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

Good morning. Please welcome Vice President and Media Research Analyst for RBC Capital Markets, Kutgun Maral; and CEO, Warner Bros. Discovery, David Zaslav.

All right. Good morning, everyone, and welcome to the 2022 RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference. My name is Kutgun Maral, I'm the media, cable and telecom services analyst. And I can't think of a better way to kick off the next 2 days with a keynote from David Zaslav, President and CEO of Warner Bros. Discovery. David has, of course, had a meaningful hand in shaping the larger media landscape over the years going back to his nearly 20 years at NBC, building the cable group over there to then take the helm at Discovery in 2006 and turning it into a global powerhouse of nonfiction, lifestyle and passion programming, later augmented, of course, with the Scripps acquisition to now spearheading the -- one of the largest media mergers in recent history with Warner Bros. -- pardon me, WarnerMedia and Discovery. So we're absolutely thrilled to have him here today. David, thanks for being here.

Thanks, Kutgun. I'm excited to be here with you guys.

All right.

I need all that experience to deal with this current market situation.

Well, that's a good way to kick it off. The macro environment is under meaningful pressure. The media industry overall is going through a massive transition with streaming, in the meantime, facing a number of secular and cyclical headwinds. And of course, Warner Bros. Discovery is going through this massive integration as you try to shape the company for the next 10 years. So with that backdrop, what are your strategic priorities as you wrap up in 2022 and enter into 2023?

Great. Well, first, this is a challenging environment, and we bring together this great group of assets as we look at dealing with this challenge/opportunity. When I look at Warner, the great thing is I think we have 40% of the great IP in the world. But as much as this challenge, I think is probably, in my lifetime, the biggest opportunity, the biggest opportunity to create for value creation, the biggest opportunity to go for share. When I did this deal 2 years ago, when I started talking to John Stankey. We really -- our expectation of 2 great companies: Disney and Netflix was they had already made it to the other side. And we looked at Netflix and it was like they built a house of brick. And Disney had made it to the other side. They had a tent and they were building their house, and we were stuck in the middle of the lake. And I said to John, I don't think we're going to make it alone. We're getting tired. We can't -- it's -- we're too tired to go back. But together, we can get to the other side and we could be the third. And I think what's really interesting is that there's a lot of things that have changed since then. But one of the opportunities is that those companies haven't grown much. We thought they would each have picked up another 30 million, 40 million subscribers in the U.S., another 100 million subscribers. We were afraid they would run away from our ability to catch them or to catch the consumer's interest. And here we are 2 years later, and it's not clear that that's a house of brick anymore, that both of them are great companies, but they have their own challenges in this environment. And they have to figure out what their strategies are for the long term. And when I look at us now, 2 years ago, it was how inexpensive and how much. And I really like our hand now because it's really -- we -- for us, it's really not about how much. It's about how good. And we're really focused at this point on 3 things. One is get the greatest creatives back into this company. As I said, we have more great tentpole content: Batman, Superman, Wonder Woman, Harry Potter, Lord of the Rings, Game of Thrones, HBO, Euphoria, Sherlock Holmes. How do we -- and at Warner Bros., we're the biggest maker of content in the world with great creatives. And so number one, how do we get the best creatives working for us, and we're making great progress on that; two is we need to run this company efficiently for EBITDA and free cash flow. How do we take this huge company, put it together and -- this one is -- we fully reiterate our guidance. We view this company, you should be measuring us in free cash flow and EBITDA. We've said 9%, 9.5%, and that we're likely to be in the midrange. Things got a lot worse in the last couple of months. But we haven't missed a number in years. We're making this an efficient company. We're driving for free cash flow. We're driving towards more than $3 billion in free cash flow this year. And so great creative -- best creative organization with the greatest IP in the world, best creative team because that is our product, is our content and the creative people that we have working at this great company. It's a huge advantage. And three, is one company. This has never been run as one company. It was run as independent companies. So when we launched Black Adam, we could save a huge amount of money by putting Black Adam -- we had Black Adam swirling on 30 channels here in the U.S. We put it on Bleacher Report, which reaches 150 million people. We put it on House of Highlights. We put it on CNN.com that reaches 175 million people. How do we use all of our platforms to drive value? And so the economy is weak. We'll talk more about it. The advertising market is very weak, but we feel very good about our numbers. We feel very good about the core assets that we have, and those are the things that we could hold on to in a challenging and difficult times.

And speaking of core assets, maybe let's start off with a discussion on the heart of the company, which is content. And maybe we could kick it off with DC, just given some of the recent news over there. And so how does -- where does DC fit into your broader studio strategy? And what are your expectations from the new leadership team over there?

DC, I think is a hugely undervalued asset. I've been saying that for a long time. Disney did a wonderful job building Marvel. But if you had looked at Marvel and DC 10 years ago or 12 years ago, you would have said that DC is as good or better. But the amount of value creation for Disney with Marvel, because it's a connected universe with a bible, and they have an overall strategy. And so I spent a lot of time in the year before we closed this deal, talking to Iger, Chapek, to Bob Daily, to Sherry Lansing, how are different companies organized. And Warner had one person running all of their motion picture business. And on the DC side, one person running everything, and then DC was in all different places in the company. The strategy that Iger put together was all of Marvel is in one place. You don't wake up and find out that there's a Batman TV show somewhere and a Batman cartoon somewhere else that they all have to relate to each other. They got -- there has to be a look and feel of all of it. And so I went on a journey a few months ago of how do I put all of DC in one place because I think it's one of the biggest opportunities at this company. But our company is a creative company. We've got a lot of great commercial business people, but ultimately, we need great creatives to bring this content to life. And so we found 2 great guys. James Gunn has produced within the Marvel universe, very close to Kevin Feige. He was in the middle of writing a DC movie for us. He's done a number of DC movies for us. He was going to write and direct it. I spent a bunch of time with him. This is a guy who's whole life is that world. And Peter Safran worked on Aquaman, our most successful DC -- he's fixing Aquaman right now, which we think is going to be great. So we have basically the Pixar model. We have probably the best creative out there, and we got him to come and work with us exclusively, together with one of the best producers. And we're going to -- we gave them all of DC. I've spent a ton of time with them. They've built a bible, which is -- which they're coming close to the end of. And I think over the next few years, you're going to see a lot of growth and opportunity around DC. There's not going to be 4 Batmans. And more importantly, the tentpoles that we have at the company, the reason they're valuable is because when you own an IP that everyone in the world knows, it means it's already a brand. It's a brand that when people are eating dinner, they're going to go, I've got to go because this movie that I love or this show that I love is going to be on. It's less expensive to promote. We did it with game -- with House of the Dragon and Game of Thrones, the most successful show in HBO history. It's because people everywhere around the world loved Game of Thrones. We haven't done a Batman -- a Superman movie in 13 years. I have a board up on my -- in my office. What are our tentpoles? Many of our competitors don't have any. Superman, Batman, Harry Potter, Game of Thrones, Sex and the City. Each one of those -- and one of the reasons they're powerful also is that Europe and Latin America only have about 40% of the theaters that are in the U.S., 42% and 38%. When you can make one of those movies work, then you know you're going to get a slot and you can do 2 to 3x in the domestic box office. Then it goes -- we have Warner Brothers, then it goes on HBO or HBO Max, drives HBO Max, and then we could churn that through either series or motion picture through our whole system. And so part of our strategy is drive the hell out of DC, which James and Peter are going to do. I think they're going to really thrill -- they've thrilled the fans, I think they're going to -- they'll thrill you over a period of time. But also really focus on our strategic advantage, the great content that we have that everyone in the world knows and focus on telling those stories.

That's great. I know I'm looking forward to all the DC films and content. When we think about the theatrical business overall, a big area of debate has been the windowing strategy and how to maximize the return on all your investments in film. How are you thinking about that going forward?

Well, to start with, I think the business has been completely illogical. I was saying earlier, if Roger Goodell adds football games, he gets paid more money. He adds a Thursday night game, he gets paid more money. If he adds a Sunday night game, he gets paid more money. We had an ecosystem where people paid for premium television in the U.S. And they bought HBO and STARZ and Showtime and Encore and Epix, and they paid a lot of money. In the last couple of years, because Netflix got such a high multiple, everyone wanted to become Netflix. And so the content that was on these direct-to-consumer platforms, the amount that was spent on those platforms went up dramatically 2, 3, 4x. And then the price to consumer went down, went down dramatically. That just doesn't make sense. It could have made sense if the 40 million or 50 million subscribers in the U.S. that are willing to pay or 60 million in the case of Netflix, went to 80 or 90 or 100, but it didn't. And so there has been, I don't think rational behavior. And now we come into the marketplace. I think we're going to be launching our product in the spring. I think we got -- we -- I think we've got a tremendous combination. We have high-quality content on HBO that's never been stronger. We have a platform that's not particularly good. We'll be emerging with a new platform that we think is going to be much better and much more user-friendly. And when you look at our content at D+, that content is being used when people are cooking, when they're on Zoom, while -- in the background, while the kids are doing homework. It's on in the afternoon while you're waiting for somebody to come to the house. And so multiple people in the home are using it. Churn is low. And what we find is the more people in the home that use a product, the more time they spend with the product, the lower the churn and the higher the demand. We've seen that across Europe. So we think if we can put these 2 products together, we have a premium at a price, we have an ad-light, so HBO Max or whatever we call it, and then HBO Max ad-light, that we can have a really compelling menu of content that could provide real value. And then we recognize that there's a huge number of people in every country that aren't going to want to pay. And we've seen the success of Tubi, we've seen the success of Pluto and AVOD. We have a huge advantage because we have the largest TV and motion picture library in the world. We can create a Tubi or a Pluto. But instead of buying content from someone else or in order to populate this AVOD, we can just use our own content. And so as I look at this new world, HBO Max or whatever we call it, premium, together with HBO Max as an ad-light together with Warner Bros. TV or Warner Bros. Entertainment with the shield where you could come in, we now have the entire ecosystem for the new world. That's very similar to be -- to having free-to-air basic cable and premium with HBO. And I think that will position us, I think, in terms of aggregating an audience as good or better than anybody. And then we also, as a maker of content, we'll have the ability to sell content exclusively or a lot of the content that's on those platforms, we could sell non-exclusively.

And presumably, you have so much dormant film and TV content at the studio. You already have a massive ad sales team. And you probably already have a tech stack, so you could probably scale that AVOD or fast service fairly rapidly. Maybe just going back to, I think, one of the main areas of the company that I think is underappreciated is the Warner Bros. Television Group, because it is the leading -- the industry's leading supplier of scripted content, whether it be it cable, broadcast or streaming platforms. How do you think about that part of the company? Is it executing where it should be? Is there a scope to maybe ramp the production a little bit? What are the opportunities on the TV group?

Well, Channing Dungey runs the operation. She's hugely talented. We have a great team there. One of the things that we did do, by the way, is we have almost our entire leadership team is now in place. The only role we're looking for is animation. So 6 months in, we have a really great, great team. We're meeting 3 times a week, just the creative people about how we all work together, how we hand off content to one another. But Warner Bros. Television has over 100 series currently in production. It's a highly profitable business. We have some of the best producers, Chuck Lorre, who really kept CBS strong with all those comedies, he works for us. All those shows belong to us. Mindy Kaling is part of our family. [ Rob Ryder ] is part of our family. We have over 75 of the best producers and writers. We're signing up more of them to be with us. But we're kind of an arms dealer there. And it's a very good business. There's a lot of bidders for the content. We have Ted Lasso. One of the first things that Ted and Eddie asked me when we announced this deal is, are you still going to sell content to us? Abbott Elementary, a huge success for us. Sandman, huge success for Netflix. It's -- we are a diversified company. When we announced this deal, one of the concerns was you're so diversified, when really rather, you'd be like Netflix, just be a streaming service. That didn't work. People collapsed the entire motion picture window on the streaming services. I've seen the data. Maybe it works for someone else. A B-movie that opens in the theater performs 5x as well as a movie that you put direct to streaming. There's something that happens when people know that their mom and dad or their friend went to the theater a month ago and paid for it. And there's an ecosystem of economic return when you open something in the theaters. And so that idea of direct-to-streaming, that was just a way to try and drive subscribers in order to drive share price. We're not doing that. Subscribers today are like clicks in the '90s. I have been around for a while. And I was in that road where people run around buying companies and aggregating clicks. We care about the ARPU of our subscribers. We want real subs that are going to pay real money. We said we're looking in '25 for $1 billion of profit that we believe we can get on our direct-to-consumer product, and we're targeting 130 million subs. And I think we're at something like 90 million or 92 million now. If we're at 110 million subs, and we're generating more than $1 billion, and we have an ability to drive free cash flow and growth, that's what we're going for. We're not collapsing businesses onto it because we are diverse. And the ability to have Warner Bros. Television, we're a maker. Think about being in this business right now. There's a reason why every one of the streaming services asked the question, are you going to continue to sell us content? Disney doesn't. Disney has a Ford and Ferrari factory and they produce for themselves. We have a Jaguar and a Chevy and a Mercedes factory and we produce for ourselves and we produce for others. But we have great optionality. We can keep more stuff for ourselves. We can sell more to make free cash flow. But if you're on the other side of that transaction, you've got to ask the question that they've been asking. They need product. They need gasoline for their cars. We make it. We get to decide whether we're going to sell it or not. We could sell more to make more money or if we find that we can make more money by putting it on our own platform, we could sell less. So this diversity of assets, free-to-air and cable channels that generate $10 billion in EBIT, all of these different businesses, the gaming business, the Warner Bros. Television business, the HBO business, it's the diversity of this company that makes us strong. I've been on the Board of a lot of one-product companies. That's a tough game. Optionality and the ability to move content around in order to drive free cash flow and EBITDA is one of the things that I think is the greatest opportunity at this company. And even though the economics of this business are less than we thought, and it's a mess -- it's much messier than we thought -- and as John Dutton said in the opening scene of Yellowstone, an amazing -- got to hand it to Shari and Bakish, it's an incredible series. But when he was made governor, he said, we have an awful lot to do, and we have an awful lot to undo. And that's us. And we've been doing it. $2 billion is going to come through our balance sheet next year. That's in. That's done. $2 billion, $750 million this year. $3.5 billion in synergy is now our new target. But $2 billion is coming through. There was a lot of -- this company was not restructured. This company was never restructured and I'm proud of this team. We didn't go after synergy. People look around and the reports are they're going after money. They're getting rid of shows. We didn't get rid of one show that was helping us. And we're not going after a synergy number. We're sitting down with each business, HBO, Warner Bros. Television, our traditional business. We're taking our wallet out and we're saying, we get to do something that nobody else is getting to do. It starts today. Where do we want to spend our money? What's making money for us? What's not making money for us? Everyone else is stuck. We can create a company. What company do we want to live in today, where we have the best chance of succeeding in this new world. What does that look like? What are we doing that we shouldn't be doing anymore? At Warner Bros. Television, the 85%, 90% of that business used to be the broadcast networks. They're a small piece of that business now. It's a massive team of people that were still working on broadcast. How do we restructure? They're not the buyers anymore. How do we restructure each of these businesses? HBO, what's on there now? We can take a look and see that here's 60% of the content and nobody is watching. What did we learn from that? Some of this content, get it off your balance sheet. Now we got more money, let's buy the stuff that's working. So it has taken courage. It's taken vision for what we think we can be and who we want to be, and we're going to be wrong about a lot of it. But when we emerge next year, it's going to be the company that we believe in. And it happens that it's -- a lot of that is synergy, but a lot of that was just cleaning up, changing the way we do business to have a contemporary company that's structured for the future. And it is messy. And we are missing a lot of people. We're trying to treat everybody fairly, we're trying to be transparent. But we're building a company. We have the best IP in the world. We need the best structure. We've got to spend money where it's working. And when you see all this stuff in the press, that's okay. It is messy. We're building a mural. We're painting a mural on the side of a building, and all kinds of stuff is falling off. And it looks messy, and it is messy, and it's really hard, and it's really challenging. And when you -- the press report, this dropped today, these people are leaving, they wrote off those shows. You're going to see when you step back, we have a vision for this company, and it's a great company. And most of our peers are now going to start to restructure their company for the future. We're already -- we've been fighting and we're already in the seventh inning -- we're 6.5 or seventh inning to make that happen.

That's great. And I love the line, a lot to do, a lot to undo. And maybe let's talk more on direct-to-consumer on that front. You've alluded to some of the hard decisions you've had to make over the last few months, all kind of underpinned by a view of what's working and what's not working. You talked about it a little bit, but as you look forward to the vision with the recombined HBO Max and discovery+ platform, what is the content vision for that product? And maybe I'll just ask the question on sports as well. Where does sports fit in all of this? You have some experience with -- looking under the hood, with NHL, March Madness, you have some experience in Europe with sports. What's -- do you need to go after marquee sports properties? Or does it maybe make more sense to start with some tuck-ins around the edges that maybe don't cost as much but could be a higher return?

We've been in sports for a long time. And as a company now, as we come together, we have BT in the U.K. It has 45, maybe -- has a huge amount of support in the U.K. It's a great business. We have 3 sports channels in every country in Europe. We have football in a number of markets. We have football in Latin America. And in the U.S., we have the NBA, we have the baseball playoffs, we have half of March Madness. We have half of the NHL. We have a lot of sports. Sports is hard. If you look at our company as a whole, we're a pure content company. We own our content. It's a great business. When I was talking about AVOD, that content has been paid for and accrued. It's over. It's ours. We put it out there now. We make money again. That's the business that I was in at Discovery. We bought content. We produce it. We put it on channels, we put it on new channels. We created -- we recirculated around. We bought free-to-air channels. We put the library on because we own it. And there are other media companies that take their IP and they sell a lot of it, pieces of it. We don't do that. We're not selling content to make a quarter. We're not selling pieces of any of our tentpole content. We're not giving somebody the digital rights to any of our content. We own all of our content. We're an owner. With sport, we're a renter. That's not as good of a business. And when you're a renter, it's a whole different calculation. What are we paying for the rent? And how much are we bringing in? Not just -- and it was -- there was a time when sport was not as expensive, and you can make money on the sport and then it lifted all the boats. So it's how much do we make on the sport? How much help do you get from the promotion? When I was at NBC when we lost football, we lost the promotion of the NFL, which was a huge issue. And then you have the overall asset value without the sport. And so you have to evaluate all that. The good news for us is we have a very favorable deal on -- that's quite long term on March Madness. I think the NHL deal is very smart with Gary. The performance on TNT is very strong for all the sport. And then we have baseball playoffs. I like the NBA. We have another couple of years on the NBA. And Adam is a friend of mine for 20 years. But we're going to be very disciplined. We don't have to have the NBA. And if we do a deal on the NBA, it's going to look a lot different. We have real assets that differentiate us from anybody else. We have an NBA show that's probably the #1 show in sport, with Barkley and Shaq and Ernie. It's probably the #1 show in sport. Our ratings on -- for sport or for the NBA are 30%, 40% higher than when it's on another platform. NHL is way up. So we're good at producing sport. But we also own Bleacher Report and we own House of highlights. Over 100 million people under 25 are coming to Bleacher Report and House of Highlights for their sport. We're not monetizing those platforms. Those platforms could be huge for us. How do we take Bleacher Report, House of Highlights, all which we own, now we got these rental properties for the long term. What do we do? And then what do we do with the NBA? And if you're Adam, as well as every other commissioner, you all have the same problem. You're not reaching people on their devices. And there isn't a clear one place to go for that content. And so he's got -- this is a good situation for us. He's got a problem. We have a problem. Now we've got to find the solution. And the -- we have -- HBO Max itself reaches almost 100 million homes. There's an argument why -- you could put the NBA on HBO Max. You could throw in Bleacher Report, House of Highlights, all of our production. That could be a hell of a good hand. But I think you'll see us being very, very disciplined on sport. We have enough without doing a new deal with anybody. And I'd like to do a deal with the NBA, but we're going to have to be -- it has to be a deal for the future. It can't be a deal for the past. HBO and HBO Max, I think ultimately, the consumer is going to tell us. We really believe that putting these 2 together is going to provide something really unique with multiple people in the home using it and that it's -- the churn is going to go down, and we're going to get some growth. We also are evaluating what's the pricing. What price should these products be? What should be the pricing for the kind of premium product that we have? How do we offer it? Right now. We can get 30 million people watching Euphoria, but they can come in for 2 months and watch Euphoria and then leave. Do we want to create incentives for people to be there? There's a lot of companies that have businesses where if you want to come in, they have the majority of people are there for the year. So I think that over the next couple of years, there's a lot of things that are going to rationalize this marketplace and move away from this irrational -- an irrational race for subscribers. I think you're already starting to see it, an irrational payment for content. We're spending more money with all the noise. We're spending significantly more this year than we did last year. And if you pay attention to what's going on in Hollywood where I live now, we're doing great with the town. The noise that you're hearing is that we're getting rid of a lot of shows that weren't working and that's creating noise. But we're still one of the biggest buyers of content out there, and we're signing up more and more great talent at our company.

That's great. And you just -- let's stick to direct-to-consumer. You talked about the pricing opportunity over there. Let's dig into the ARPU opportunity with direct-to-consumer overall off of, I think, a base of around $8 a month. HBO Max, since it's come to market, hasn't really raised its pricing. And in the meantime, certainly invested in the content. If you layer in the discovery programming, the utility is certainly getting improved for the consumer. And so what are your thoughts around the pricing strategy over there? And then maybe you could talk about the advertising opportunity as well. You have Netflix coming into advertising. Disney+ is launching an ad tier next month. You've had a lot of success on the discovery+ side. And I'd be curious if there are any interesting learnings when you compare the HBO Max add to your -- with what you have on discovery+ and what the 2 kind of look like with the -- how that opportunity could evolve as you move forward.

The real payoff for direct-to-consumer is, one, you can see exactly where people are spending their time. You have all their information. But also you have all the data, which you can provide to advertisers, which is why you can get 3x -- 2 to 3x the CPM. And we're getting better and better at having that data because they're spending time with us. We had a very positive experience with discovery+. The launch of the ad tier for HBO Max, I just don't think it was emphasized. We will emphasize it. The ARPU on discovery+ ad-light is higher than the ARPU for just buying the premium because of the value of the advertising and the fact that people are spending so much time with us. And so I think there's a lot of opportunity in the ad-light product. In many ways, you look at how many people are going to be willing to spend $15, $16, $17, $18, whatever the number is for a premium product. There's a limited number. And then how many people are going to be willing to spend $7, $8, $9? It's a bigger number. And then that leaves below that, the ad only. And by having that data, we are able to get really a significant value. And for us, if we could own that whole ecosystem, eventually, we can circulate people through that. Nobody else can do that. And so we could take the first season of -- the first 2 seasons of Succession and put it on a Warner Bros. TV product for free and reap all the economics of that. And then if you want to see the new seasons, you've got to go into the pay. But when you -- and when you leave us, because there is churn, then go down and hang out in the free product. So I think that's what we're aiming for. And the advertising is helping us. Having said that, the advertising market right now is very weak. You saw it with us. I think you saw it maybe a little bit more with us because we don't have local, though we didn't have sport. That's true for -- now we're going to have sport. We'll have the NBA. We'll have March Madness and we got hockey and the Stanley Cup. So we'll have some advantage as we go into next year. But between very limited local and limited sport, we were a little bit disadvantaged, but we come into market as one company. But the advertising market is quite weak now. We reiterated our guidance, and we reiterated it today, but the advertising market is weak, and it's weaker than it was during COVID. And that could change quite quickly. Right now, this is a pretty big miss of the whole Christmas season. Now sentiment -- it's pretty much sentiment-driven, in my opinion, because as I look at Europe and Latin America, it's better. There are markets in Europe that are -- Italy and Poland, that are still doing very well. Here, there is a feeling, I've spent a lot of time with clients and agencies. It's like just don't know how bad it is, so we're holding in. I can't predict what will happen. But we're in the process of really restructuring how we go -- the cost structure of our company, the efficiency of our company, how we operate in this new environment. And we're going to make our numbers -- if things get a little bit better, we are still trying to do our $12 billion for next year. And we've said things don't have to get really good for us to make that number, but it's going to be hard if it stays this soft for next year.

Understood. And maybe that's a good segue to -- I mean you reiterated all your guidance. What's the confidence level? Maybe we could start off with on the direct-to-consumer side. You laid out a pretty credible -- I know sustainable profitability is a key focus for you and the management team. You laid out a number of targets in terms of 2022 being the peak year of D2C losses, the U.S. business turning profitable in 2024 and the $1 billion in EBITDA in 2025, which, by the way, no other traditional media company has put out targets like that. What's the confidence level of achieving those as you move forward?

Look, we're launching a new product. I feel very good about the product. We moved it up. We're not going to be right about everything when we come out, we're going to -- the consumer will tell us what they like and what they don't like. But I think we hit the market with these 2 products together. We put on some of the Chip and Jo content, and it was -- people watched House of the Dragon and then they watched Chip and Jo. It was a top 5 show. We put some of the Property Brothers content on there. We moved some of the content from d+ and it's being viewed in different time periods. It's being viewed aggressively. So -- but it's early. So I think I have a lot of confidence in our product. These are not from our -- I think -- we should be able to make those numbers and we wouldn't put them out there. But look, this was a big swing. In 2019, HBO spent $2.5 billion on content and made $2.5 billion. Last year, HBO spent almost $7 billion on content and lost $3 billion. I don't know if I've ever seen anything like that. And so there was a lot of -- all those direct-to-streaming movies just thrown right on top of -- so we are rightsizing HBO Max. More content that people love, more original content. Our whole library went on HBO Max and we weren't selling any of it, but it was all on there. Now all that could have worked, but we looked and we said, most of this is not being watched or we don't think anybody is subscribing because of this. We could sell it non-exclusively to somebody else. Look at this huge library that we have. So when -- we're targeting the $1 billion because we're about free cash flow. I feel good about it. The more I see about the hand that we have, I think we've got a really strong hand. And we've got a lot of optionality. There are a lot of things we can move in, move out. And I think one of the other things, going back to what we're stuck on, all of us in this business, we have a certain amount of cost that we're stuck with. The good thing about this company is, yes, we have some sport, but most of our sports are good money. And depending on how things go, we have an ability to really change our spend. We have an ability to spend more, spend less. We're not committed to a lot of deals that are going up dramatic amounts every year and hoping that the advertising market and everything has got to get better because we built that in when we agreed to do new big deals for big pieces of IP. So I think that we have lot of flexibility that others don't have.

And speaking of the many course-corrective initiatives that you had to take, let's talk about the merger and the integration. How is that going? On one hand, I think there were a number of negative surprises that you had to tackle. On the other hand, you recently raised the synergy target from $3 billion to over $3.5 billion. What are you seeing in terms of...

With no revenue synergies, which are hard to get, some of these revenue synergies without an advertising market are tough. But we are finding some revenue synergies. Look, it was much more challenging than we thought. There was a lot of, you open the closet, stuff fell out and then people coming in going, what's going -- what happened? I don't understand what's going on here. We were spending a lot of money here. This -- it doesn't look like we were getting a return. So we were finding all kinds of stuff. And for the leadership team at the beginning, it was a little bit like disconcerting. But I view it as the opposite. Any time we can see something and say, we can do that better or that didn't make sense, let's stop doing that, that's an opportunity. So it's messier than we thought. It's much worse than we thought. But the core assets: CNN, HBO, Warner Bros. -- I mean we only did 6 movies this year. We got a lot of upside. We have a lot of movies next year. We're spending -- we're working really hard on fixing them because we didn't have a particularly good year. But we got -- the assets are better than we thought at their core. The content that we own and the talent that's part of this company is better than we thought. But there was a lot that was unexpectedly worse than we thought. And so to me, I don't want to buy a company that's really well run. I don't want to buy that company. It's hard to make it better. So every day that we come in and we open a closet and something comes out, I say, that's great. What was that doing in the closet? Take it out, throw it away. Or take it out and put it on the shelf where people could see it and they could buy it. And so I think we have a tremendous amount of opportunity. And I think you'll see it flowing through that, $2 billion is a piece of that. I mean -- and we raised it not because we were pushing on it. We raised it because it raised itself.

And you talked about top line synergies, which I know you've not quantified before, but -- and certainly in this market, it's tough on the ad side. Is there anything, as you move forward, hard to quantify but pockets of opportunities that you see on top line revenue synergies?

Look, I think we have a great offering to advertisers. We did significantly better than everybody else in the upfront because we are able to offer live news, live sports. There's loads of people that need to be in food or HG and we're selling it all together for the first time. And so I think domestically and around the world, you will see us do better. We also have a great package of content. And so we have -- at a time when the distributors are seeing very -- a really challenging environment to drive broadband, I think there's an opportunity for us to work together. We still believe in the cable bundle. And I'm a contrarian, but sports are on the cable bundle. That's where live news is and that's where live sports is. And yes, it's in decline. But -- and we modeled that it's going to continue to decline in a meaningful way. But at some point, when you have all the sport on this platform, I think it's going to be sturdier than people think. And I think we got a -- we have a very good hand when we're dealing with distributors because we've got a lot to offer them. If you buy broadband, maybe you can you get our AVOD. You buy broadband, maybe you get a better deal on our ad-light product. There's lots of opportunity for us to work together. And the fact that the distributors have run out of growth is a good thing for us because it means maybe we could figure out how to grow together.

That's great. Well, unfortunately, that's all the time we have today. But David, thank you so much for being here.

Thank you.

Thanks.