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

Ladies and gentlemen, welcome to the Warner Bros. Discovery Investor Call. [Operator Instructions] Additionally, please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may begin.

Good morning, and thank you for joining us this morning for our investor call. Joining me today from WBD management is David Zaslav, President and Chief Executive Officer; and Gunnar Wiedenfels, Chief Financial Officer. This morning, we issued a press release on the announced separation and associated investor presentation as well as materials related to the debt tender offer and consent solicitations. You can find these materials on our website at www.ir.wbd.com. Today's presentation will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may include statements about the benefits of the separation transaction, including future financial and operating results, the separate company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of WBD's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current expectations. For additional information on factors that could affect these expectations, please see the company's filings with the U.S. Securities and Exchange Commission, including, but not limited to, the company's most recent annual report on Form 10-K and its reports on Form 10-Q and Form 8-K. I will turn the call over to David and Gunnar for some brief remarks, after which we'll be glad to take your questions. David?

Thank you all for joining us on short notice. I hope you are as excited as we are about the transaction we are announcing this morning as Warner Bros. Discovery continues to evolve with the rapidly changing media landscape. When we formed Warner Bros. Discovery, it was because we saw 2 companies, Discovery and WarnerMedia that were uniquely well suited to come together to not only navigate but transform within an industry going through generational disruption. 3 years later, the core of that original thesis continues to hold today. Our global networks is a worldwide leader in live sports, news and entertainment programming. The work of bringing the Discovery, Turner and Scripps Networks together was a complex transformation and integration process. Through that hard work, we now have a portfolio of networks with an unrivaled global footprint and industry-leading operational efficiency. Today, we're delivering engaging content to 1.1 billion unique viewers in 68 local languages across 200 countries and territories, supported by a unique global infrastructure comprised of boots on the ground in virtually every market around the world. And in the U.S., we now have renewals complete with all of the top 6 pay TV distributors, further solidifying our distribution revenue profile. With HBO Max, we've rebuilt, launched and dramatically repositioned our streaming offering in about 80 markets. When we formed WBD, HBO Max was largely a domestic streaming service that lacked scale, basic technological proficiencies and a differentiated content strategy as well as losing more than $2 billion. Today, it's a far more relevant direct-to-consumer offering viewed globally as the highest quality streaming service in the world, blending popular global tentpole titles, select local language productions and a wide array of sports in a way that has clearly defined it as a unique, compelling offering in a very competitive streaming market. In part, helped by HBO's recent string of content successes and a robust slate ahead, we remain on track to surpass 150 million subscribers by the end of 2026 and to deliver at least $1.3 billion in adjusted EBITDA this year. That's more than a $3 billion adjusted EBITDA improvement in just 3 years. And in our Studios, we're now seeing the managerial and operational enhancements we implemented over the last few years bear fruit. Warner Bros. Television continues to be the most prolific and highest quality TV supplier and producer with an irreplaceable library of globally resonant hits. While Warner Bros. Motion Pictures, home to many of the world's most iconic and beloved franchises, is enjoying strong momentum. In addition, DC Studios is set to debut Superman next month, kicking off the complete reboot of a multiyear plan to share its beloved characters across film and TV. And our Experiences segment, home to our studio tours and Harry Potter Experiences has both a strong financial trajectory and impressive economics and is positioned to enjoy a healthy boost from the opening of the Wizarding World Experience at Epic Universe and our third Harry Potter studio tour opening in Shanghai in 2027. And we've restructured our Games division to focus on key billion-dollar franchises. A narrowing of its aperture, which we believe will aid to focus and drive future upside. All of this together puts us on a strong trajectory to lift our Studios to its $3 billion plus adjusted EBITDA target. All the while, we've paid down $19 billion in debt and realized $5 billion of noncontent-related synergies, both of which met or exceeded expectations when our merger closed. By bringing together WBD's combined strengths, we've achieved measures of transformation that otherwise may not have been possible, and we have delivered substantial appreciable benefits to each aspect of our business. Now we're focused on the next stage of transformation and how we can capitalize on our momentum to unlock greater shareholder value and to allow each of these strong companies to achieve their maximum potential. As we've continued to analyze how our industry is evolving, the right path forward has become increasingly clear. To strengthen our focus and flexibility and maintain leading positions within our industry, we have decided to separate Global Networks and Streaming and Studios into 2 independent publicly traded companies. Each company will have its own dedicated management team and public company Board that will be hyper-focused on setting and executing against each organization's unique objectives and priorities. Both companies will have more latitude to quickly identify, evaluate and act on investment opportunities and other avenues for value creation. We expect all these factors will come together to unlock value. These companies will be better aligned with shareholders based on each business' individual dynamics and growth prospects, more agile, more aggressive and creative in pursuing growth and sharper in their ability to deliver consumers more of the stories and entertainment they demand. Before I turn it over to Gunnar, I'm appreciative for his continued work as CFO of WBD until the company splits in 2026, at which time he takes on his new and exciting role as CEO of Global Networks. Gunnar is hugely talented, and he brings a strong, broad and diverse skill set, evidenced by his impact, not only financially, but also strategically and operationally over the last several years. I'm confident in Gunnar's ability to drive shareholder value and to lead Global Networks successfully into the future. I'll now turn it to Gunnar to provide additional details on how this transaction will come to life.

Thank you, David, for those kind words and well wishes as I transition into my new role. I too thank you for your support, and I'm so very appreciative for your partnership over these past 8 years. Of course, I'd also like to thank the Board for the confidence they have instilled in me, both as CFO of WBD, which I will continue to be until this deal closes and in this next chapter as CEO of Global Networks. I truly cannot wait to get started, and I'm as excited as ever to hit the ground running with such a world-class and bold team. As David noted, we see this transaction as a natural progression for WBD, positioning each of Global Networks and Streaming and Studios comprised of Warner Bros. and HBO to maximize their respective potential as 2 distinct and focused entities. I'd like to briefly touch on the 2 businesses in more detail. With leading sports and news properties, Global Networks will have a prominent live presence complemented by leading general entertainment brands. Note, the U.S. sports rights will reside at the Global Networks and its management team will determine how best to monetize the streaming and digital rights over time. Internationally, sports will largely coexist, both on linear and streaming as they do today. Global Networks enjoys a strategic blend of powerhouse brands and global juggernauts, delivering culturally relevant content across an unrivaled global footprint. In many markets, we are a leader in viewing share such as EMEA, in which we have a top 3 position in certain key European markets and are the #1 in pay TV viewership across Latin America. Moreover, we believe there is an underappreciated digital-first opportunity for our verticals, such as in news with CNN's digital makeover, sports with Bleacher Report and House of Highlights and of course, in streaming with discovery+, all of which will be part of Global Networks. Streaming and Studios clearly has strong underlying momentum. Its strategy will continue to hinge on further scaling HBO Max through additional international market launches and strong monetization potential. Key launches in the U.K. and Ireland, Germany and Italy scheduled for early 2026 will underpin the next phase of growth and help address the 40% of our TAM that remains untapped. The primary focus of HBO Max will be continuous excellence in content development, further global penetration and effective monetization, all of which should culminate in further subscriber and financial upside. At Warner Bros., we have implemented a more disciplined, focused and balanced content production framework. At the same time, we have taken a more rigorous and collaborative approach to monetizing our franchises and current and library content across windows, consumer products and experiences. Together, these will be key building blocks in the Studio achieving its $3 billion-plus adjusted EBITDA target. Turning to the transaction summary and capital structure as outlined in the press release and investor deck. Streaming and Studios will become a separate publicly traded company via a tax-free distribution to WBD shareholders with Global Networks retaining up to a 20% stake in Streaming and Studios. This retained stake is designed to enhance the deleveraging path for Global Networks. Additionally, we launched a tender offer this morning to enhance our debt portfolio funded by a $17.5 billion committed secured bridge facility. We believe the tender offer facilitates the best path forward among several options we considered, and it is an important step towards setting up both companies with tailored capital structures for future success. Prior to the completion of the separation, the bridge facility will be refinanced with secured debt raised at each of the companies. We expect both companies to have strong liquidity through cash and revolver availability with a clear deleveraging path. Global Networks will continue to generate significant free cash flow, which will be primarily used to delever the balance sheet and monetization of the retained stake will further enhance the deleveraging. We expect Streaming and Studios financial momentum will continue to drive meaningful top line and profit growth as well as free cash flow generation, which will help to reduce leverage. Transition services and commercial agreements will be utilized whenever possible to facilitate a smooth transition and to capture continued operational efficiencies. We anticipate the separation to be completed by mid-2026, subject to certain conditions, including final approval by the WBD Board, receipt of opinions and/or rulings regarding the tax-free nature of the transaction and market conditions. I'd now like to turn it back to David before we take your questions.

The decision to bring Warner Bros. Discovery together and the work we've done to integrate and synthesize our assets has importantly put us in a position where we now have 2 companies with the scale, infrastructure, resources, culture and talent to effectively compete independently. 3 years later, it's again time to make a bold choice to reach the next stage of transformation. The decision to separate Warner Bros. Discovery reflects our belief that each company can now go further and faster apart than they can together, and it represents an evolution of our ongoing efforts to evaluate and pursue opportunities that enhance shareholder value. Gunnar and I are now happy to take your questions.

[Operator Instructions] With that, our first question comes from the line of Mike Ng with Goldman Sachs.

Congratulations on the announcement of the deal. I just had one on capital structure and allocation. I was wondering if you could talk a little bit about the target leverage for each of the 2 companies. Any thoughts on free cash flow profile? Warner Bros. has talked about the 60% free cash flow to EBITDA conversion. What does that look like for each of the individual companies?

Thanks, Michael. This is Gunnar. So look, it's too early to talk about a target capital structure. We haven't made final decisions yet, and there's a lot we need to work through between now and when this deal closes. A couple of things can be said, though. Number one, it's safe to assume that the majority of the debt is going to live with Global Networks and a smaller portion but not insignificant portion on Streaming and Studios as well. Number two is I do think that we will continue to see strong cash generation. Obviously, more pronounced in the Global Networks space, where we have a mature business with content amortization and investment in balance, and we have shown over the years very strong free cash flow generation. But it's also important and as we've laid out, all the work we've done in the past put us in a position to be able to execute this transaction now. And for the Streaming and Studios business, I definitely expect this to be a self-funding business and a fully funded business plan by the time this deal closes. We have used a lot of that free cash flow from linear over the years to build a scaled streaming platform that's now operating in 80 countries globally. And so even that side of the business will start from a self-funding position and will exhibit strong growth and cash flow generation going forward to have a very strong and stable balance sheet.

The next question comes from the line of Ben Swinburne with Morgan Stanley.

Congrats on getting to this point. I wanted to ask you about your distribution relationships. You've been going to market around the world with a lot of scale combining streaming and linear. How does this separation change your approach and also sort of the opportunities and maybe some of the risks around kind of unbundling your offer from an MVPD point of view. I can think of the Charter and Sky deals as specific recent successful renewals that leverage both Max and linear. So what does the separation mean for the global distribution revenues at the company?

Yes. Thanks, Ben. And look, the first point I want to make is the whole concept of this separation here has been to create 2 very strong and well-positioned companies in -- and of themselves. And Global Networks has a powerful portfolio with amazing brands, entertainment, news, sports. And Streaming and Studios has a globally scaled streaming platform at this point to take to the market. So we feel very confident about the compelling nature of both of these portfolios. You are right, we have been very successful in renewing our affiliate deals over the past year. Specifically in the U.S., we've worked through 6 of the top deals, and we have actually an unusually long runway ahead of us now having worked through all these deals with success and rate increases. And as I said in my prepared remarks, to the extent that there are opportunities for operational -- continued operational efficiencies and benefits, we will hammer that out over the next few months to make sure that we're creating a structure that protects that.

And we also look, there are times when you have distributors that really just want HBO Max. And we've ended up in protracted discussions trying to create alignment around more of our products. And there are times when people just want the free-to-air and the linear services. So I think there's likely to be, I think, some upside as we can work together and work together and we'll be able to in the future, but we'll also be able to take each of the products that we have and go to market with those with more flexibility.

Your next question comes from the line of Steven Cahall with Wells Fargo.

So David, I think this is something you've all been working on for a bit now. I'm just curious, as you went through the process, what you learned that gave you that increased conviction that this will unlock value for shareholders. And as you think about the future of Streaming and Studios once separated, do you see HBO Max as increasingly more of a hub for exclusive content? Or do you think it's something that will maintain content like sports and some of the legacy discovery+ content? And then, Gunnar, I know this is a tax-free transaction, and that has some implications for M&A down the road. I'm just wondering how we think about the tax basis for these assets? Were those stepped up in the WarnerMedia merger back in 2022 since that may play into maybe how we kind of think about some of the M&A potential for these assets over time?

Thanks, Stephen. We're in the midst of this generational disruption and things are changing. They've changed significantly in the last few months, and they continue to. But when we put these businesses together over the last 3 years, we've really built out the businesses. We've paid down almost $20 billion in debt. So we've delevered significantly, which gives us more flexibility. HBO Max was a U.S.-only business. We built that out globally. It was -- as we said, it was losing $2 billion. We're now making over $1 billion, and we're going to be in over 150 million homes with real growth into the future. The product is very strong. And we needed to fix the creative side of the business. We now -- we brought a lot of creative people back to the company. We haven't lost any creative people. And the Studio itself has a real path to meet and exceed $3 billion. And so -- and in addition, we were very effective in getting real efficiency around our free-to-air and cable businesses around the world to drive margin. And so when you look at the overall business now, and we've juxtaposed that against the disruption, that's where we now have that flexibility to have a very strong growing studios and streaming business with great brands, maybe the biggest library in the world, maybe the biggest studio in the world with Warner and HBO and together with all the iconic IP that we have. And this -- the Global Networks business is a real business. And in many ways, I think there's likely to be different investors because they have different growth metrics and different trajectories. But the Global Networks business, having the free-to-air and as well as all the cable and a leader in sports around the world, I think, will be very strong, and Gunnar will be able to build that. And we also are in the position now that we believe the benefits of a separation now into 2 scale businesses really give us a lot more strategic flexibility for the future, which is important. On the question of content, we really like this mix of a strong HBO Max with the TV and motion picture library and the great content that Casey and the team at HBO is putting together, and that's being augmented by Warner Bros. Television. Channing with a lot of great content like working together on Harry Potter. But the secret sauce for us is the highest quality content and library together with local content together with local sports. And that will be our global recipe because it's working for us. Inside the U.S., sports has been less critical. It's viewed, but it hasn't been a real driver for us. And so it will continue to be on HBO Max, but the Global Networks business will evaluate over time where the best place for that is.

Yes, we should talk about the tax question. Steve, I don't want to talk about a tax basis here. But what you should assume is that I'm convinced that both assets here by the time this deal closes are going to be free and clear from a transaction perspective. And we do believe the transaction provides each business with greater agility to capitalize on potential opportunities that may arise. But I also want to stress that there is no such plan, and I love the asset perimeter of both companies, and we'll execute.

[Operator Instructions] Your next question comes from the line of John Hodulik with UBS.

Maybe first for Gunnar, more of a housekeeping question. Just any early way to think of the allocation of corporate overhead. You got about [ $1.2 billion ] a year. Just anything high level about which goes with streaming co, which goes with the linear co. And then maybe for David, any early conversations you're having about that -- or you've had about that equity piece of Studio Streaming co? And in your view, how should we think of valuation there?

Let me start, John, with the corporate allocation question. So as I said, we still have some work to do. We need to create carve-out financials and pro forma financials. To some extent, we're also working through a, let's say, putting the fine strokes here on the operating model for the 2 companies. And that will determine the answer to this. That said, for your modeling purposes, I think you could probably broadly assume a 50-50 split. And on the equity valuation, look, the -- part of the thesis here is we have a very unique and incredibly valuable Streaming & Studio asset, globally scaled platform, one of the most -- the most iconic portfolio, IP library, creative talent team output. And we believe that it's going to attract an adequate valuation. And we've also been very clear that we believe that our current valuation does not reflect that. But really, that's for the market to determine as we come out of the gate.

Your next question comes from the line of Robert Fishman with MoffettNathanson.

Hopefully, you can hear me okay. David, do you think this changes the strategy for competing against the larger streaming platforms? And then on a related note with the Studio, given your recent success at theatrical, can you just talk more about your confidence in the sustainability of Streaming and Studios cash flows going forward?

Great. Thanks, Robert. So we feel like we've found a very compelling strategy of quality. We talk to people around the world. And when they -- we've put HBO back in for a reason. People see us as the highest quality streaming service out there. We have the highest quality library, motion picture library, TV library as well as all the HBO content. And then we have the ability with Warner Bros. Television in order to augment which we did with -- which Channing did with The Pitt, which we're doing with Harry Potter. So we're the biggest maker of television. The majority of the economics of the -- as we look to approach $3 billion and growing is coming from monetizing that very strong motion picture and TV library together with the television -- the Warner Bros. Television business, which has over 80 shows as one of the highest quality suppliers to our peers. And so...

So I mean, for the cash flow part of the question, Robert, I want to reiterate what I said a while ago. We have made the investments that were necessary to build that scale platform. We have made tremendous and we will continue to make tremendous investments in content creation. And taking all that together, as I said, we're still working through exact pro forma financials, but I absolutely expect this business to be approaching a cash flow breakeven and be self-funding. And then we've mentioned before that there is an expectation here on our part clearly of very dynamic top line growth, profit growth and cash generation.

Just your last question about the Studio itself. The Motion Picture business is probably the smallest part. It's very hit driven. We're very excited about Superman. We're almost wrapped with Supergirl. There's a great plan around DC, a 10-year plan. The Warner Bros. has had 3 consecutive hits. We're going to be distributing F1 in the next 2 weeks. So we really like the Motion Picture business. We think it's critical to have those movies. We also have the A24 movies coming into HBO Max. And we're -- we put real discipline. And so we have confidence in that business, but it's probably the more difficult business in terms of margin and swings.

Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities.

Just a couple of follow-ups. On the tender offer, could you -- is there any comment you can make about expected rates and maturity like the refinancing? And then on places you overlap, advertising content, whatever, how -- will you have a service agreement? Or will you actually have 2 separate -- completely separate companies?

Yes. Let me start with the latter, Jessica. That goes to the point that I made earlier. We will absolutely try to maintain as much of the operational and go-to-market benefits as possible. And specifically for U.S. ad sales, I firmly expect to continue going to the market together. Rep agreements in this industry are pretty standard, and I think that's straightforward. On the content side as well, we're benefiting from using each other's content here. We will -- I'm sure we will put agreements in place and for content licensing, it wouldn't make sense for Global Networks to create their own unit. David?

Yes. And we have rep agreements in a number of markets, which we find very effective, and they're very efficient. So we should be able to really take advantage of that. Tender piece?

Well, yes, the tender, there's a separate press release, Jessica, laying out in all detail the various components and the various offers that we're making. But just to take a step back, the conceptual idea here is to use this tender offer in order to reduce our overall gross leverage, adjust the maturity profile to create the right capital structures here for both companies and to give us an opportunity to issue new secured debt to be able to really target the capital structures for both individual companies by the time we close. And I'll say this, we have looked at every permutation and various ways of getting this separation implemented. We believe that this tender offer is really a great way to do this. I have full conviction that this is going to go over very well with bondholders. It's a very fair offer. It's also good for our shareholders. And so I think we're -- this is a sweet spot. There are many other ways to do this, but none of them are as attractive as this approach.

Your next question comes from the line of Rick Prentiss with Raymond James.

This is Brent Penter on for Rick. On the strategy at Global Networks, can you elaborate on the opportunity you talked about to take those digital? Obviously, you announced the CNN streaming service a few weeks ago. Will there be other plans for the rest of your networks that we should expect soon? And then what percent roughly of viewership on HBO Max comes from the networks being spun off?

Well, look, let me start, and then I'm sure David will add perspective as well. I want to take a step back. We -- I have full conviction that we will see very successful networks for many, many years to come. The desire for people to consume content, especially from recognizable and iconic brands like TNT Sport, Food Network, CNN, et cetera, none of that is changing. We have a global footprint that is unrivaled, 1.1 billion unique viewers each quarter. We're in 200 countries and territories -- 200 million countries and territories, 600 million homes. So we have a very, very strong starting position in the portfolio itself. The important point here, and we noted this in the press release and in our prepared remarks, the perimeter for this company is going to be broader than what's in our Network segment today. We will have discovery+ in there. You mentioned the strong start that Mark Thompson has had with CNN's digitization, the sports portfolio in the U.S. being under control of this company. So there are a lot of things that are not in scope today. And if you combine that with what's already there, the strong positions in free-to-air internationally, I think there is a very, very strong starting position with a lot of assets that we can build on and build around.

On that question of percentage of viewership on HBO Max in the U.S., it's about 25%. There's different metrics that you could look at. There are metrics that where we would call first looks where it's more likely that people came in and subscribed in order to see content. And then there's percentage of overall viewership. It's much more for the original series and the movies that people come in for on first look, which is one of the metrics that we use to try and understand how many subscribers we're gaining for a particular piece of content. And then you need -- you want people spending more time with your service. Outside the U.S., really nothing will change. We'll have the local content and the local sport. And inside the U.S. we'll continue to carry that content because it's valuable for us, and it will be valuable for Global Networks.

And maybe one financial aspect I would like to add to that discussion as well is I don't expect any dramatic dislocations in terms of the content financials either because you got to remember, already today, we are dealing on an intercompany basis at arm's length and at fair value. In many of our IP, we have third-party participants or people receiving residuals, et cetera. So we have paid a lot of attention to it. And so there isn't going to be a very significant shift of utilization of content that doesn't make sense anymore going forward. It's going to be -- I think it's going to be pretty close to what we're seeing today.

Next question comes from the line of Peter Supino with Wolfe Research.

Congratulations. You mentioned in your comments this morning that the Studio business has its ups and downs. It's a more volatile business. It's the nature of it. And I wondered if you could help us value it by sharing a rough profit margin for your library function since that's a really steady cash generator. And then also on studios and streaming, I wonder if you could just talk about the 1-year time line to close and how you thought about that.

Sure. Gunnar, do you want to take it?

Yes. Look, I mean, the -- The studio valuation question, again, I would say that's something for the market to figure out. I do think that there is a lot here. Again, one of the most iconic IP libraries, an amazing creative output. And I agree with you, the thing that sometimes overlooked is the steady nature of the revenues and profits coming out of that library. We have been clear about that in the past that it is a very significant driver of profitability. In fact...

Steady over a period. We still -- it would get lumpy when we go to market with Big Bang or when we go to market with Seinfeld. But over a period of years, you could really model out that steadiness. The TV business is also relatively steady, and you can -- it's easy to model because you get long-cycle renewals. We have 80 series. We get renewals early in the process, and we can model out over the next 2 to 3 years where we're going to be with very little downside and ability with -- to get new shows picked up with some upside, but those also take time. So the piece that is up and down is the Motion Picture business. And between -- I think the thing that I feel best about is we put real discipline around it. But we also have our overall content is underused our great iconic content rather than overused. So we'll be going more and more to the best content that we have that people see and love all around the world, whether that's Lord of the Rings or DC. And Mike and Pam are really looking at mining the big brands. We're still going to do a lot of original, but mining those big brands that give us a real advantage in the marketplace.

Yes, maybe just one quick one on the 1-year time line. Look, as we have with everything we've touched, we're going to work as hard as we can to get this done as quickly as possible. I would say the long pole in the tent here is the fact that we need to get our Form 10 or proxy done, and that will require carve-out and audited carve-out and pro forma financials, and that will just take some time. So the intention is to get this done mid next year, can be a little faster, we'll definitely try.

Your next question comes from the line of Rich Greenfield with LightShed Partners.

Gunnar, as you look at the global linear, could you give us a sense how many employees are still at global linear networks? And how should we think about the overall cost base? I guess maybe from a high level, what inning are we in? You've been doing a lot of cost cutting really since you took over the assets. I'm curious like how much more cost cutting do you think there is on a relative basis as you think about this as a stand-alone business and driving free cash flow, specifically out of the global linear piece?

Rich, I apologize. You'll have to repeat that question. We just -- we have an interruption [Technical Difficulty] give us 30 seconds and then -- sorry, go ahead. Repeat the question, please. I'm sorry.

So I said how many employees currently still work? If you look at the global linear networks business, leave off corporate, but a global linear networks, how many employees are there still in that business? I'm just trying to get a sense of really understanding the cost structure. You've been cutting a lot of costs since you guys took over the company a few years ago. And I'm trying to get a sense of what inning we're in, in terms of cost cutting. Obviously, the industry headwinds are not going to change. And so understanding sort of the cost-cutting ability is obviously critical to getting a real feel for the sustainability of free cash flow, specifically out of global linear.

All right. Thank you, Rich. And again, apologies for that interruption here. Look, I want to be very clear, 2 things are going to have to be true. We will -- and frankly, on both sides of this company, continue to be very focused on efficiency. We have turned WBD into the most efficient media company, I think, out there, and we will continue with that mentality. That's been one of the big factors that's driven us.

Which has yielded about $5 billion in efficiency outside and which -- that's not related to content, which we're going to be driven to invest more in.

Right. And so for Global Networks, again, you can look at the segment financials that we started putting out at the end of Q1 and trending schedules going back to at least get a directional ballpark here. As I said earlier, the perimeter is changing a little bit with discovery+ moving over, et cetera. But that gives you a starting position. And look, the important point for me is, yes, we will have to continue to focus on efficiencies and drive efficiencies as that -- the traditional part of that business continues to see secular pressure. But I also think that we do have very significant investment opportunities, and there will be more opportunity for driving efficiency and transforming those brands into a digital future.

And on the streaming side, this strategy that we laid out almost 3 years ago, not how much, how good has Channing and Casey working really hard on spending more money on the content that we think is going to break through in the market and it's going to be representative of what we are and what our strategy is, which is the highest quality streaming service.

Your next question comes from the line of Michael Morris with Guggenheim.

I want to ask you 2 things about flexibility, which is a term that you use a lot in talking about this. I guess the first is, as you look at the Streaming and Studios side of the business, what is your view for further partnerships and bundles and I guess, bundle partnerships with respect to driving growth in the number of subscriptions? And then the second question is about that the structural flexibility. So because this is a tax-free structure, I would assume there is some limitation in terms of the amount of time before you could do something on a larger scale. Is that accurate? Would it apply both to Streaming and Studio and to Global Networks? Or could there be differences between one or the other businesses?

So let me start with the bundles. We were out talking very early about the value of bundles because it provides a better consumer experience. And we started talking about bundles as an economic value, but we really see it differently right now. It's a way of creating a better consumer experience where you could buy Hulu and HBO Max and discovery+ and Disney+ and go very seamlessly between them. And that has yielded real growth and very low churn. We're doing things like that in a number of markets around the world. We're bundling with Netflix and Globo in Brazil. We're bundling with Televisa in Mexico. So the ability to create a better consumer experience together with a better economic. And in almost every case in these bundles, we're going direct. So there's no third party. So in many cases, we're actually making more money. And the thing that I believe will be the real driver is consumers aren't going to put their -- they're not going to go to a device or put a TV set on and see 20 choices and then be Googling what they're going to watch. It's going to get consolidated in a way that's a better consumer experience. Bundling will be a big part of that. It's one of the reasons we were driven relentlessly to make HBO Max a global service. And the idea that we're now profitable in over $150 million by the end of next year and growing is critical because we believe that in order to be a long-term player that has real substantial and sustainable growth, you have to be global. And so I think we're well positioned in that journey and bundles will be a big part of it. And there may be some more consolidation along the way where some of the regional players or local players find it difficult to build platforms and promote them and provide a nourishing offering. On the...

Yes. Look, on the tax side, I said this earlier, I want to be absolutely clear. Once this deal closes, both companies are going to be free and clear. There is no minimum time. There is nothing -- that's a function of the fact that there is no plan for any transaction existing at this point. And that means once the separation closes, they're free and clear.

And the objective here is the transaction provides each business with greater agility to capitalize on potential value-creating strategic options. And when it comes to looking at options during this period of time, if it's option -- if there's an option for less than 50%, that's something that we can look at with an RMT or a similar structure.

Yes. Your last question comes from the line of Jason Bazinet with Citi.

I just had a quick question on debt. I think you guys have around $33.5 billion of net debt today. If you think about the cash flow you expect to generate until the time of separation or the split plus the benefit you may get from the tender offer, what do you think a reasonable range is of the pro forma debt at the time that the company [ split into two ]?

Thanks, Jason. So yes, just below $34 billion of net debt as per end of Q1. Obviously, we do expect to continue generating significant free cash flow. And you're also right, we're expecting to pick up some of the discounts based on the delta between market trading levels and nominal values. As I said at the very beginning of the call, it's not the time to provide specific capital structure details.

Thank you. That's all the time we have for questions. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.