Warner Bros Discovery, Inc. (WBD) SVB MoffettNathanson’s Inaugural Technology, Media and Telecom Conference Call Transcript

Warner Bros Discovery, Inc. (NASDAQ:WBD) SVB MoffettNathanson’s Inaugural Technology, Media and Telecom Conference Call May 18, 2023 9:00 AM ET

Company Participants

David Zaslav – President, CEO & Director

Conference Call Participants

Michael Nathanson – MoffettNathanson

Robert Fishman – MoffettNathanson

Robert Fishman

We are very happy to be here again, kick off the day for us. We got Mr. David Zaslav, Warner Bros. Discovery. Thank you for being here.

David Zaslav

It’s great to be here. Good to see you guys.

Michael Nathanson

Thanks for being here, David.

Question-and-Answer Session

Q – Robert Fishman

So let’s start big picture first. Now that you have officially 1 year under your belt, full ownership and control of the WarnerMedia assets, where do you think you had the most positive influence on the enterprise so far? And what are your key priorities from here?

David Zaslav

Well, first, I think we really have begun to have our real bearings around this business. And it’s really a diversified media company, which is our strength. And so the first 9 months was what businesses do we own and how do we — what’s the right structure for those businesses, how many people should be there. There was a lot of discussion about synergy. We really were focused on how do we build the company for the future, what should HBO look like? What should Warner Bros. Television look like? And get a leadership team in there running each of these businesses to drive scale. And we’re a storytelling company, in each case, get more people spending time with our stories and our content. What’s the right structure for investment and spending and have a real leadership team running each of these businesses.

And we ended the year with a real team in charge of our gaming — strong team in charge of our gaming business with command and control. We have Warner Bros. Television, which is a great — we’re the largest maker of content in the world with over 110 shows Shrinking, Ted Lasso, Abbott Elementary. We make most of the high-quality content. How do we really take advantage of that? Drive all the value of our traditional business.

And then we had 2 businesses that were really facing challenge. And one of the things that I’ve learned over the last 18 years of running a public company is it’s hard to run a company successfully when you have a real bleeder. When you have a business that’s losing money and you don’t have your hands around it. And so you’re making a lot of money in your other businesses, but then you have this hole. And we’ve had it before at Discovery, where we spent too much money on sports rights somewhere.

And so how do we fill that? So we had 2: we had HBO Max, that was losing a lot of money; and we had the motion picture business that was a great business for Warner for 25 years, but now it’s losing a lot of money. And so in addition to just how do we run each of these businesses to drive free cash flow and EBIT, and how do we create the right creative culture at each of these businesses, is how do we focus on these 2 businesses? Because if we — which we’ve done now. HBO Max, which will be Max on the 23rd, was profitable, $50 million last quarter. It will be profitable in the U.S. this year, a year ahead of schedule. I think that’s a huge deal for us. It’s a huge advantage.

We have more TV motion picture content, more original than probably anybody. And now we have a direct-to-streaming business that’s making money. Two is this whole strategy of putting motion pictures on a streaming service. One, it didn’t work. It didn’t reduce churn. It didn’t increase subscribers, but it also reduced the quality of the product. When people thought it was going on our streaming service, it just — it wasn’t the same. It was like they were going out for the basketball team, but no one was going to see it. They weren’t going to be a scorecard or a Thursday or Friday. And so the quality of the movies that were done were really not that good.

And we’ve wound out of that now. And so you’ll see The Flash, you’ll see Barbie. We have Meg 2, Doom 2, which is fabulous. So we have a good team now at the motion picture business. They’re working really hard on these pictures. I think we’ve made the turn. And so as we go into this year now, all of our businesses are making money with the exception of motion picture. But I think we’re making that turn now. We’re well-positioned. And I think that’s — that was — that’s a big deal, real leadership with real focus. And two is one company. Warner Bros. and Time Warner was always run as independent entities. And we’re not there yet. But running this as one company is really powerful.

So that when we launch House of the Dragon, we could have a Dragon going across 30 channels in the U.S. when we reached 30% of America. During the baseball playoffs, the Dragon was running across the field. We have Shaq and Barkley talking about the stuff that we’re doing. And so using this globally, what are — we’re probably the biggest marketing company in the world with all of our channels around the world.

And so using this company as one company, so every week, we have 3 meetings. One with all the creative people from each of the businesses, that never happened. The entire — my direct report staff, all the businesses together, what’s everyone doing? How can we work together? Who’s having a problem? Did you have this problem before? How could we help each other?

And the third is a business operational meeting, which is where are we on free cash flow and EBITDA. And so fight to get these businesses back to their — they’re really strong businesses, get them back to making money with real diligence or focus and then run this as one company. We’re not there yet on all of this, but I think that’s the power of Warner Bros. Discovery.

Michael Nathanson

So if you think back from the time when you announced a deal 2 years ago, I remember it was right after our conference 2 years ago, like this week, the market was in love with streaming stories and money losers and bleeders, as you’d say. How much of the markets rethink of these businesses has led you to where you’ve gone to? Or are you moving into this business already thinking that these models were broken and you needed to revisit the HBO Max story?

David Zaslav

Well, when we did this deal, when I was talking to John Stankey, we don’t see the future. But at that point, everything was about streaming. And we were looking over, and the thought was Netflix had made it. They were — they had made it across the lake. They built a house. And Disney had made it, and they were building their house and then we were kind of stuck in the middle. And together, we could be the third.

We also assumed 3 years ago that those streaming services would have another 100 million or 150 million subscribers and that our biggest challenge would be we probably have 35% to 40% of the great IP in the world. How quickly can we get it all together so we can prove that we’re the third? And maybe our biggest issue would be that we’re late, and they’re going to run away.

Well, the market — here we are 3 years later. Or even when we closed our deal, it was pretty clear that the world had changed because they weren’t growing anymore in any meaningful way. So the marketplace was a lot harder. All of our expectations about how easy it was going to be to grow were wrong. Having said that, there’s a real positive to us, which is that they’re not 100 million or 150 million subscribers ahead of us. We have a scale service with HBO Max, which will be Max, that’s about 100 million homes.

And we have great quality content. And so we would — before the market said anything, we did. And we saw it completely differently. We took a lot of flak, but we said, “This makes no sense. There’s too much.” The movies are — don’t work on the streaming service. There’s too much spending. The investment in the streaming service is too high. There’s an issue with pricing of the streaming services. And we’re going to act. We’re going to build a streaming service that is profitable.

HBO was profitable from 2015 to 2019, made about $2.5 billion. We have the best-quality content, curated in a way that people love it. It was losing a lot of money. And so we really said, “We’re going to go at this a different way.” We’re not — it’s not going to be how much, it’s going to be how good. We had the luxury of looking at what was on the service, and a lot of it wasn’t being monetized or wasn’t being viewed. And so we went on this aggressive journey of saying, “We can turn this bleeder around and make this a great — what it deserves to be: highest-quality content that’s loved and profitable.”

And so — and I think now what you’re seeing is that a lot of — it’s — as I said, it’s hard to run a business when you’re losing $2 billion or $3 billion. It’s worse than debt. If you have debt, you could pay it off. When you have a business that’s losing money, it can lose more money. And so you got to get your bearings. And we’ve done that across the board.

Robert Fishman

Maybe just following up on that. I mean you’ve already mentioned the earlier ahead of schedule, in terms of reaching profitability in the U.S. on Max and set to launch again,, relaunch next week. How do you balance the need to invest behind the platform and versus finding that right balance to make sure that you’re hitting your profit goals?

David Zaslav

Well, there are a number of markets we’re in. The U.S., we’re really in. And so we’re launching this new product next week. We’re very bullish on it. It’s — we have all the Discovery library, home, food. We’ve seen with discovery+ that the churn is very low. People are spending a lot of time with it. And if we put it together, our thesis is — part of the thesis of this transaction is that we have a product that will — enough content that more people in the family will be using it and there’ll be more engagement.

And the biggest problem with all the streaming services is churn. And so we’re really going to be driving both with the robust amount of content that we have in the U.S., together with the product itself that will help us, we think, reduce churn because we’ll be able to reach customers more effectively. But we also have other artillery. This is really a war. It’s a very disruptive market. There’s a lot of irrational — a lot of what’s going on makes no sense. Big overspend, pricing of the products are too low.

Imagine you were back 30 years ago and you wanted to watch CBS and you had to download and buy something. And then you want them to watch ABC, had to download and buy something. You wanted to watch MTV. It’s not a good consumer experience. So a lot of that is going to change, I believe, over the next couple of years. And we’re going to try and push toward that change because we have a lot of great content.

But in that war, a big piece of the artillery is the great content that we have. The fact that HBO can generate with House of the Dragon, The Last of Us, Succession, White Lotus, Euphoria, can generate a Sunday night cultural experience that is only matched by must-see TV at NBC. Those services over a few days were generating 20 million, 30 million, 40 million people.

And Must called me the other day and he was talking about the explosion on Twitter. So we have something very unique, shared experience together with great content but we also have the additional artillery of sports and news. We have our sports and if we want to put it on our streaming platforms, we can. We have news, we can. Live sports, live news. And so as we go into this war, we have all of that artillery with us.

And outside the U.S., in a market like India that’s challenging, if there’s a market we weren’t going to go in for a year or 2 or the market that’s been really difficult to make money. If there’s someone there that wants to give us a lot of money for — to get all of our content in the short term, that’s a big win for us.

We’re about driving free cash flow and driving value. And when we sell all of our content into a market, it’s powerful. One, we generate real economics. But it reminds me of when we were in the regional sports business with Chuck Dolan, when I was at NBC. You get all the sport from — let’s say, you’re in Cleveland and you get your sport from the Browns and you get your sport from — you get baseball and basketball, the Cavaliers.

I ran a business like that when I was at NBC. And at the end of the 3 years, when your deal is up, we were making a lot of money. When the deal comes up, the lead turns around and they say, “We’re either going to — we’re going to take it back and do our own regional sports network, or we’re going to raise your price by the $100 million to $200 million that you’re charging us.”

So in markets where we decide to sell all of our HBO content, I think it gives us — it sees the market with all the great content that we have, and HBO has never been stronger. And it puts us — we’re doing — we’re not doing — for the most part, we’re doing a few long-term deals in markets where we don’t really think we want to go into for the long term. But mostly, we’re doing it so that in a few years when we want it, we could take it back and go or we could charge more.

Michael Nathanson

You talked about churn as one of the issues in this model. Pricing is another issue. So talk a bit about HBO Max pricing. And then the buildout of the ad tier, which I know you’ve had success in the old discovery+. So how do you think about pricing and maybe the gap between ads and no ads?

David Zaslav

Our first objective is we have about 100 million homes. We have 97 million, 98 million homes. We have meaningful scale in a lot of the markets. 2/3 of the markets, we haven’t launched yet. So number one, we have a product that’s well liked, well-respected. We have real scale. Let’s get this transition in place and do no harm. Let’s emerge with our new brand. Let’s have people understand it. We have a very strong technological platform that gives us a lot of advantages. We didn’t have a recommendation engine. When people want to renew HBO Max and they gave us a credit card and it didn’t work, we couldn’t even reach them.

So like there was all kinds of — we didn’t have child bearings — kids bearings. So if you — we had great kids’ content. So first thing is, let’s not worry about price. Let’s over-deliver on quality, and let’s get more people in the home. Let’s get the transition effective. Let’s get our 100-million-or-so homes. Let’s get people really enjoying and loving the product, more people in the home using it, kids back on the platform, recognizing we have DC, we have Harry Potter. We’ve got the best documentary library and take a . Because if churn comes down, which we will be driving, there will be very significant growth just on reduction of churn.

Generically, I think all of the — the overall pricing for the streaming services is irrational. If you’re in the sports business, if Goodell added a football game, he doesn’t charge less. He adds a football game, he charges more. The streaming services doubled or tripled the offering of what they were doing, and then they reduced price. People are paying a lot less for content now than they were.

If there were 50 million people that like premium 5 years ago on basic cable, they’re paying a lot more money for HBO, SHOWTIME, STARZ, EPIX, Encore, than they are right now for these streaming services. And the investment in content is 3 or 4 times. So that will all work out.

The key for us, how do we create a product that people love and how do we get more people feeling nourished and loving that product? I think we’re really on to something with what we have. And once you have that, the ability to either raise price or provide sport and other product that they either spend more money on or that further enriches their experience on the platform, that’s a winner.

Robert Fishman

So another big reason why people seem to love Max and HBO Max is the vast library that you guys have on the service. Hit titles, Friends, Big Bang, clearly driving a lot of engagement, I would imagine. So as you think about the need to reevaluate the strategy going forward with the relaunch, can you just talk about how important some of those shows are to be exclusive to Max versus if you can license them out to other people?

David Zaslav

Well, I think one of the real advantages of this company is we have a lot of content that people know everywhere in the world. And if they’re sitting — if you’re sitting down for dinner at 8:00 anywhere in the world and somebody says, “Harry Potter,” they say, I got to go. Batman, Superman, Wonder Woman, Lord of the Rings, Game of Thrones, these are assets — Harry — the Hanna-Barbera, Looney Tunes, these are assets that are really distinguished. It’s a very different thing than launching a series and then trying to get people to know what it is and building it up. It’s a big advantage.

And so for us, we have to recognize what are the jewels. Those are for us. And so the things that we can see, and we can see. The great thing about coming into this business later is we can now Monday morning quarterback, we can look at HBO Max. They put the entire library on there. What are people watching? And we could see that 5 shows or 90% of what people are watching on HBO Max. And if we put it to 20 shows, it’s 98% of what people are watching.

And when we see what are people — when they buy the service, where do they go quickly, they go to like 3 or 4 of our series. We’re not giving those to anybody else. So the distinguishing factor between us and a lot of our peers is we have great content that people love, and that’s going to be, I think, what gets us with a platform that is — that really works, together with a shared experience.

We believe something different than — our belief system is that powerful storytelling. We’re just a storytelling company. Great storytelling really works when it’s a shared experience. That’s why we’re all-in on the motion picture side. We don’t want our entire slate on the streaming service, $1 billion, $2 billion worth of content. Put it in the theater, have that great shared experience. Put it in PVOD, have people buy it. And then when we put it on the streaming service, it’s much more powerful.

But we also have the only place for the shared experience that I talked about. And I think that — we don’t — we’ll sell a lot of stuff, but we need to hold on to the stuff that really makes us different because you can’t buy that.

Michael Nathanson

Can we dig a bit more on the sports and news angle here? You’ve said you’re going to put it on at some point. What are the gating factors that news sports and news on streaming? And then how does that decision relate to also your linear business, right, which is complicated? So what are the gating factors that you’re thinking about before you make this transition?

David Zaslav

Well, we’re already using sport in different ways in Latin America and in Europe. And we don’t have the same model in every country. In a number, we’re offering the sport right on the platform itself. In other areas, we’re offering the sport as an add-on. And in some markets like the U.K., where we haven’t launched yet, we have a very big sports service with BT. But we find that offering the sport is very helpful.

The more people go to a service, the lower the churn. And we know that there are super fans of sports. And so we think that it’s — it will be a real helper to us. It has been in Europe. We want to get this product launched. We want to get to know exactly how people use it.

Most of HBO Max, people are watching at night. It’s appointment viewing. It’s lean in. Most of the Discovery library, which is used, is lean back. People are watching that while they’re doing homework with their kids, while they’re cooking, while they’re on Zoom calls.

And how does this whole thing work? Will we then talking to our users? And then we’ll decide how do we deploy news and sports. And we’ll be back soon with that. What we need to do is we have a real theory of the case about how this could be a real weapon and a real advantage for us and helping to create a better product. But we first want to see and talk to the users because ultimately, they’re going to decide.

Michael Nathanson

You talked about this. There’s a theory in the case that sports fans want to watch content in one place. You mentioned turning on different apps. If someone came to you and wanted to build a sports- and news-led skinnier bundle. Is that something that interests you out of the channels you have? It seems like the bundles are too big. Someone needs to narrow them down and scanning them out for people who are not leaking content all over the place.

David Zaslav

Look, one of the challenges in the business right now is, as I said earlier, that the difficulty for a consumer in aggregating the content that they love. Entertainment, nonfiction content, sports content, everyone’s Googling where is it, how do I get it. It’s not rational and it’s not really sustainable, not sustainable because it’s not a good consumer experience, not sustainable because there are a lot of people in this business that are just losing too much money.

And how do you keep doing that? Consolidation is one answer. I think that’s unlikely to be a big answer. First, from a regulatory perspective, it’s not easy. It takes time. This industry is changing so quickly. Saying I’m going to take 2 years, and then I’m going to merge with a new set of assets or 2.5 years. Who knows what the world looks like?

And so I think there’s a lot of risk in — from a regulatory or even a time. But there should be a consolidation. And I think it’s more likely to happen in the repackaging and marketing of products together. That’s what really, I think, makes sense. We have to, as an industry, reach that point. For me, it seems very clear that if we were to package this great product that we have with others, if we were to wake up tomorrow and in each market, if we’re the #1, 2 or 3 product, if we were marketed with 2 or 3 for a specific price, it would be great for consumers. It would probably reduce churn. We’d both be marketing one product. And it would provide a meaningful consumer experience, not just on price but that, okay, I now have a bigger package of content that’s broader.

Now I think the two ways it could happen is we could do it. The content owners in markets or more broadly across regions can do it. Whether we do it this year or in three years, I think eventually, something like that will happen. If we don’t do it to ourselves, I think it will be done to us. It will be Amazon that does it. It will be Apple that does it. It will be Roku that does it. They’re already starting to do it. And it makes sense. A lot of people will go to some of those platforms as a more — as an easier curation of finding what they like.

Robert Fishman

So I’m curious, one more on sports. Just in terms of — you’ve already touched on it. The streaming platform is clearly global for you guys and the reach that you have. How important is that when you think about future negotiations of sports rights? And if you want to touch on specifically NBA, but just maybe even broadly thinking about future renewals.

David Zaslav

Look, sports is a little bit different for us than every other business. In every other business, we’re the owner. We’re the owner. We own DC. We own Harry Potter. We own Lord of the Rings for motion pictures. We own Game of Thrones. We’re the owner. So anything we build and the value that we build around the world, whether it’s on the screen or whether it’s in merchandising, belongs to us and maybe someone who’s partnering with us in that.

Sports is a rental business. And we all got into that business because in many cases, you didn’t make money on the sport, but when you put it together with your whole package in any market, we have 10 or 12 channels, then we have 3 sports channels. And when you put it all together, owning football and owning all the tennis and the handball, and the Olympics, overall, we make more money.

You now have to look and see where does it make sense and where it doesn’t. I think we’re in a good position. We have March Madness through the ’30s. And it’s a very good deal for us. It’s good money. We have baseball. That’s a very good deal for us, good deal longer term. We have hockey through the ’30s. That’s a good deal. March Madness is kind of a monster in a good way. We have 70%, 80% of those games. People are watching in groups. For the month of March, it’s — you need to be with us. We have those digital rights also.

I like the NBA. We’re — the NBA is doing very well for us. We just got to be careful not to be silly. And the good news is Adam is very smart. They have great IP. There’s going to be a rationalization of regional sports networks. That will free up a lot. But we have something that’s really unique for anybody that’s in sports. We’re global. Any league that wants to get more global drive, we’re probably the largest global company in the world. And we have sports that we’re — in all of Latin America and Europe.

We also have Bleacher Report and House of Highlights. For people under 30, we have 150 million people under 30 coming to us regularly with House of Highlights and Bleacher Report. That’s great for the NBA. That’s great for baseball. That’s a demo they don’t have, and they’re hanging out on Bleacher and on House of Highlights. That’s a big winner.

And we produce great content. The best sports show on television right now is with Barkley and Shaq and Ernie. And our ratings overall are much better, and we get all of this extra rating going in. And so those that are in business with us right now, domestically and around the world, they’re very happy with us because our sports audience is growing. And we’re nourishing those sports brands. So I’m hopeful that we’ll get a deal done with Adam. It will probably look a little different.

When we did the Premier League in the U.K., it ended up being a very good deal for us because we wanted it. It was 500-plus games. On renewal, we ended up with 500 games. Amazon ended up with maybe 15 or 25 games. Our price was fine. We ended up with a very good deal to renew. Amazon got a bunch of games, which was good for Amazon. We have a really good relationship with them. We did a deal to produce the games for Amazon.

And then we promote from our platform. If you want to see those games, we have 90% of the games, 95. If you want to see those games, go over to Amazon. And Amazon would then promote, the other games come to us. So we’re working way too hard to drive free cash flow at this company.

And we got our Max product. It will be — it was profitable. It’s going to be profitable this year in the U.S. We’re generating real free cash flow even in a very difficult market. Sequentially, we’re seeing some real improvement, but it’s not good, but we are seeing improvement. But we’ll end this year less than 4x levered, generating real free cash flow, and we’re going to protect that. This company is a real free cash flow driver.

And the next year, we expect that we’ll be investment-grade. We’ll be somewhere between 2.5 and 3x levered. And we’re modeling this not assuming that we’re in some kind of a great market. And then we got real optionality. We own all of our content, news, sports. We’ve got 35% to 40% of the great IP in the world. We don’t have a bleeder. Our balance sheet is looking good. And we’re facing a tough environment.

I mean I was saying earlier, advertising market is a challenge. The pricing of the marketplace is imperfect. The fact that there’s multiple products that consumers need to find their way on and we all are building individual products. All of that is inclement weather. And so you have the rain from the bad advertising market, you got the wind coming in because we all have to build platforms and it’s not rational. And all of a sudden, you’re getting a little bit of sleep on the side, it’s inclement weather.

But we’re now on the porch. We’re not losing money in any of our businesses, and we’re going to hang in here now, make our numbers, fight to drive our free cash flow down, delever. Get our product launched domestically in a number of markets around the world. And I think some of those things are going to begin to rationalize. And with a company that has real command and control, as those things begin to — as sun comes out on any one of those things, we’re going to really, I think, have an opportunity to take advantage of that.

Michael Nathanson

Can I add to the store metaphor? There’s also the lightning of cord-cutting, which is running at a pretty high level. Yesterday, we asked Lachlan Murdoch, do you think companies that their content, the best content over the top, you can say NFL games leaked into bundles at $3 a month. Versus those companies like yours that held rights back into the ecosystem. Do you think there’s going to be differential growth rate in terms of affiliate fees, rewarding companies actually have kept the best content in the system? And will we see that at some point?

David Zaslav

It’s hard to tell. Right now, it looks like the entire marketplace is saying, “We need to do some leakage.” So everyone just — everybody calm down. There’s going to be a little bit of leakage. Everyone’s going to have to do it. We haven’t done it yet, but you look around. There was an announcement yesterday that some of the NBA games are going to be on the streaming service. More and more, you see a lot of the NFL games showing up.

Will there be economic consequences to that long term? I don’t know. On the one hand, you would think that would be — there’d be some negative economic consequence to that in a conference room. On the other hand, the power sport has gotten bigger. So whatever the buyer paid to have access to that sport, the actual power of that sport has gone up. And the importance of that sport has gone up. And so it’s going to be a balance of those 2. The — it’s out of the gate. It seemed novel before, but now the NFL games are being carried on the streaming service.

Michael Nathanson

Either playoff game…

David Zaslav

And now — and so it’s moving in that direction. It’s moving in that direction because there’s a lot of people that are under 25 that are — that don’t have — that aren’t signing up for free-to-air and cable. And so that’s where it’s going. The economic consequence will be a balance. The argument will be, “You should pay me.” On the one hand, the rights owner will say, “You should pay me more because this content is so powerful now. Even though I’m pushing some of it to my streaming services, it’s even more potent.”

And the other side is going to say, “Wait a minute, I’m not getting — I thought I was getting something exclusive, so I’m getting something less.” I don’t know how that ends up.

Robert Fishman

So I’m curious, just to follow up on the advertising rain going on right now. So you had your Upfront presentation. Just wondering if you can talk about the recovery and just the general tone. You’ve clearly alluded to it on the earnings call, too, but just any updates as part of the Upfront presentations that you guys have had?

David Zaslav

It’s just starting, so it’s hard to tell. We have seen sequential improvement. All the numbers that we gave you in our earnings, we feel good about in terms of where we are. It’s hard to predict where the Upfront will go. I think it will end up being better for us really for 2 reasons. We made a strategic decision last year. The average CPM in the broadcast market is $65, $68. The average CPM of the Warner Bros. Discovery assets was $30. And before — the argument before was we don’t have live sports, we don’t have live news, our reach isn’t big enough. That’s why we’re going to pay $68 for a game show, and we’re only going to give you $30 for a show that gets a bigger rating.

And when we put the company together, we said, we’re bigger than everybody else, and we have news, sports. All the arguments about why the CPM should be lower actually have changed because we now have a product that’s very attractive to advertisers and very attractive to consumers because we reach everybody.

And so — and historically, I’ve always believed that price is the way to grow. So when we went into the upfront, we said, since there’s such a big pricing differential, we’ll take less and we want more price. And that’s what we did. So we got a lot more price, but we took a lot less in the Upfront, which means in a good market and for whatever, 10 years, there was a very good, scatter market. Scatter was up 10%, 20%. There was plenty of volume. We would have been winner-winner. But the scatter market was weak, weaker than we’d ever seen.

And so you saw in our numbers. Others were down 9, we were down 14. Others were 10, we were down 14. Part of that is the fact that we made a strategic decision to drive price and be more exposed to scatter. And now as we go into this market, we have the ability to change our strategy to take more in the market and take less. But more importantly, we — because of that, we ended up having to take a lot of very low — we had to take a lot of DR and very low-filler inventory. So I think as we go into this, I think we got some upside. We also, unfortunately, have pretty weak CAGRs when you come back and you do quarter-over-quarter. We got hit by a pretty challenging storm.

And the quality of our content is going up. We’ve still produced a huge amount of original content for food, home, Discovery, TLC. And we’re getting a very good reception in the market. And we have sport, that’s very good. So we’ll see. I think that we — I think that we have a very good hand. We also — we’re offering something this year that advertisers are very excited about. For the first time ever, you can buy spots inside of Max. So that community effect that we talked about on The Last of Us or House of the Dragon or Succession.

Mercedes — I think it was — Mercedes brought a big package to be the 32nd spot in front of Succession because it’s a community experience. And there’s uniform excitement that after 50 years, we could buy spots in HBO. And we’ve taken Bleacher and House of Highlights, that young demo for — in sport. And CNN has the largest digital news business in the world. We have 150 million people that come to us.

So we go to the market with big on digital, brand-new opportunity with HBO Max with a lot of excitement and a lot of fresh content and sport and news on our platform. So I think the market will be the market, but I think that we should get back to outperforming. We underperformed this year. For all of my years at Discovery, we outperformed. And we’re going to fight really hard to get — and I think we have the goods to outperform.

Michael Nathanson

You also — over the years, Discovery, you’ve always been a share gain on ratings. And now some of the networks are pressured. Talk a bit about what you’re seeing in terms of the ratings front, including CNN, and things that you think you can do to improve the ratings trajectory, the impression trajectory of linear networks.

David Zaslav

CNN is a little bit different and the economic makeup of CNN is different. It’s much more distribution fee-driven than advertiser-driven. And in fact, even when the ratings were good, the overall brand, the perception of the brand was left lean. If you looked — we just — this past week, there was a new survey that said the overall trust in America for CNN, what was the source?

Unidentified Company Representative

YouGov poll.

David Zaslav

YouGov poll, was up 11 points. That’s what we’re going for. Our view is there’s advocacy networks on either side that we have the best journalists in the world. We need to show both sides of every issue. If you went there after Roe v. Wade, you would turn to CNN and for — there’d be someone to the left, where this was the best day for them in 40 years. But then when you turn to the — when the moderator turn to the right, it was the worst day in 40 years. But we had both all the time.

Lift is working really hard. We — all the leadership at CNN is working hard. And Republicans are back on the air, the Republicans weren’t on the air. During the McCarthy hearings for those 4 days, we had 75 Republicans on the air. 41 went on us before they went on FOX News. And the reason is, as I’ve said, to a number of them, and Chris has said to them, they’re not going to get one more vote on FOX News. They already got that. CNN should be the place that people come for the best version of the truth and for journalism. And that’s what we’re building.

We announced yesterday, our new 9:00. Chris is rebuilding the network. It’s going to take some time, but advertisers are interested in CNN again. They don’t want to be part of an advocacy network. We’ve had meeting after meeting and they say, “We’re with you.” America needs this, and our aim is true. And so advertisers don’t want to be part of an advocacy network. Those are great businesses, but they do want to be part of a news network. So that’s kind of in its own category, and we’re making real progress on that.

And with our networks, we got Kathleen Finch. And I think we’re focusing hard on how do we program food, home, Discovery. We have — we’ve got great brands that people love. We’ve got great affinity. And that’s what we’re going to be pushing for. But I agree with you that over a period of time, particularly in the U.S., you’re seeing that the traditional business is in secular decline. It’s less so outside the U.S., but it’s still in decline.

And we’re realists. So we’ve built that all into our models, but we have better command and control of our content cost because most of our content is not scripted, so they’re 6- to 12-month cycle. We’re still doing 600 hours of original content on a lot of our channels. If the market got a lot worse, we could reduce it. And the level of sports content that we’re committed to domestically around the world is a pretty small portion. And we haven’t done any deals right now that have big step-ups. So we have pretty good visibility and pretty good pliability.

Robert Fishman

So I want to switch gears a little bit in the time we have left. DC Comics, you mentioned that at the beginning, clearly, a very important IP for the entire company. And it’s been a focus for the owners of the Warner Bros. assets over the years to try to replicate the success of Marvel. Can you just maybe expand upon why you think this time is different given the moves that you’ve made so far?

David Zaslav

Well, what we’ve tried to do is get really great leadership. And the philosophy of our company is we don’t want people to go to meetings. We want the people to do the work. So when I was meeting with James Gunn and he was writing Superman, and he had written Guardians of the Galaxy, which is now a big hit from Marvel, which we’re happy about because Gunn wrote that movie and directed that movie. I’m looking at him and I’m thinking to myself, “Why isn’t this guy running Marvel?”

He grew up his whole life with DC, his whole life with these DC characters, and he knows every one of them. They’re his family. He just wrote Superman, which I read. This is the guy we want. And everybody wants to work with him. We got a 10-year plan. Superman is written. We’re already now in casting. He and Peter Safran are the real deal.

We worked really hard on Flash and Black Adam. Flash is a fantastic movie. It’s coming out in 6 weeks. We like the slate coming up now. We think we made the turn on the motion picture business. We’ll see if we’re right. It’s a tough business. But now we have movies that we like. We have movies that when we test, they’re testing really well. And we worked hard on them.

And so I have a great belief in DC. We’ve greenlit a number of projects. And I think it’s one of the assets that was really underutilized and underdeveloped in the company. And we also have this philosophy at the company of no content before its time. The Hogwarts game, that was set to launch 10 months before, but it wasn’t ready. Let’s get it right. Spend more money, get it right. We launched it, and we generated over $1.3 billion with the fastest-growing game this year. We don’t want to put a movie out or a game out unless we think it’s our best work. Even if we do that, half the time or 2/3 of the time, it’s not going to work. But that’s the new cultural philosophy of the company. We’re a storytelling company. The best creatives fight to make our content the best it could be.

Michael Nathanson

So the next question in terms of level of content investment. There’s a cycle now of peak investment for everyone else coming down. Do you worry as you slow your content investment that you have less shots on goal? And therefore, less hits at Warner’s and HBO? So how do you think about the hit ratio with lower spend in general?

David Zaslav

Well, I think we’re — I wouldn’t say there’s lower spend. We would spend a lot more if we thought we can buy things that was going to generate value for us. This is all we do. We’re the only media company that this is all that we do. We’re not in the phone business. We’re not in the broadband business. We’re just in the storytelling business.

Right now, KC has never been — HBO has never been stronger. You go back to the days of Sopranos and Wire with House of the Dragon and White Lotus and Succession and The Last of Us and Euphoria, we’ve never been stronger. We got And Just Like That coming in 6 weeks. We’ve got a great series that was written by the guy from Euphoria that’s coming out. And we’re driving DC, we’re driving Lord of the Rings. We do believe — and we’re going to bring Harry Potter to HBO.

But we also have a lot of original content. If you talk to our creative leaders, they would say they were overserved. There was this huge push, just greenlight, more stuff. We need more and more and more and more. We’re now under the philosophy of let’s not — let’s — we’re not going to say no to anything that we think could be great. And when we level set that, we’re actually spending a lot less because we were overspun.

Robert Fishman

So maybe just to wrap it up, bring it all together. Any surprises that you think investors should be focused on for the upcoming year? Or as we think about the future of the company, now that you have that 1 year under your belt, anything that you think investors are not currently focused on or need to give you more credit on?

David Zaslav

Look, I think that this is our year to perform. I do think that we got ourselves out of the storm, and we’re on the deck. And we’re assuming that it’s not going to improve at all. And we just — we’ve got to make our numbers. I think the fact that we — if we could turn this, if we — if Flash and Barbie and a couple of our movies start to work, I’ll be sitting down with you and I’ll be able to say every business we have is making money. We’re the most diversified media company in the world. I think our gaming business is one that you’re going to see more and more. Every other media company has licensed their IP to a gaming company. We own our IP. And I think you’re starting to see the benefit of that.

But the benefit will probably be a lot more in the next 2 to 3 years because the secret to the Harry Potter game is that people are spending time inside of it. And the old world was you do a movie or a series and then you do a game. But what is a game? A game — before, it was something you play, but a game is starting to be the place that you hang out. So where is going to be the real value in that IP chain? Is it going to be the Harry Potter series? Or is it going to be the game where you could spend all day hanging out? Be a character and hang out in the Harry Potter world or hang out in Batman’s world or hang out in the Game of Thrones world? We own all of that.

And so I think profitable businesses, profitable streaming service, mine our IP and get the best storytellers in our company. Do what we — what Warner has always done best, tell great stories. And I think I’ll be sitting here with you in the next few years, and our multiple is going to be going up, and we’re going to look like a great company for the future.

Michael Nathanson

Thank you, David, so much.

Robert Fishman

Thank you so much.

David Zaslav

Thank you. Thank you.