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.
Oh.
Because you're so special. So, Gunnar, it's been a little over two 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 you see an ability to capitalize. Do you see an ability to capitalize on this disruption through opportunity? You know, I'd like just maybe sort of with that as a backdrop, from here, what are the key priorities for the company?
Kind of like the question that we've asked before, but, you know, what's the path for Warner Bros. Discovery to eventually find a path to consolidated growth?
Yeah. All right. Well, thanks for having me, first of all. Good to see everyone. Yeah, talk about a generational disruption. It's astounding if you go back to, you know, some of the assumptions we made three years ago and just look at where the industry is today. There's no question about that. To your point, you know, that trend, that disruption has challenges, it has opportunities as well. We've talked a lot about the challenges and, you know, 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, you know, rethinking everything, and a lot of the change that's happened in the industry, you know, we were the first ones to drive.
We've had a lot of success, to your point, in changing the trend, you know, restructuring the company, changing the financial profile, generating a lot more free cash flow. You know, it's interesting, actually, we have actually paid down more debt to this point than, you know, what we presented to agencies three years ago. 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, you know. 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, you know, 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, you know, we've gone through two 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, you know, get to $1 billion of profit next year and then dynamically grow from that part. One thing that's important, you know, 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 at 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, you know, 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, you know, 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, you know, haven't changed.
It's capital allocation, making sure that we're, you know, 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, in the D2C space, and also continuing to lead the industry when it comes to profitability and cash focus for 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 you can talk more about it. It's everywhere. In 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, for the company post, you know, the, the combination, is that Time Warner, Warner Bros. has the most incredible studio, and television libraries. You know, you have. But it's with TV and film within Warner Bros. and all of the different libraries, but also even at the, the networks has, have like, I mean, not Comedy, yeah, it was, Cartoon Network. Thank you, Andrew. 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 timeframe it takes to turn a studio around. It also feels like the studio is out of alignment with its past performance and certainly its opportunity.
I mean, there was a time when Warner Bros. was like, nobody could touch it. So could you help us unpack the key businesses within the studio segment? And surprisingly, maybe we can start in an unusual place, but maybe we can start with games, since that seems to be where there's been a lot of weakness in the past year, and, you know, you kind of framed it as an area of investment, but, you know, you know, do you view it as a core strategic asset? And if you do, how big can the business actually be?
Yeah. No, you're right about to ask about games first. You know, 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, you know, flat or up in aggregate. And that is as much a reflection of what was going on this year. You know, we've had one miss with Suicide Squad, but it's also a reflection of, you know, 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, you know, 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, you know, to some extent, the investments are greater, the development times are greater. And it's unfortunate that we've had, you know, the two in sequence now, you know, one of the bigger misses following, you know, one of the greatest hits.
We're committed to the business, we've got a great team, and we are continuing to invest. We just acquired Player First. We're building capabilities, we're building out our ability to provide an always on live capability, and you know, obviously, a successor to Hogwarts Legacy is one of the biggest priority, you know in a couple of years down the road. And you know so there is certainly a significant growth contribution from that business in our strategic outlook here. You know, obviously, in the very short term, still lapping Hogwarts Legacy for the rest of the year, you know, we'll face additional headwinds for the third and fourth quarter, but you know, 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 cases of the inevitable, you know, 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?
There's a lot of layers to that answer when it comes to our film business. I actually want to go back one step here and talk about, you know, the studio business overall and why I'm confident that we are going to get back to a, you know, $3 billion-plus and then growing trajectory for that business. You know, the way I look at it, it's a combination of art, craft, and science, right? David has talked a lot about the art. You know, 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, you know, 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, you know, what I focus on a little more with my team. There is a very operational, physical component to this. We're spending, you know, double-digit billions of dollars for these physical productions, and in the past, all of that was just, you know, done in a decentralized, uncoordinated, uncontrolled way.
Whereas we're now able to put in place, you know, procedures, you know, massive service agreements with preferred suppliers, with utilizing our own assets before we, you know, 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, you know, 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 greenlight, reallocate. You know, I talked a lot about capital allocation, you know, in my opening. That's obviously at the heart of it. And so if you take those three points together, you know, we've got a great creative team, great connections in the talent community. It is inevitably going to be, you know, a hit-driven business, but you know, 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 through a slate that was created under very different parameters with very different objectives.
You know, we're on the backside of that. So, you know, if you look at the film business as part of the studio, you know, think of it as, you know, call it a $5 billion revenue, maybe a $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. You know, I have a lot of confidence in the upcoming slate. The Beetlejuice numbers are looking good. We've got Joker 2, and then, you know, the highlight for next year is going to be Superman, of course.
Every one of those titles is going to show what I referred to earlier, the One Warner Bros. Discovery approach. You know, if you look at our entire portfolio, you can't watch any of our networks right now without getting some sort of Beetlejuice promotion. That's a fully integrated campaign. You know, 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 you know, 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 the 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, and 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 the performance and the cadence and the timing of this year's releases.
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?
Yeah, 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. 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, you know, the specific individual stories.
You know, 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, you know, might be great stories and or create great stories, but we might be willing to produce them for third-party platforms, et cetera. I talked about consumer products integration, games integration. All of those things are happening by design from day one, and it's great to see how Peter and James are essentially, you know, standing for that One Warner Bros. Discovery approach.
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, 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-
Right
... 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, you know, anything you can say about growth?
Yeah, look, it's you know, in terms of the composition of the studio segment, you know, the TV production business is comparable in size to the film business, just ballpark. It is a business that still has some lingering strike effects in its numbers. You know, 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, you know, delays in development, greenlighting, 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 eight-hundred-pound gorilla. There is some actual truth to that. You know, we've all read about the end of peak TV and how everybody's cutting back on content spend, which, you know, is a fact. We're not seeing that for Warner Bros. TV. There's also been a flight to quality.
Channing right now has, you know, I think 83 shows on the air across 20 platforms, including some of the biggest hits, you know, great supplier to Apple, we presume, and this year, doing very well, and Bad Monkey and, you know, the success of Ted Lasso earlier. So, you know, her business is doing well, and I do think there's 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. You know, I think that's going to create some great cross-pollination between the two businesses.
We had, you know, 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, you know, what we can recreate. You know, Kathleen has already announced some scripted shows returning to TNT. You know, very different from what was done in the past, again, with an eye towards actual value creation, but maybe there's more.
... Okay, it's like a giant company on its own, but we 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, you know, the Harry Potter tours, I think you mentioned?
Yes. Yeah.
How big is it? How fast is it growing?
Again, if you just wanna, you know, just get the ballpark size, it's about $500 million 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. You know, we've operated the Making of Harry Potter tour in Leavesden for more than a decade already. We opened Tokyo last year, which is going very well and has significantly contributed to growth and 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 you know, 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, you know, we just haven't, you know, 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, you know, 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, you know, harnessing great promotional partnerships with external parties, consumer products, et cetera.
But it's one consistent framework, and they're, you know, at the table from the very beginning, and again, if you just compare what we have generated in that area, consumer products, and compare that with what, you know, 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, you know, how do you manage through that to profitability?
Maybe you can go straight to D2C instead. Now, look, kidding aside, that's been a frustrating area. I think nobody should be surprised that we're seeing the declines we're seeing, but the... To be fair, it's happened a little earlier than, frankly, I'd hoped, and also a little more intensively. If you just think about some of the discussions, you know, 12, 18 months ago, there was this debate, how much of this is cyclical, how much is it secular? And it's pretty clear that there's a greater secular share there, and you know, just the cadence, the news flow in the industry has been tough.
Now, you know, 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, you know, converged sales deals across the entire Warner Bros. Discovery footprint, with opportunities in data-driven, targeted advertising. And then, you know, we're going to continue managing the cost base.
You know, 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, you know, Give us some color maybe on the 2024 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.
Yeah, that's, that's 100% true, and I think that's the theme of this upfront more than, than any other ones, in the past. I think we, we have done, I think, a little better than, than what we expected going into the upfront. It's a mixed picture, though, in terms of, you know, what the, what, what the composition of the, of the deals, is. You, you mentioned sports, you know, obviously, you know, very, very strong advertising product, but also, you know, top-tier, general entertainment networks, Food Network, HGTV, phenomenal brands, and we've been able to continue to get, price increases.
When you go towards the long tail, sort of less, you know, specific, less pointed positioning of longer tail networks, more challenging today than in prior years, and then there's this whole mixed discussion between linear and DTC. We've got our, obviously, the Max inventory or WBD Stream product, and that's been an area of very significant growth. We took more than, you know, 50% increases in digital volume, and all of these deals are now fully integrated across all of our platforms.
On that, just on DTC, 'cause obviously, that's where eyeballs are going, and, you know, expectations are that it, you know, 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, you know, what do you think the implication is of all of this new competition coming in?
There's no doubt. There's been a lot of demand in this upfront, but there's also a lot more supply now. You know, 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, you know, with maybe, you know, HBO content, you know, at the top of that range, and then, you know, maybe some of the fast platforms with more commoditized inventory or the long-tail general entertainment linear environments being more on the commodity side. We're very focused on that, you know, 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, you know, greater subscriber numbers, you know, we're going to generate more valuable inventory. We've also very tightly restricted ad loads in the past. Some of that goes back to, you know, 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, and you've exercised your matching rights, and we'll see what happens with that, let's say, well, obvious. I'm not going to, you know, appreciate that you probably-
Yeah.
Don't want to discuss specifics.
Thank you.
Regarding that contract, but maybe you can help us think through a few scenarios. Let's say that in 2026, Warner Bros. Discovery does not have the NBA. What does it mean for your business? And, you know, I know that you've been quite active in trying to get other sports rights. But is that really enough to fill the gap?
I gotta be careful here, Jessica. I mean, again, we're in litigation. I don't wanna 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, you know, say, roughly $20 billion spend on content, you wanna have a certain part of that dedicated to sports rights because they do, you know, drive peak audiences.
We have managed our sports portfolio globally and in the US very actively over the past few years, and we've gone through a number of discussions. We've added significant rights to the US sports portfolio. You know, we've gone through, you know, 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 know, 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 US go-to-market.
I mean, the biggest impact could be on your affiliate fees, well, I guess, advertising as well. But, can you talk about how the discussions are being impacted by this, you know, by the NBA?
Look, again, I don't wanna talk about NBA specifically. We're constantly in discussions with affiliates. One of the consequences of merging twice over a period of five years is we're constantly in renewal discussions with some of our affiliates, and you know, 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, you know, portfolio that we offer them, and I think that's what counts in the end. I don't see a dramatic change in that, you know, neither here in the U.S. nor internationally.
Right. So we had Charter here this morning, and a year ago, we were like, they were in that big, you know, brouhaha with Disney-
Yes
... and 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, you know, the moment of, you know, 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, you know, 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, you know, we wanna 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 daily basis. We're renewing agreements whereby we might, you know, 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, you know, with the penetration of our direct-to-consumer or streaming product, and that both sides are win-win, right? We wanna maintain that linear ecosystem, for as long as we can and 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 wanna be able to offer to their consumers these great products and the great content in whatever form they want to consume it in.
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 Venu. Assuming it gets launched, which might be a big assumption, how do you view this product evolving?
Look, 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, you know, that's not-- that doesn't have cable anymore, and we're creating something that is attractive and accessible in a streaming environment. And look, you know, 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, you know, equity joint venture between the three parties, a management team for Venu that's going to negotiate rates, and, you know, we're going to get, you know, prevailing, you know, MFN rates, from Venu
... 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.
Yes.
Profit, you know, you've actually outperformed in terms of, like, EBITDA, in DTC. 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 billion dollars?
Yeah. I wanna 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 two years... JB was very explicit about it. This is going to be a three-to-five-year journey. Again, priorities were, you know, we had to get this business to stop. The entire industry was bleeding money. You know, we were the first ones to acknowledge that and turn that around. We also have full conviction that you have to be global.
You have to be global in this business to be, you know, profitably growing over time, and that's why we've paid so much attention to getting a platform that scales globally, and, you know, we're seeing that roll-out 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. 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, you know, not first and foremost, sort of cost reduction, but if you exclude content licensing for a moment from our top line, then the, you know, "subscriber-driven revenues," subscription revenues and advertising revenues were up 4% in the first quarter, up 6% in the second quarter, and, you know, we're planning for further, you know, material acceleration in the second half of the year. I've always said that, you know, 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, you know, hundreds of millions of development costs, but at some point, you know, 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, you know, 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 replatforming.
We obviously wanna continue investing in 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, you know, all these launches... And we're going to continue feeding the content machine. Casey has one of the greatest lineups of all times coming down the pike here for the next 18 months.
Yeah, it's pretty exciting. But I just want to follow up on a couple of things you said. So on the operational gearing, you know, 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?
Yeah, 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 other price increases that we've seen in the market, you know, help us think through how you think about it. Do you think that there's still pricing power, or 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, you know, what the entire market as a whole has done, there's been a lot of rationalization, and we have actually seen relatively minor impact on churn rates. And I do think it... You know, the best content is going to win on a global platform, and yeah, 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, you know, 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, you know, there's no doubt that more needs to happen. And you know, I think you know 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, you're, you know, trying to know what you signed up for, you know, trying to remember your passwords, and so you don't even know where to find, you know, 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. You know, 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 bundle product than what we have on average on a standalone 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 complimentary content offering. So, you know, it's a great structure, and that's one example of a more, you know, aggregated product. And, you know, I think over time, that's where it's going to go back to.
Okay, I'll let 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 you know, obviously a lot of it was, you know, strikes and secular challenges, et cetera, et cetera, but you know, 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, you know, we have been working really hard, and we've just had another strategic discussion with the board. You know, 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, you know, consolidated profitable and sustainable growth for the combined company. There's been a lot of discussion publicly about, you know, "strategic options." You've been at the forefront of some of them.
You know, of course, as a management team, we have looked at them, and we have looked at various permutations. We have views. The board and, you know, secondarily, the management team have a fiduciary duty to evaluate these opportunities, and, you know, 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 two years, that have put us in a position to now, you know, 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, you know, I'm confident that we're going to see very significant performance improvement in, you know, in pretty short order as well, after working on it now for two and a half 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 know, you have other assets that could be sold, whether it's CNN or Poland or, you know, the games business, which you clearly don't want to sell. But, you know, could you just help us think through, like, some of the things you might consider? And, you know, is it enough to move the needle? How much patience do you have?
We don't have a lot of patience, and we're working hard on delivering that value. I agree with you. 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, not in the short share price, nor is it reflected in our current short-term, you know, financial performance. The studio performance went from $3 billion to, you know, less than $2 billion on a trailing twelve-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.
You know, on the streaming side, again, we've gone through a transformation across the entire industry. We've been leading it. You know, we reached profitability. You know, we've got the global platform rollout behind us, and, you know, we're at the point where we're going to see this operational performance inflection.
Right. Okay, so let's move on to free cash flow and maybe part A, part B, but, you know, that's one area where you've way outperformed. So are there still more levers that you can pull on working capital, or are there any other areas that you can tap into to drive, you know, free cash flow conversion?
Free cash flow is going to continue to be a huge priority, and not, not because, you know, we wanna pay down debt. We do wanna pay down debt, but it's, it's also, you know, we're, we're a for-profit company, and we will be disciplined with, with how we manage it. And, you know, 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, from, you know, essentially no free cash flow when we, when we started, negative free cash flow at WarnerMedia, to, you know, $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, you know, I'm committed to that two and a half to three times 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 de-lever our interest expenses coming down and the cash burden from that is going to come down. You know, 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 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, you know, if you take all that together, we continue to have significant opportunity.
Right. 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.