bought it because we thought they had great IP. We could use it in our traditional ecosystem. That they had great IP that we could own globally. And so it has been a long journey. It's the reason that as soon as we closed on Scripps, I went down to Waco, and we worked so hard to get Chip and Joanna Gaines back on board. That's why we did the BBC deal, where we own, through 2030, the entire BBC Natural History and science and environmental library, and we have a production arrangement to produce, and we get that content for the next 10 years. So we have been quietly and methodically aggregating IP. And for the last 2 years, we've been producing content and holding it back. So as we launched discovery+ with 50 original series, a load of those series were produced before COVID; most of them were. Because we've been banking content and not -- everyone else has been selling content for the last 5 years; we've been banking content. And we may be wrong about the IP that we have but we have real conviction around the simple idea that for the last 30 years that I've been in this business, when people watch TV on any device or when they watch it on TV, effectively they spend about half the time, 45% to 50% of that time, watching scripted series and scripted movies and they spend 50% to 55% of their time watching our stuff, real-life entertainment. And so in the U.S. it was very clear to us that everyone had gone to the shiny object. It's very sexy, big stars, red carpet. And our view was let's stay in our lane. And here we are. There are 7 great companies that are fighting over that scripted series, scripted movies space. But the 50 -- the other 50%, they're 1 of 7, we're 1 of 1. And that's another -- that's one of the reasons why we structured a deal also with Lifetime and A&E and History. And we think we emerge now with a very broad, comprehensive offering of real-life entertainment with -- to be -- which is a great stand-alone product or a great complement to any of those great 7 services. It's a lot cheaper. It's -- we're unique. It's clearer. And we hope -- one of the things that helped us put it together is Hans, working with Verizon and working with Ronan and their marketing team, Frank and Erin. What worked for Disney, what was helpful, what would be helpful to them? So we've been at work with them for a few months. And I think we're emerging with something that we think is going to be quite compelling. We're coming out now, but it's something we've been working on for a very, very long time.

Right. And maybe talk a little bit -- you've answered a couple of my questions in there. But maybe talk a little bit about how you see the competitive environment in this sort of D2C world. First of all, what do you think the sort of TV or video viewership looks like in 5 years? Do you think that the cord cutting continues -- the viewership is going to continue to migrate and people will have 4 to 5 services? Or what do you see is the future as the bundle and viewership evolves? And maybe how -- maybe you've answered some of that, but just how Discovery is placed within that landscape?

Sure. Well, the existing bundle at least for us, we're getting stronger and stronger. And it feels a little bit sturdy here, but it's very hard to predict what's going to happen. But it's certainly sturdied up a little bit when sports came back. And how it declines in the U.S. is really hard to predict. Outside the U.S. is much sturdier. We're not seeing the -- you didn't see the type of decline that you saw here. Pretty steady. Viewership is moving across a lot of platforms. There's no question about it. But -- so we'll have to see. For us here in the U.S., there'll probably be a re-conjugation of bundles, but we think we have a core element that everybody needs. This simple idea that people -- more than 50% of their time is spent on our kind of content. Because of that, if you have HBO and Netflix, you're going to want Discovery+. If you have Disney, you're going to want Discovery+. So we don't really feel like we're competitive with them, although we're very strong as a stand-alone, but it's certainly cumbersome this idea of having multiple services. And what you're probably going to see and you have seen is people churning in and out of a lot of those. What we're hoping is we have a library as big a Netflix, and we'll be hitting the market in January at a time when all those 7 services are terrific, but people have been consuming that content. So they're going to HBO for The Undoing and they're going to Netflix for The Crown, and there's all kinds of wonderful content out there. But if most people like me, I'm calling my friends saying, what do I watch now? And we drop in January with a fresh library for the first time, our entire library, together with the BBC and Chip and Joanna Gaines and A&E and History and Lifetime, all the brands that women love, and men and families love in America. And it's all fresh, and we really felt that we needed original content. And so we'll be launching with great original content. And we think we have a unique ability here where not only are we a companion to each of those services but the product itself is a companion. And this is one of the things that's come up in a lot of our research, is that people like spending time with our characters and our brands. And a lot of the other services, you put on at 8:00 at night or 9:00 at night and you want to watch that great series. But the way people have said they want to watch us and the way we're seeing it with Dplay in Europe in early days with discovery+ in these early launches is that people are putting us on while they're cooking. They're putting us on while they're doing -- while they're working from home. They're putting us on while they're homeschooling their kids. And it's comfort and it feels good. It's the people they know and they're excited about all the new shows. So I think from our perspective, we're a great companion, but we're also a great companion to the other bundles. And we love the fact that we're unique and 1 of 1. And we feel like scripted has had its moment, and this is our time, that even though there's a lot of talk about The Crown and about The Undoing -- I just saw it, it was fantastic. But we have series like 90 Day Fiancé that have 30 million people in America that are playing around with a 90 Day franchise. And some of the brands and shows that we have, we think they're regular America. And in many ways, I think back to when I was -- started CNBC and I went and I sold CNBC to the cable guys and those -- they were men, and they almost all had CNBC in their office. And so we got a lot of money for CNBC. HG at the time, a great service, was getting 1/10 of the fee. And I think it's because the people that bought the product thought everyone else was watching it, but it turns out everyone was watching HG. And even this political issue of pollsters and Trump, when you look at our content, the 50% or 55% that we represent, and the shows, Chip and Jo, 90 Day Fiancé, Property Brothers, these are the characters that People magazine put on their covers in order to sell product. These are brands that people leave dinner and run home to. 90 Day, not only does it have -- is it the #1 show -- there was an article in Vanity Fair and Vulture today about 90 Day being the #1 show for binging. But it's also a show that was #1 in social media for 2 days on Sunday and Monday, who was on. And so we think that some of the brands that we have -- and we've purposely made Chip and Jo exclusive. We have over 230 hours of exclusive content of 90 Day on discovery+. We have all of our great talent doing exclusive content on discovery+, that those are going to be very powerful magnets, together with our library, to make a differentiated discovery+ offering that's friendly and comfortable and you can hang out with and easy to curate.

Right. I mean I was surprised. One of the questions I kept getting was, is 90 Day going to be on the new service. So let's stick with content for a little bit. Maybe could you talk a little bit about the cadence of the original programming? Or is it going to air weekly? Or are you going to sort of put full seasons on like from day 1? Or is it going to be something that plays out weekly? And then maybe could you draw some distinction between -- we know about the originals, but really the difference between the content that's going to be on the discovery+ platform versus what people are seeing on the linear networks?

Sure. We'll launch with 50 original series. So if you go on January 4, there will be 50 original series there. There'll be -- we have Perfect Planet with Attenborough that we've been working on for almost 5 years with the BBC and the producers of Planet Earth. That will be there for you. So we -- there will be 50 original series that are only on discovery+ as well as our entire library. We -- and a lot of those series are new and original, and a lot of them are Guy Fieri doing a show or the Property Brothers doing a show. And Mike Rowe did a show just for discovery+. On 90 Day, we saw that as a tentpole brand. And so we have over 230 hours that we have produced already. And a lot of that will be up. We're creating -- we see it as creating the new 90 Day home, the new 90 Day community. And 90 Day really is a community. People watch the show. They're on social media. It's #1 on Google. They're searching what happened on 90 Day. So for regular America, when people are going around on a Monday morning, they need to know what happened on 90 Day. And so we're going to create that. That -- the whole environment will be up on discovery+. And so we think we have a $4.99 or $6.99, a really compelling offering, and it will be easy to curate. And when you look at what Disney was able to do, I think it was really clever that they have Disney+ and then they have 5 brands. One of the things that we found from research is it's confusing to people when they say I just have shows. I got a lot of great shows you want. And I think we're all spending more time consuming content but from a curation perspective the first reaction is I don't need more shows or I don't need a list of shows. It's too hard for me. But when people look at Disney, it's very clear. If you love Star Wars, there it is for you. If you love Disney family movies, it's right [ there ]. Those are like portals. And we think one of the real advantages that we have, and it came through all the research, is when people see discovery+, they see, okay, there's HG. I love that. And you could either go by brand or by talent, if you want to see Oprah or Martha or Chip and Jo. And so we think the recipe of the library, the original content and the ease of curation but also the brands and the characters, we think, could be a great instigator to why people want it. Every one of our talent is doing ads, talking about the shows they're doing, about what discovery+ is like. And I think you showed a little of that campaign where we talked about I am discovery+. And so we think we've created a very strong SVOD ecosystem. And we'll learn as we go, and we'll get more feedback, and we'll figure out how do we further nourish that audience. The existing channels, we produce between 400 and 600 hours of original content. We've been doing that through the pandemic. We're going to continue to do that. And it's -- we think we could run 2 companies at once. We got our traditional company that is growing share, operating at great margins, advertising coming back strong, $3 billion in trailing free cash flow. In that $3 billion is an AVOD service that's growing exponentially with a very young demo, this authenticated GO product, which -- and we think all of that is pretty compelling. And that cash can help to fund and support our discovery+ initiatives globally. And we have enough original content where we will stick out because a lot of the other players in the market are cutting back or they're not producing content for the channels as much and they're producing more for their SVOD or AVOD services. And we plan to do both, and we can do both because for the last couple of years we've been banking content. That's true domestically, and it's true internationally.

Great. One of the things I wanted to touch on is the balance between sort of subscriber growth and cannibalization of existing revenue streams. So on the one hand, I think Discovery is unique that you don't have, as you mentioned, all the content and licensing revenues that is going to -- that you're going to -- you have to claw back. But you do have, as you mentioned, Discovery GO. There's a obviously also just the linear business. I mean how do you balance the two? It's a big question now given what we saw in Warner Bros.' announcement last week with their '21 slate. But could you give us a sense of how you're thinking about it? Is there going to -- do you expect there to be much cannibalization again either from HBO Go -- or Discovery GO or even the cord cutting? Do all these apps, as they come to market, put additional pressure on the bundle?

When we put this -- when we launched Discovery GO, all of our GO products, our overall ratings went up. People spent more time watching our content that were using it really to catch up. And we want to nourish and will nourish both because we have such a great model in our traditional business with so much momentum. And we have a huge amount of original content. We've also acquired a lot of content like the BBC, Chip and Jo, so we'll -- A&E, History, Lifetime. And so we'll figure out exactly how we do that mix, but it is imperative that discovery+ become a global-scale product. And we are -- the Board is all in. Our entire leadership is all in. We've been at this quietly for the last 2.5 years. And we believe that there's a clear space for us in the U.S. We're unique. We own our area. We own all of it. And we think that it's what people like to watch during the day, at night, while they're hanging out with their kids and it's missing. And outside the U.S., we have a very unique and defined strategy as well, where outside the U.S. there's really only Netflix as the only real scaled player. The U.S. is very competitive. But outside the U.S., right now, it's Netflix. Disney is coming. It's a great company. They're going global. But we're the only other full global IP company. And so we're 1 of 1 in the U.S. in our strategy with our entertainment, nonfiction, real-life space. And outside the U.S., we, for the last couple of years, have carved out strategically local entertainment in language, local sports and nonfiction in language. And when we put all those 3 together, it was -- we saw a tremendous amount of power and a real differentiation for what Netflix is, which is a great service with a little bit of local. So if you go into Poland, we have a 40% share. We have a library that you grew up with if you lived in Poland. And we have the local sports, and we have the local news. And so it's really -- we fit together very well with Netflix. And if Disney launches there, we'll fit together very well with them, but we're different. So we see this strategy of local language, and in Europe local sport, being really a unique advantage. We've been doing business outside the U.S. for 20 years. We've been -- in the last 5 years, we doubled and tripled down on local content. And if you look at all the other media companies, one of the things that they need in order to launch or be successful is local content, and that's our calling card. So we think this 1-2 combo in the U.S., real-life entertainment; outside the U.S., local entertainment, local content together with sport, gives us a real chance in the direct-to-consumer business to be understood quickly and to be successful. And in order to be successful, we figured really early on we need distributors to drive us. Verizon was so helpful to Disney, but it's because they're an amazing direct marketing company. And Hans had a vision for that company of figuring out what quality content that his subscribers need and want to have a better and more nourished relationship with Verizon. And so we're super excited about joining that family, and we're excited and we're doing very nicely. We're really off to a great start in the U.K. with Sky. We're going to be launching soon with Telecom Italia. And we think having distributors spend real marketing money promoting us in order to decommoditize or provide additional value to their subscribers is a great secret sauce to help us scale. And it's easier for them to promote us because we're unique in the U.S. and we're unique outside the U.S.

All right. One of the things that struck me at your Analyst Day last week was just how big the addressable market is outside the U.S., 400 million homes rest of the world versus 72 million. So as we look out, I mean do you think -- I mean obviously, I think there's some differences in terms of ARPU and ARPU expectations. But I mean do you expect 5 years from now to be much bigger in terms of D2C subscribers and maybe revenues outside the U.S. versus inside the U.S.? What are your sort of your views on the size of those opportunities for Discovery?

Well, we think the opportunity is significant for a couple reasons. One to start off is we now have a product that could reach the 3 billion smartphone owners around the world. And when we say we're here $4.99 and we're $6.99, we can go into markets like India and we could offer it for $1.99. And you get the full, robust package of content. We could offer it for $0.99. So we're not off -- there are a number of markets like Northern Europe where we're getting double digit for our direct-to-consumer. So the ARPU on average internationally is $5 to $6 to $7, but our opportunity is not just the existing universe. When you look at pay TV in the U.S., even though it's declining, it's highly penetrated. In most of Europe and Latin America, we're talking about 25% penetration; some markets, 20% or 15%. So now we could reach the rest of all those markets with brands and content that people know for $5. And our ARPU actually outside the U.S. is -- we can actually have a better return on our direct-to-consumer business on average than we do in our linear business because we get paid less for our content in general outside the U.S. And so when I look at the multiple companies competing here in the U.S., I just -- I scratch my head because if we had to just buy all of this IP, build the platform, work with the best distributors, and we got them all lined up, we got Verizon, we got everything lined up, and it's just going to be a U.S. business, it just feels like that's going to be hard. We could build a nice business, but you're leaving the rest of the world out. You're leaving out the 3 billion smartphones. You're leaving out the 750 million people in Europe. You're leaving out all of Latin America and Asia. And so it's -- you have us, you have Netflix, and you have Disney now moving toward going global. But I think if you actually take a pen to pad and you look at those costs and you try and figure out I'm going to spend the next 10 years trying to win in the U.S. alone, I think everyone would look at the actual math and say you got to be above the globe. From the very beginning, we always philosophically said we have to own our content globally. That was the Board. That was our strategy from the beginning. And I think now as we have all this content and all this local content, I think it's going to be a huge advantage. We don't know exactly where things are going to come. We're doing better in the U.K. than we expected. It's only a few weeks in. We're doing better in India than we expected. It's only a few weeks in. But we can go anywhere now and we can go in language. And I think those companies that are trying to figure out how to create an aggressive lane in the U.S. only, particularly when they have so many competitors and the costs are going higher and higher, it's going to be very tough. And so you're likely to see real challenges in that space or you'll see people coming together so they can take advantage of the global scale. It's just so economically attractive.

Right. Makes sense. Is that -- so before we move up to international, I mean obviously the Olympics are a big property. You're right there in Europe. I mean can you talk about how you expect to use that as a springboard to subscriber growth as you go to market in Europe? And how much content can we -- from that event can we expect to see on the service?

What we've tried to do, and we've been able to do it in almost -- in most cases, is when we buy IP, we buy IP and then we have a right to decide where it goes, which is really critical because the world is changing. So we did a very long-term Olympics deal. There's a portion of it that has to go on free-to-air. And we have free-to-air channels in most of Europe. So we can carry that or we can sublicense that depending on the market. But the last time with the Olympics, we had a pretty antiquated platform and we used our 3 Eurosport channels in each country to put the Olympics on and the free-to-air. And then we put some more content on the Eurosport Player. In 4 days, we got over 500,000 subscribers. That was years ago. This time, we're going to put some -- we'll put content on free-to-air, but we're going to put every event, the entire Olympics, start to finish with all the athletes country by country, in language, up on discovery+. And we think this is an unusual Olympics because there'll be another Olympics 6 months later for the first time ever. So you have the qualifiers and then an Olympics and then the qualifiers and the Olympics. So we think this could be a huge engine for us to drive discovery+. And last time, we got 0.5 million subs. And within a year, half of them have left because we didn't have enough extra stuff for them. This time, they'll come and we have a huge amount of local sports as well as entertainment and local language content on discovery+. So we think it could be a real jump-start, and we're strategically using it that way. So you'll be watching Eurosport, and you'll hear about what is going on, and you can get it on discovery+. And that's kind of how we look at all of our IP, how do we use it in different ways and what do we put up, because we are on a mission. We are on a mission for huge scale of a direct-to-consumer product so that if that happens, we accomplish our mission as we want -- we have great -- we know we have great content. We know we have great brands, great characters and great stories. But right now you mostly can see it on a TV. And our ambition is that everybody should have access to see our content on any device, anywhere, in any language, at any time. And we've positioned ourselves to do that, and that's what we're going to do beginning January 4.

Now just to finish up on the international opportunity. The -- obviously, you've got agreements with Sky and with TIM. Is the idea to have a distribution partner of sort of maybe similar scale in each of the major markets? Is that part of the process? And is it really mostly just in that respect focused on Europe? Or do you expect to have those type of relationships globally?

We'd like to have them globally. One of the things we've learned -- first of all, your ARPU is stronger. If you have somebody else out there marketing your product to help enhance their product or decommoditize their product -- I saw it with Disney. It's the first thing. I remember calling Hans going, it's like an explosion. Disney+ and then Verizon had incredible ads promoting families enjoying Disney+. So one is kind of the reverberation and the narrative that kind of creates the more energy. Two is your overall cost is lower because you have somebody else promoting you. And in some cases, with a lot of these distributors, the deals are that they pay you per sub while they're offering their product for free because you're actually helping them with customer retention or customer acquisition. So -- and in addition, when you do deals with other distributors, you want to own the customer but if they're doing the billing, in general, just across the board, with almost any product, your churn goes down between 50% and 75%. You're getting -- instead of getting a bill every month for $6 -- for $5 or $7, this isn't true just for our product, but it's what we found doing business in Europe, that your churn goes down. So all around, it's very, very helpful. And it's an interesting moment. What Hans was able to do with Disney, a number of mobile companies in Europe and Latin America have started to carry content, some of them Disney, and finding a very good experience. And what it says is some of these platforms that before we're thinking about buying and owning content are now thinking, I don't need to own it. I can pay a per sub fee and a big marketing initiative, and I can get the benefit out of piggybacking in a 1-2 combo with an existing best-of-class, high-quality IP company. And we've been pitching that for a long time in Europe, in Asia, in Latin America, but it's coming -- it's actually coming together now in a lot of markets. It's happening. The results are positive. And that's a very positive thing, I think, for any of us that have direct-to-consumer products that are high quality where you can really demonstrate to customers that they look at it and they say, not only do I want it but I feel like I got something of real value. And that's what we've been going for the last couple of years, quality brands, quality characters, so that when someone has our stuff, they feel that they got -- not only do they have something to watch, but when we're at our best, they're inspired or they're learning.

And maybe to wrap up with Verizon. I agree with you on the -- as a distribution partner fits in perfectly with their strategy, their high-end customer base. With Disney, they signed up 5 million subs in the first quarter. And there was a lot of advertising and co-marketing that went behind that. Now do you expect to see the same type of maybe -- are you guys working on cross-promotion and advertising to make sure you get the message out so that this base of 20 million accounts here in the U.S. know they have access to it, knows how to sign up and ready to hit the ground running as we start off the month of January?

I don't know what the Disney numbers were. I know that they were very strong. And talking to Ronan and Hans and the leadership team there, they're going to be driving us day 1 to their 50 million plus and for 20 million plus households. They feel like Disney was very successful for them. They also feel like they learned a lot from marketing Disney. And a lot of what they learned, they helped us with. A lot of the original series that we're doing was, Erin who runs marketing for them, and Frank really pushing us to make sure that we have a lot of really compelling content in addition to the amazing library that we have. So they had some good learnings. So I'm very confident. We're going out with a -- you will see the same -- the full campaign from them and from us side by side. We've been working on creative for the last 2 months plus. I've seen what's going to be in all the stores. It looks terrific. They're really good at what they do. They are the best direct marketing company. And we've got great brands and great characters, and we're just -- we're lining up right behind them.

Perfect. A great place to leave it. David, again, thanks for bearing with us, and thanks for your time today, and we appreciate the update.

Thank you so much, John.