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

[Audio Gap] Gunnar Wiedenfels, the CFO of Warner Bros. Discovery, and we have a lot of ground to cover. So we actually made this session a bit longer than everybody else's because you're so special.

So Gunnar, it's been a little over 2 years since the WarnerMedia and Discovery combination. And you spent a great deal of time and effort and energy restructuring, transforming and realigning the company across every division. You've obviously accomplished a great deal. However, as you've done that, the industry has continued to evolve and probably not in a great way. You've also described this as a generational disruption. But just you see an ability to capitalize -- do you see an ability to capitalize on this disruption through opportunity? Just maybe sort of that as a backdrop, from here, what are the key priorities for the company? And kind of like a question that we've asked before, but what's the path for Warner Bros. Discovery to eventually find a path to consolidated growth?

Yes. All right. Well, thanks for having me, first of all. Good to see everyone. Yes, talk about generational disruption. It's astounding if you go back to some of the assumptions we made 3 years ago and just looking where the industry is today, there's no question about that. To your point, that trend -- that disruption has challenges, it has opportunities as well. We've talked a lot about the challenges, and one of the opportunities may have been that we had to work on them a little bit earlier than everybody else. So we got a bit of a head start of rethinking everything, and a lot of the change that's happened in the industry, we were the first ones to drive. So we've had a lot of success, to your point, in changing the -- restructuring the company, changing the financial profile, generating a lot more free cash flow. And it's interesting, actually, we have actually paid down more debt to this point than what we've presented to agencies 3 years ago. But as you know, the denominator has also been down. So there's no question about it. To talk about the opportunities, we have tremendous opportunities. The most important point is this is -- we're facing challenges to the distribution ecosystem, not to the content ecosystem, right? People are consuming more than ever. We happen to make some of the greatest content in the world. And the way this content is consumed is changing, but we have a tremendous opportunity. We've got our hands on a studio asset, underutilized studio asset, which we're managing very differently now. We can talk more about it. We have talked about it a fair bit. And the transformation of such an asset takes a little bit of time, but we've put a lot in place that gives me a lot of confidence for future growth. Importantly, we've gone through 2 years of investments in the D2C space. We have a state-of-the-art platform now established on a global basis in more than 60 markets just this year. And we're at the point where, as we said on the second quarter earnings call, we're seeing some of that inflection, some of that operational gearing that we need to get to $1 billion of profit next year and then dynamically grow from that part. One thing that's important to get to the -- to your final question, how do we get to sustainable longer-term growth is yes, we have made a lot of tough decisions, and there was a lot of focus on efficiency and cost savings. But I view this more as professionalizing the capital allocation of the company because we have been extremely disciplined on the one side where we don't see the return, but we've also been extremely generous on the other side where there were growth opportunities, investment opportunities. Content is an area, obviously, front and center where we're increasing our spend beyond just the offset of the strike impact of last year. But also outside of content, we have deployed hundreds of millions into technology to build that platform. We have increased our studio production capacity. We have launched a Harry Potter tour in Tokyo. We have more projects in that space coming down the pike. We have made investments in some of our international countries. Italy has seen tremendous success on the back of increased investments. And we have also invested by not selling off some of the licensing rights that we have but retaining them for internal purposes. And with all that, I think we have laid a great foundation that is going to allow us to grow this company dynamically, profitably and sustainably. So the answer to your question, and I know you asked it on the earnings call, and we didn't have a lot of time to talk about it, but the answer is an emphatic yes. We just updated, as you know, our strategic plan, our long-range financial plan, and it's supporting that very answer. And my priorities in that are -- haven't changed. It's capital allocation, making sure that we're stingy in the areas where we should be, that we're generously funding the growth opportunities. Number two, that we're executing. We need the operational execution to deliver the proof points that we need to see in the studio space and the D2C space and also continuing to lead the industry when it comes to profitability and cash focus with the linear business. And then number three is the big headline of One Warner Bros. Discovery. That's the biggest change since David and his team took over, managing the company as one. And we could talk more about it. It's everywhere. And everything that I've seen working that has played a major role.

Okay. So let's kind of go through piece by piece. One of the reasons we have been so bullish for the company post the combination is that the old Time Warner, Warner Bros. has the most incredible studio and television libraries. It's with TV and film within Warner Bros. and all of the different libraries, but also even at the networks have -- I mean not [indiscernible] -- Cartoon Network, thank you. I mean just like amazing, amazing content throughout the organization. And while you've been vocal about the state of the studio when you took over and the time frame it takes to turn a studio around, it also feels like the studio is out of alignment with its past performance and certainly, it's opportunity. There was a time when Warner Bros. was like nobody could touch it. So could you help us unpack the key businesses within the Studios segment? And surprisingly, maybe we can start in an unusual place, but maybe we could start with games since that seems to be where there's been a lot of weakness in the past year. And you kind of framed it as an area of investment, but do you view it as a core strategic asset? And if you do, how big can the business actually be?

Yes. You're right to ask about games first. We called this out on the second quarter earnings call. It actually has been the area that's been dragging down the studio performance in the first half of this year. If you exclude games, everything else would have been flat or up in aggregate. And that is as much a reflection of what was going on this year. We've had one miss with Suicide Squad, but it's also a reflection of one of the strongest years ever last year. That's the important point. Yes, our gaming business is a strategic asset for Warner Bros. Discovery. There's no question about it. We've seen with Hogwarts Legacy what the team is able to do, what our IP is able to do, the combination of those capabilities and our content IP can lead to the greatest game in the history of the company, greatest console game of last year. So the answer there is yes. To your point, it is just like the film business, a hit-driven business, actually even more so because to some extent, the investments are greater, the development times are greater. And it's unfortunate that we've had the two in sequence now, one of the bigger misses following one of the greatest hits. We're committed to the business. We've got a great team, and we are continuing to invest where we just acquired Player First. We're building capabilities. We're building out our ability to provide an always-on live capability. And obviously, a successor to Hogwarts Legacy is one of the biggest priority in a couple of years down the road. And so there is certainly a significant growth contribution from that business in our strategic outlook here. Obviously, in the very short term, still lapping Hogwarts Legacy for the rest of the year. We'll face additional headwinds for the third and fourth quarter, but longer term that's the nature of almost all of these businesses in the studio space, that you have to be able to live with the hits and misses. The important point is we're working hard on making sure in every one of those businesses that we get greater return and success and that we get less of a negative impact in the case of the inevitable misses that you're going to have when you swing.

Okay. Like games, you've described the film business as inconsistent. What do you see as the opportunity going forward? And how many films should we expect from Warner Bros. to release theatrically?

Well, there's a lot of layers to that answer when it comes to our film business. And I actually want to go back one step here and talk about the studio business overall and why I'm confident that we are going to get back to a $3 billion-plus and then growing trajectory for that business. And the way I look at it is it's a combination of art, craft and science, right? David has talked a lot about the art. We have rebuilt a number of very important relationships in the creative community. We haven't lost any talent since we created Warner Bros. Discovery and in fact, brought a lot of them back and made Warner Bros. the core destination again for talent. That's an absolute priority because it's the lifeblood of our company. The other two areas are what I focus on a little more with my team. There is a very operational physical component to this. We're spending double-digit billions of dollars for these physical productions. And in the past, all of that was just done in a decentral, uncoordinated, uncontrolled way whereas we're now able to put in place procedures, master service agreements with preferred suppliers with utilizing our own assets before we look to third parties, et cetera. All of that is going to allow us to get more efficient and be able to put more of our dollars actually on screen. And I see how the team has changed dramatically when it comes to those operational processes. And then the science part is we have access to a treasure trove of data. We know how our content performs across virtually every platform you could think of, we can pull all that together. We have created much greater quality of instrumentation to make these decisions and to be able to hold our teams accountable to green light, reallocate. I talked a lot about capital allocation in my opening. That's obviously at the heart of it. And so if you take those three points together, we've got a great creative team, great connections in the talent community. It is inevitably going to be a hit-driven business. But with the craft and the science we've put in place, I think we're going to get greater results. Now as I said, it takes a little bit, especially working -- still working through a slate that was created under very different parameters with very different objectives. We're on the backside of that. And so if you look at the film business as part of the studio, think of it as, call it, a $5 billion revenue, maybe $1 billion EBITDA contribution to the studio. It's actually done reasonably well in the first half of the year, better performance both in revenue and EBITDA than last year. And I have a lot of confidence in the upcoming slate. The Beetlejuice numbers are looking good. We got Joker 2. And then the highlight for next year is going to be Superman, of course. And every one of those titles is going to show what I referred to earlier, the One Warner Bros. Discovery approach. If you look at our entire portfolio, you can't watch any of our networks right now without getting some sort of Beetlejuice promotion. It's a fully integrated campaign, the greatest number of consumer product partnerships in a very long time, promotional partnerships. So we've got a full 360-degree campaign behind this, and it's by design. It was set up from the very beginning. For Superman, it's going to be the same thing. Peter Safran and James Gunn brought a whole group of retailers down to Atlanta on set to just make sure that we get those consumer products opportunities right from the get-go. So all of these things are input factors that I'm seeing and we got to deliver the actual proof points. In the end, it's going to show -- it's going to have to show in our financials. I'm confident it will. Again, for this year, obviously, we've got Q3 with Barbie coming up, so that's going to be a pretty tough comp. On the other hand, Q4 then should be a lot easier just given prior year performance and the cadence and the timing of this year's releases.

All right. And then before we move on to television, maybe you can just touch on DC and what's going on there, how you're like planning to just completely revitalize it?

Yes. I think that's the right term, completely revitalizing it. Peter and James are taking a very different approach. It's the first time that we're running DC as an integrated, if you want, franchise across the entire studio, actually the entire company. And what that means is not only an integrated story arc over a 10-year canon for DC, but also a lot more thought going into the specific individual stories. Which stories lend themselves for interactive implementation? Which stories, which characters are so core for us that we're never going to allow them to be on any other platforms? Which characters might be great stories or create great stories, but we might be willing to produce them for third-party platforms, et cetera? I talked about consumer product integration, games integration. All of those things are happening by design from day 1. And it's great to see how Peter and James are essentially standing for that One Warner Bros. Discovery approach. And again, it's not going to happen overnight, but it's a fundamentally different approach to running the brand relative to how it was run before and one that makes me confident that we're going to see great returns.

So WBTV, which is it's been like the 800-pound gorilla, it's just the giant in the TV industry.

Say more.

I mean it's probably the most prolific and profitable and successful television studio ever. But you can't see it from your number. Like we can't -- we don't really see what's going on anymore in that business. But nevertheless, it's a business that should have easy comps in the second half given the strikes a year ago. So how should we think about the performance of this business? And any color on where it's headed and how much -- anything you can say about growth?

Yes. Look, it's -- in terms of the composition of the studio segment, the TV production business is comparable in size to the film business, just ballpark. It is a business that still has some lingering strike effect in its numbers. Obviously, May through December last year was the strike-impacted period with the second half being much more materially impacted. We're still seeing the effects of delays in development, green-lighting physical production, et cetera. So that has weighed a little bit on the numbers of the first half. But to your point, we should see a dynamic improvement on it from a year-over-year basis in the second half, just given the lower comp. And if we look at the state of the business, one thing that's very important is you call it the 800-pound gorilla. There is some actual truth to that. The -- we've all read about the end of Peak TV and how everybody is cutting back on content spend, which is a fact. We're not seeing that for Warner Bros. Studios. There's also been a flight to quality. Channing right now has, I think, 83 shows on the air across 20 platforms, including some of the biggest hits, great supplier to Apple with Presumed Innocent this year doing very well and Bad Monkey and the success of Ted Lasso earlier. So her business is doing well. And I do think there is maybe more opportunity. You know that Channing Dungey is now going to get a little closer to the network business as well when Kathleen retires. And I think that's going to create some great cross-pollination between the two businesses. We had -- one of the great advantages of operating the CW in the past was that it just drove a lot of volume, just more at bats for the TV production business. And we're looking into what we can recreate. Kathleen has already announced some scripted shows returning to TNT, very different from what was done in the past, again, with an eye towards actual value creation. But maybe there is more.

Okay. It's like a giant company on its own, but you have a lot of pieces. So we'll keep going. Tours experiences, consumer products are the other pieces of the studio. You've discussed allocating more capital and managing this business in a more integrated fashion. Can you talk about like, I guess, the Harry Potter tours, I think you mentioned.

Yes. Yes.

How big is it? How fast is it growing?

Again, if you just want to just get the ballpark size, it's about a $0.5 billion revenue business. It's growing very dynamically. And it is an area where we have made very significant investments. I love that business because it's got among the greatest returns in the entire portfolio. And it's a gift that keeps on giving in the most positive way. So we are looking at a pipeline. We've operated the making of Harry Potter tour in Leavesden for more than a decade already. We opened Tokyo last year, which has gone very well and has significantly contributed to growth in revenue and profitability for that unit. We're looking at other opportunities. And it's very clear that this is an area where I would like to take a little more risk, fund some investments and have a lot of confidence in our ability to get great returns because the team really knows what they're doing, and we've got a mold there that works very well. The other areas, you mentioned consumer products. Again, it's not a line of business in and of itself. It's just one of the monetization drivers for all of the above. Franchise management is another area where we just haven't -- as a company, Warner Bros. hasn't paid as much attention to that as we probably should have. Bruce Campbell hired a senior executive overseeing that for the entire company. And again, the Beetlejuice go-to-market approach is a great example. We're utilizing every single cash register, every single promotional platform across the company. We're also harnessing great promotional partnerships with external parties, consumer products, et cetera. But it's one consistent framework, and they're at the table from the very beginning. And again, if you just compare what we have generated in that area of consumer products and compare that with what the best peers are able to do, there's opportunity. And I have no doubt that we're going to tackle it.

Okay. Let's move on to Networks. Could you discuss like some of the dynamics and the drivers? I mean obviously, this is an incredibly challenged business, just secularly challenged, and it's not getting better. But how do you manage through that to profitability?

Maybe you can go straight to D2C. Now look, kidding aside, the -- that's been a frustrating area. I think nobody should be surprised that we're seeing the declines we're seeing. But to be fair, it's happened a little earlier than, frankly, I had hoped and also a little more intensively. If you just think about some of the discussions 12, 18 months ago, there was this debate, how much of it is cyclical? How much of it is secular? And it's pretty clear that there's a greater secular share there. And just the cadence, the news flow in the industry has been tough. Now there's not a lot that we can do about that secular trend, but what we can do and what I would argue we have been doing very successfully is managing that trend. And that is, again, across the entire P&L. On the revenue side, we continue to work through affiliate renewals. And I continue to have a lot of confidence that we're bringing great product to the market, and we continue to get a lot of interest in our portfolio. Ad sales, increasingly converged sales deals across the entire Warner Bros. Discovery footprint with opportunities in data-driven targeted advertising. And then we're going to continue managing the cost base. I think we probably have the greatest efficiency in the industry. We're still working on it. We have further projects in the pipeline. We're looking at how to even more streamline our global broadcast operation setup, one advantage of operating in virtually every territory in the world. And then there's a content opportunity from getting greater leverage out of our existing libraries and increasingly viewing the content output of the networks, not as just network content but to program with an eye towards utilization across the entire Warner Bros. Discovery footprint. And that's where Channing, I'm sure, is going to drive some great changes.

So let's go through some of those pieces. On advertising, can you go through some of the -- give us some color maybe on the '24 upfront and break it down by the various components. The most challenged, of course, is linear, general entertainment, sports, which has been really positive, direct-to-consumer. They're all very different pieces with different drivers.

Yes. That's 100% true. And I think that's the theme of this upfront more than any other ones in the past. I think we have done, I think, a little better than what we expected going into the upfront. It's a mixed picture, though, in terms of what the composition of the deals is. You mentioned sports. Obviously, very, very strong advertising product, but also top-tier general entertainment networks, Food Network, HD, phenomenal brands, and we've been able to continue to get price increases. When you go towards the long tail sort of less specific, less pointed positioning of longer-tail networks, more challenging today than in prior years. And then there is this whole mix discussion between linear and D2C. We've got out -- obviously, the Max inventory or WBD Stream product, and that's been an area of very significant growth. We took more than 50% increases in digital volume. And all of these deals are now fully integrated across all of our platforms.

And on that -- just on D2C because obviously, that's where eyeballs are going, and expectations are that the money will follow. But there's also been this massive increase in inventory, thanks to Amazon and maybe a little bit of Netflix. So what do you think the implication is of all of this new competition coming in?

Well, there's no doubt, there's been a lot of demand in this upfront, but there's also a lot more supply now. And what we've -- our priority is to make sure that we're absolutely clearly positioned as a premium provider of inventory in that range of different types of quality with maybe HBO content at the top of that range and then maybe some of the FAST platforms with more commoditized inventory or the long-tail general entertainment linear environments being more on the commodity side. So we're very focused on that top-of-the-shelf premium inventory. That's an area where it's been easier to maintain pricing premiums. And an important point here for us is that we are also still in the early innings of that ad monetization with greater reach, greater subscriber numbers, we're going to get -- generate more valuable inventory. We've also very tightly restricted ad loads in the past. Some of that goes back to HBO's positioning in the past as ad-free. So there's more opportunity. So I still view digital advertising as one of the important drivers of upside for our business as a whole.

Absolutely. Okay. Moving on to sports. So sore subject, but NBA recently announced their U.S. media rights agreements. And while you're disputing the agreement and you've exercised your matching rights and we'll see what happens with that, let's say, obviously, I'm not going to -- appreciate that you probably don't want to discuss specifics regarding that contract, but maybe you can help us think through a few scenarios. So let's say that in '26, Warner Bros. Discovery does not have the NBA, what does it mean for your business? And I know that you've been quite active in trying to get other sports rights. Is that really enough to fill the gap?

I got to be careful here, Jessica. Again, we're in litigation. I don't want to comment on specific NBA scenarios. Taking a step back, what we will always prioritize when we talk about sports rights is making the right decision. It's important to be incredibly disciplined because they can be incredibly valuable. They're marquee rights, but it's also very easy to waste and lose a lot of money on it. Just as a general strategy, we've always said that sports are important for us. A key part of a, say, roughly $20 billion spend on content, you want to have a certain part of that dedicated to sports rights because they do drive peak audiences. We have managed our sports portfolio globally and in the U.S. very actively over the past few years, and we've gone through a number of discussions. We've added significant rights to the U.S. sports portfolio. We've gone through, on the last earnings call, all of the incremental rights we've taken in since some of the last big affiliate deals were renewed. And so generally speaking, you win some rights, you lose some rights. Sports are important for us. And I think we have a strong portfolio, both sports and otherwise, for our U.S. go-to-market.

So I mean the biggest impact could be on your affiliate fee as well, I guess advertising as well. But can you talk about how the discussions are being impacted by this -- by the NBA?

Look, I -- again, I don't want to talk about NBA specifically. We're constantly in discussions with affiliates. One of the consequences of merging twice over a period of 5 years is we are constantly in renewal discussions with some of our affiliates. And these deals are never easy. They have never been easy because it's so hard to -- there is no such thing as a market price and there's a lot at stake. But those discussions are as constructive today as they were years ago. We're getting a lot of interest by any analysis that I've done outside in. Our partners are generating a lot of value for their own companies and their consumers with our product. We have a very compelling portfolio that we offer them, and I think that's what counts in the end. And I don't see a dramatic change in that neither here in the U.S. nor internationally.

Right. So we got Charter here this morning. And a year ago, we were -- like they were in that big brouhaha with Disney that got resolved, and I think a positive way for both companies and for the industry. So could you talk about like kind of the implications of that deal and how that affects some of the negotiations in the industry?

I think it was a good deal for the industry because I mean, we all remember the moment of holding our breath and wondering what was going to happen. I think the outcome is logical and is a win-win. And we have talked about this in the past, mostly in the international space. Gerhard Zeiler runs our international portfolio across God knows how many territories. And he has these discussions with our long-standing distribution partners every day. And it's the same situation. We're sitting down. We want to win together. We know that viewership and interest in linear distribution is coming down. We know that interest in our content is not coming down, it's coming up. What are the ways to find a mutually beneficial partnership here? And those are the trade-offs that we're doing on a daily basis. We're renewing agreements whereby we might give some concessions on the linear side because it's less attractive at this point. They still want the linear networks. They want our content, and they want the linear networks. And in turn, we're getting support with the penetration of our direct-to-consumer or streaming product and that both sides are win-win, right? We want to maintain that linear ecosystem for as long as we can get as much value out of it. We want our streaming products to be penetrated as broadly as possible. And for our affiliate and distribution partners, they want to be able to offer to their consumers these great products and the great content in whatever form they want to consume it in.

And would it be helpful for you to get other sports like the UFC? Is that something of interest?

We'll always look at everything, and we'll always be disciplined.

Okay. So let's move on to venue. Assuming it gets launched, which might be a big assumption, how do you view this product evolving?

It's another point that we should keep short, Jessica, because as you know, we're in legal discussions there as well. The general idea here is you've got 50% of the population that doesn't have cable anymore. And we're creating something that is attractive and accessible in a streaming environment. And look, I think it's a great product, and we'll see how this unfolds.

Is there anything you can say about your participation in the economics with or without the NBA?

Again, put the NBA aside. I do think we have said that the idea is an equity joint venture between the 3 parties, management team for venue that's going to negotiate rates. And we're going to get prevailing [ MFN ] rates from venue, whatever those are going to be.

All right. Let's go on to your last piece of business and then some corporate stuff, but direct-to-consumer. So you've actually outperformed in terms of like EBITDA and D2C, and you mentioned earlier the $1 billion target that you guys have publicly stated for next year. Could you kind of walk us through the building blocks to get to that $1 billion?

Yes. I want to go back to what I said earlier, Jessica. This is one of the areas where I think the disciplined capital allocation is really going to start paying dividends now. We've spent 2 years. JB was very explicit about it. This is going to be a 3- to 5-year journey. Again, priorities were we had to get this business to stop. The entire industry was bleeding money. We were the first ones to acknowledge that and turned that around. We also have full conviction that you have to be global. You have to be global in this business to be profitably growing over time, and that's why we paid so much attention to getting a platform that scales globally, and we're seeing that rollout this year. The team has done a phenomenal job. It's no easy task to launch in 60-plus markets, and we haven't dropped any balls in that. So that's great. And we're seeing the impact to begin to come in. And you saw in the second quarter our acceleration in subscriber additions. We guided to further acceleration in the third quarter. We've -- I have said that the second half of the year is going to be a significant improvement in profitability, a real sort of step towards that $1 billion target for 2025. And importantly, that is going to be a revenue-driven improvement in profitability. It's not, first and foremost, sort of cost reduction. But if you look at -- if you exclude content licensing for a moment from our top line, then the "subscriber-driven revenues," subscription revenues and advertising revenues were up 4% in the first quarter, up 6% in the second quarter. And we're planning for further material acceleration in the second half of the year. And I've always said that we're putting a platform in place. We're launching these markets. There's going to be marketing spend. There's going to be technology expense, hundreds of millions of development costs. But at some point, we crossed the 100 million subscriber mark, we are going to get operational gearing out of all those investments, right? And so I expect a greater share of every incremental top line dollar to fall down to the bottom line. And that's going to be the most important driver on that path. We have revenue growth opportunities across both subscription and advertising for a number of reasons. And when you look at the cost structure, we're through the big, heavy lift of re-platforming. We obviously want to continue investing and improving the feature set and keeping the platform up to date, but it's not the heavy lift anymore that it used to be. We're going to need less marketing spend because we're coming off of all these launches. And we're going to continue feeding the content machine, and Casey has one of the greatest lineups of all times coming down the pike here for the next 18 months.

It's pretty exciting. But I just want to follow up on a couple of things you said. So on the operational gearing, many of your competitors have stated -- publicly stated targets of 20% margins like double-digit margins, 20% and more. Like what do you see as the long-term opportunity?

Yes. We actually have said 20% plus as well. And I have no doubt that we're going to get there. As an integrated -- or as -- with streaming as a part of an integrated media portfolio, I have no question about that.

And then you also mentioned subscriber revenue in addition to advertising revenue. I mean with all the price increases that we've seen in the market, how -- can you help us think through how you think about it? Do you think that there's still pricing power? Do you think it just drives everybody into the AVOD tier?

Well, I mean, I think a lot has already been done. If you look at what the entire market as a whole has done, there's been a lot of rationalization and we have actually seen a relatively minor impact on churn rates. And I do think the best content is going to win on a global platform. And yes, I think people are going to be willing to pay for what they want to see.

Okay. I'm like looking at the clock. So there's a view that consolidation needs to happen in streaming. There's just too many streaming platforms. What role does WBD have to play in that?

Well, look, there's no doubt we're coming off of this period where everybody was launching their streaming services. You couldn't spend money fast enough, and that's clearly behind us. And while a lot has been rationalized, there's no doubt that more needs to happen. And I think these -- all of these peers are going to ask themselves what the path forward is. And if you just look at it strictly from a consumer perspective, it's not a great landscape right now. It's just too much fragmentation. You're trying to know what you signed up for, trying to remember your password. You don't even know where to find what game or what show. It's not a great experience. That's why we have been so focused on the bundling side of things. That's actually the easiest way. We launched the Disney+ and Hulu partnership with Max, which is in the market now and is looking great. Those are phenomenal value propositions, I think, both for consumers and for us because we're going to get a greater ARPU out of that bundled product than what we have on average on a stand-alone basis. We're keeping it all to ourselves, no toll to anyone. We're able to offer it at a very attractive price point to consumers. It's a complementary content offering. So it's a great structure, and that's one example of a more aggregated product. And I think over time, that's where it's going to go back to.

Okay. I won't go there because we have two more topics to cover: free cash flow and strategic options. So I mean as we sadly all know, the stock's down 70% since the deal closed. And obviously, a lot of it was strikes and secular challenges, et cetera, et cetera. But how has the management team and the Board been reacting to this?

Well, look, we have to accept the reality of the industry that we're operating in. That said, we have been working really hard, and we've just had another strategic discussion with the Board. As I laid out, there's a linear business that is going to continue to decline, but I have full confidence that our studio business and the D2C business are going to be able to more than offset that over time. And we're on a path when we have a plan to deliver consolidated profitable and sustainable growth for the combined company. There's been a lot of discussion publicly about "strategic options." You've been at the forefront of some of them. And of course, of course, as a management team, we have looked at them and we have looked at various permutations. We have used -- the Board and secondarily, the management team have a fiduciary duty to evaluate these opportunities. And we're going to be rational in our decision-making. But that said, I think we are at the point where a lot of the investments we've made with a lot of hard work across every segment of this company over the past 2 years that have put us in a position to now get some of the fruits of that labor. We're starting to see it in D2C. On the studio side, again, there's the games overlay. But I'm confident that we're going to see very significant performance improvement in pretty short order as well after working on it now for 2.5 years.

Right. But I mean it must be so frustrating. I don't want to put words in your mouth, but having literally the world's best IP, you have like an incredible library, you have -- your stock just doesn't reflect the assets that you own, and it's not for lack of trying. So you have other assets that could be sold, whether it's CNN or Poland or the games business, which you clearly don't want to sell. But could you just help us think through like some of the things you might consider? And is it enough to move the needle? How much patience do you have?

Well, we don't have a lot of patience, and we're working hard on delivering that value. I agree with you. And I mean you've been talking about this for a while. I agree with you that there is tremendous value upside in this company. And I also agree with you, it's not reflected neither in the share price nor is it reflected in our current short-term financial performance. The studio performance went from $3 billion to less than $2 billion on a trailing 12-month basis. We want to bring it back to north of $3 billion, and I believe we have a plan in place to do that. And on the streaming side, again, we've gone through a transformation across the entire industry. We've been leading it. We reached profitability. We've got the global platform rollout behind us. And we're at the point where we're going to see this operational performance inflection.

Okay. So let's move on to free cash flow and maybe part A, part B, but that's one area where you've way outperformed. So are there still more levers that you can pull on working capital? Are there any other areas that you can tap into to drive free cash flow conversion?

Free cash flow is going to continue to be a huge priority, not because we want to pay down debt. We do want to pay down debt, but it's also we're a for-profit company, and we will be disciplined with how we manage it. And back to the very first point that I made, it's all about capital allocation. And it's important to keep in mind, we went from essentially no free cash flow when we started, negative free cash flow at WarnerMedia to $6.2 billion last year, obviously with a little bit of help from the strikes. But we're continuing to operate at a very high level of free cash flow generation, free cash flow conversion. And that's going to continue to be a big focus area. And it's important to keep in mind that we get there by at the same time increasing content spend now that we're continuing to fund all of our growth priorities, and we're still generating that free cash flow after funding all those investment opportunities. And I'm committed to that 2.5 to 3x leverage target range. So we're going to be very focused on it. And we have more runway. Obviously, the most important driver of free cash flow generation and conversion is EBITDA, which is going to be a function of, if you will, those different -- the trajectories of the different businesses. But even below the line, as we delever, our interest expense is coming down and the cash burden from that is going to come down. On the CapEx side, again, we've worked through a lot of the initial investments after founding Warner Bros. Discovery. Working capital is an area that has continued built-in opportunity. If you remember, we're -- as part of this industry and company transformation, we're moving from a business, the linear business, which actually had a pretty bad working capital profile because we're getting paid pretty late and we are paying pretty early over to a streaming world in which the working capital profile is much more attractive with upfront payments. So there's an opportunity there as well. Restructuring costs are going to come down. That's been a bit of a negative in our cash flow. And so if you take all that together, we have -- we continue to have significant opportunity.

Great. We'll have to leave it at that. We're out of time, but thank you so much for coming. Thank you.

Thank you, Jessica.