Jessica Reif Ehrlich — Managing Director, Bank of America Securities
Thanks. Two questions, if it's okay. One on the library and one on sports. David, could you give us more color? You kind of alluded to the library, but you've grown organically and also through multiple acquisitions over the last few decades. And you have quantity, but also obviously great quality. How do you think about mining the deep catalog? Can you give us some color on what's in Discovery Global Networks, or the soon-to-be-named Discovery Global Networks, like within Cartoon Network, Discovery, et cetera? You don't talk about that that much. On sports, the release talks about launching a standalone sports streaming app. Can you talk a little bit about how you feel about the sports portfolio today? Are there assets in there that you think are underappreciated? Are there opportunities to strengthen the portfolio? Thanks.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Good morning, Jessica. It's good. Let me take those two maybe with an eye towards Discovery Global going forward. I'll start with a sports question. As you've heard from us, we feel very good about the composition of our sports portfolio right now. We're going to begin to see some real benefits from the transition off of the NBA towards a portfolio of other rights that we acquired. As replacement, you're going to see hundreds of millions of dollars of benefit next year from that transition. The team has done a phenomenal job restructuring our portfolio. That said, we're going to continue executing the same strategy as before. We're going to be disciplined in this space, but we also acknowledge that sports is going to be one key pillar of our strategy going forward. That is the case for Discovery Global, as it was for Warner Bros. Discovery.
I do think there is going to be more opportunity. Opportunistically, as we look ahead over the next three to five years. The important change that we're working on and making great progress is the development of our standalone sports streaming app. We will need that in the U.S. market as HBO Max stops the utilization of our streaming rights in the spinoff scenario. The team is making great progress, and that will put us in a position to have a compelling standalone offering, but also something that will allow us to partner and bundle with our own products and others in the market.
David Zaslav — President and CEO, Warner Bros. Discovery
As we've stated before, it will be working differently in the U.S. and outside the U.S. Outside the U.S., all of the sports content will be available to HBO Max and will be offering it on HBO Max or as an add-on. There is some sports that will only be on HBO Max. We have found that all of our movies and scripted series, together with local content and local sport, is a very compelling offering outside the U.S., and it is a driver of real growth, and it is quite differentiated. Here in the U.S., we did not find that the—we were so robust in our storytelling that we did not find that these sports were providing enough value for us in terms of incremental subs, which—we did not get that many. There was some engagement. The view is for us.
That HBO Max is much stronger as being a motion picture and storytelling product, not dependent on rental sports. I think it works out very well, and Gunnar will be able to take advantage of that with this new app.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Right. On the library, Jessica, you're right. I mean, we're looking at tens of thousands of hours of beloved content that we're reaching more than a billion people with everywhere in the world. This is going to be one of the focus areas for the future Discovery Global leadership team to revitalize some of those content brands, with different focus areas in different parts of the globe. We are adding thousands of hours every year to that library, a lot of which comes from our strong free-to-air presence outside of the U.S. That is going to be one of the big strengths as we set sails with Discovery Global. We will be fully focused on figuring out the best way to monetize not only the fresh content, but also the enormous library with less exclusivity for HBO Max.
David Zaslav — President and CEO, Warner Bros. Discovery
JB, you should talk too. You are going to be all the content that you thought was valuable domestically and around the world will continue. You should just speak to them.
JB Perrette — CEO and President of Global Streaming and Games, Warner Bros. Discovery
Yeah. We will continue, Jessica, to have access on HBO Max to kind of what we call the best of the Discovery Global assets that continue to be a healthy engagement contributor to HBO Max. The good news is, even in the separation, we will continue to have access to that domestically. We will have access to that internationally, including obviously a lot of the free-to-air content that is bigger and broader, particularly in Europe, from some of our free-to-air channels and networks across that market. The good news is HBO Max will continue to have access to the content that it has seen and our subscribers have seen to be valued, even in the separation.
David Zaslav — President and CEO, Warner Bros. Discovery
That'll be the case if, in fact, HBO Max goes ahead and splits as planned, or if Warner is acquired as Warner. Obviously, if the company is acquired in whole, then they'll have access to everything. Fantastic. Next question.
Kannan Venkat — Managing Director, Barclay
Thank you. Maybe a couple of questions on the streaming side. Gunnar, on the Discovery side, when you think about the CNN streaming app or the TNT Sports app, it feels like the process over the last few years has been for streaming apps to consolidate. This feels a little bit of a reversal of that process where different genres are basically disintegrating into different apps, which comes with its own operating costs and so on. I just wanted to get the thought process behind that instead of maybe leaning more into licensing some of these rights and monetizing it in a more, I guess, cost-like manner. Some thoughts on that would be useful. On the linear side, the decline rate when it comes to linear distribution seems to be a little different from your peers in the sense that.
Your 2% affiliate increases are a little lower than what most of your peers seem to be talking about, and the subscriber rate decline rates also seem to be higher. Is this because of some kind of a reset, and does this become a common benefit as you go into next year and beyond? It starts to benefit you? Thank you.
David Zaslav — CEO, Warner Bros. Discovery
Let me start with CNN, and then Gunnar, why don't you take over the others? So we've been very quietly. Mark Thompson has hired a whole team, including a big group from The New York Times when he was there, where he rebuilt The New York Times as a digital business. This CNN product, it's the first of many, but it's quite compelling, and we see it as a standalone. That doesn't mean that it wouldn't be bundled with multiple other products. We had it on Max, and HBO Max, and people look to the news, but this is a very compelling proposition that. Anyway. It's now here in the U.S., but very soon it'll be anywhere in the world you go, you can subscribe to CNN, where you could see CNN Live.
So if anything is happening in the world, if you wake up and tanks are rolling in Russia, and you want to know anywhere in the world what is going on, when those events happen, CNN is on in every president's office and every prime minister's office. It is when, because we're the only real global news operation. Mark and Alex have built a product around this idea that people everywhere in the world need to know from the most trusted source in news what is really happening from journalists on the ground that they can trust. This will be, if you have it, you'll see it's a terrific everyday product. With robust opportunity to get nourished with all kinds of news other than the live feed or to have multiple live feeds.
In a world of AI and in a world of so many voices of what is really going on, to be able to be anywhere in the world at any time and hear something is happening and be able to go to this, we're very bullish on this as an independent product that will be of real scale, but also really important for society that we have this and making use of everything that's been built at CNN. Again, that could be packaged with almost anybody. It is off to a very good start.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Kannan, the only thing I would add is do not think of it as sort of completely separate standalone products and technology stacks. JB and the team have built a phenomenal platform over the past few years. To some extent, these are skins on essentially the same product platform. There is very limited incremental operating costs. Also, from a consumer perspective, think of it more as sort of modules that you could activate together. What we have seen in virtually every market globally where we have experimented with news and sports, we have seen greater commercial success by offering sports as a buy-through as opposed to making it available more broadly to an entire sort of completely bundled or completely integrated product. That is the rationale behind this. On the distribution decline rates, it is true that in 2025, we are working through a transition period here.
We have given greater flexibility in the recent round of renewals, as others have as well to some extent across the industry. I do believe that we're seeing some of those benefits come through already. If you look at how Charter has consistently reported their video subscribers, definitely a positive trend for the industry. I do think we're doing the right thing here as an industry and as a company. I certainly expect a slightly better trajectory in the near to midterm for us.
Kannan Venkat — Managing Director, Barclay
Thank you.
David Zaslav — CEO, Warner Bros. Discovery
Thanks, Kannan. Next question, please.
Robert Fishman — Analyst, MoffettNathanson
Hey, good morning, everyone. Can you share more on your confidence to gain global scale with HBO Max ahead of your next wave of international launches? Any updated thoughts on how HBO Max's scale is able to best compete with the other larger SVOD platforms and how that will translate into streaming revenue growth maybe accelerating next year? Shifting over just to your content spending and budgets as you think about next year, can you just help us think about the right balance of investing in new IP versus leaning into your franchises? Where do you think you create the most amount of value, clearly seeing the momentum in the studio, thinking about DC Comics here, versus new IP that you've created across the platforms? Thank you.
David Zaslav — CEO, Warner Bros. Discovery
Okay, thanks. JB and Casey have really established a very unique product with the largest motion picture and TV library together with the robust original content together with motion picture. As you go outside the U.S., local sport and local content all adding up to a market position of highest quality streaming service, which is, as you go around the world, in all of the surveys, is how we are seen. We're starting to see that there's a real advantage in us having a differentiated view within the marketplace as being high quality. We think it gives us opportunity for real growth. It also gives us an opportunity over time with economics. We're starting to be seen in a meaningful way and known with HBO Max as a brand. That acceleration is beginning. JB, why don't you take them through what you're seeing on the ground?
JB Perrette — CEO and President of Global Streaming and Games, Warner Bros. Discovery
Yeah, Robert, on the scaling point, what partly makes us confident, A, is we've seen data points, obviously, with things like the Australian launch this year of markets where our content has been in market maybe through a licensed partner or distributor for years. We know the success of the content in those markets. We've seen it. We have the data on the performance. That's partly what gives us high confidence, particularly in these three big European markets, U.K., Germany, and Italy, of what the content can do once it comes out of those license agreements and into our standalone HBO Max service, number one. Number two is the product is the content.
At the end of the day, the slate that we have coming in 2026, building into 2027 and launching into a decade of Harry Potter, we feel better than ever about the quality, both in terms of the performance of that content as well as an increasing volume both of U.S. originated content as well as some local OP, local original productions in select markets. As David said, look, no consumers anywhere in the world right now are asking for more content. Many consumers are sort of drowning in the more. We feel better and better about where we've landed over the last 12-24 months in differentiating our proposition, all based on, as David said, quality. It's really starting to resonate.
Tou see that from every hit that Casey and the team have been producing with the numbers growing, not only in absolutes but also week to week this year between the pick growing week to week. Last of Us, now we're starting to see that. We saw that with Task. Our marketing content and product improvements give us a lot of confidence that we can continue to see great penetration and growth as we scale. The total 150 million subs that David referenced earlier, a bunch of those we have through partnerships that we have locked in. We have good visibility towards both revenue and the scaling of subscribers in that time. We cannot wait to get after it. 2026 should be for us the biggest year of growth that we have seen in a long time for HBO Max.
David Zaslav — CEO, Warner Bros. Discovery
Next question, please.
Ben Swinburne — Analyst, Morgan Stanley
Thanks. Good morning. I have two questions. David, when you look at how well Mike, Pam, Channing, and the team have done over the last couple of years, but especially this year at the studio, it's obviously very encouraging. You have a $3 billion, I believe, a $3 billion EBITDA ambition at the studio. I'm wondering if you could talk about the bridge from what we're seeing in 2025 to that level of profitability, which I don't think we've ever seen from the Warner Bros. business in the past. Then, Gunnar, I don't know if you want to answer this, but can you talk a little bit about any tax implications should you guys change the structure that you talked about in the strategic review press release, specifically selling Warner Bros. and spinning Discovery Global?
Is there a point at which the process you're running puts the tax-free nature of the separation that is still plan A at risk? It would be helpful for us to understand how that all works. Thanks so much.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Let me start with the second question. The answer is no. I don't want to provide any more color on that process. David, do you want to start with the $3 billion ambition?
David Zaslav — President and CEO, Warner Bros. Discovery
Yeah, sure. Remember, the objective is to get to the $3 billion and then get a real growth rate off of that, which we believe that we could do. It started with really getting back to basics on the fact that we have such a huge advantage with all the known IP and the talent within this company. New Line making horror films for a price, together with comedies that you'll start to see coming next year, also for a price. On top of that, we have DC with James and Peter off to a great start with Superman. Supergirl has already been shot. Clayface has already been shot. The script for the next Superman has already been written. Batman 2 with Matt Reeves is terrific. We have Warner Animation with Bill Damaschke. Mike and Pam are doing really a terrific job in this four-part strategy.
Where we really use tentpoles and then mini tentpoles, whether it's Lord of the Rings, Batman, Superman, Wonder Woman. That. We use the tentpoles that we have that are known all around the world. The mini tentpoles, which might be Gremlins and Goonies and Practical Magic, and then original. With a lot of discipline, we think that's going to be and is very strong. Our content, I've been saying for a long time, has been underused. We haven't seen Superman for 13 years. You haven't seen Harry Potter for 14 years. You haven't seen Lord of the Rings for over a decade. Peter Jackson has been working hard with us on that film that you'll see in 2027. We are very excited about mining and the original together. We also have the biggest TV and motion picture library in the world, which generates.
A lot of the economics of the studio. And we've been very, I think, judicious about how we do that. We could be generating another $1 billion or $2 billion if we decided to sell a lot of the most important IP that we have. But you've seen that we've been very precious about selling content from HBO because we really believe that. And it's starting to pay off now that if you want to see the highest quality content, if you want to see The Wire, if you want to see Game of Thrones, if you want to see a series like Task or White Lotus, you don't get to see that anywhere else. And so that is working. Channing's team has never been stronger. We have the best writers and directors working for us, over 70.
We have over 80 shows in production at a time when everyone else is declining because less money is being spent. The studio has never been stronger. It was just coming off of a load of Emmy nominations and a lot of Emmy wins. That business is going very strong. We then have experiences where that's an area that we've been building by launching Harry Potter in Shanghai. We have a number of other Harry Potter facilities that we're going to be launching around the world. Together with a whole team that is now working on monetizing the additional value through merchandising of our IP. It's something that we haven't done particularly well. Disney has done really well. We've built a whole new team that's going after that. Overall, we're very bullish. We have the number one TV studio.
The motion picture business is doing great. Richard Brener at New Line has had an unbelievable year for us. We are excited about the next two years and what he has going. We cannot wait to launch Cat in the Hat with Bill Damaschke. The real stability is our library and Channing's ability to be the fact that she has distinguished herself as the quality producer in television. We are using a lot more of her content now within our own company, which has provided real value to us.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
David, maybe just two more points on that last point because I think it's important for people to understand. We have pretty significantly shifted from external monetization of our library to internal monetization of our library. That means that we have, over the past few years, pretty significantly eliminated intercompany profits. Those profits are sitting on the balance sheet or waiting to bleed back into the business. In other words, it's going to support our profitability going forward since we're now at a much more steady state across those roughly $5 billion of content licensing. The second point is, Channing, I think, has also, with her team, done a phenomenal job managing the transition from a broadcast-focused production system to an SVOD-focused system. It has an immediate short-term benefit of, obviously, sort of the cost-plus model.
It has had the disadvantage of licensing terms being longer, but we're also on the backside of that. Over the next three to five years, a lot of those early streaming shows are going to come back and replenish the library and sort of reinvigorate that sales business as well. Channing has done a phenomenal job and set us up, I think, for another big cycle of strong growth.
Ben Swinburne — Analyst, Morgan Stanley
Thank you, guys. Appreciate it.
David Zaslav — CEO, Warner Bros. Discovery
Thanks, Ben. Next question, please.
Steven Cahall — Analyst, Wells Fargo
Thank you. David, I was wondering if you could talk a little bit about HBO and its content process. You were just speaking a lot to Ben's question about the value of IP at Warner Bros. and how much value you've done in mining that. I think what makes HBO unique is not minable IP, but this ability to kind of reinvent with new originals all the time. If we think about HBO either as something that you'll own or maybe someone else could own in the future, what is really unique to it that can't be found anywhere else and separates it from other streaming services from a content development standpoint? Then, Gunnar, just on sports, I mean, you talked about needing some opportunity in sports over the next three to five years and how important it is to Linear.
Do you think that those opportunities will exist with rights that come available to market, or do you think you may need to think somewhat inorganically as well about ensuring that that business has sufficient sports rights? Thank you.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
I'll take that last one right quick. I was primarily thinking about opportunities coming up in the market on an organic basis.
David Zaslav — President and CEO, Warner Bros. Discovery
Let me talk to HBO because this business that we're in about telling stories and the magic of it is all about the best creatives behind the screen and in front of the screen. We all know it starts with script, but it's also the ability to work with the best creatives to tell the best stories. If you just look at the track record of Casey Bloys and Amy Gravitt and Franny and Sarah Aubrey and Nina Rosenstein and Nancy and Lisa and Docs, this team has been together for almost 15 or 20 years. They love what they do. They wake up every day and fight for the most compelling story. People love to work with them because there's a shared passion. There's also, at HBO, when you're working with Casey and Amy and Franny and Sarah, and.
We get that series, we fight globally that everyone should see it, that we believe in it, and, this idea of community, of putting that on every Sunday night or every Monday night or every Thursday night and having a real community conversation about story. It feels old-fashioned, but it's extremely powerful. Whether it's Gilded Age or whether it's Task or whether it's White Lotus for the 8 weeks or 12 weeks or the 15 weeks, it becomes something that we could all talk about. In that process of selecting the most compelling stories and then fighting when we put it on HBO to really cherish these shows, that it's also when people are thinking where they want to go. We get a lot of the best product for less money because they want to be on HBO and they want to be seen.
I think it's all about Casey and Amy and Franny and Sarah. They're exceptional. Their teams are exceptional. Even the Docs, we get a huge viewership of our documentaries. When we do research, a lot of times people say, "Oh. I didn't love Billy Joel, but it was an HBO documentary, so I watched it. And wow, was that great." This idea of fighting for real quality and telling the best stories is something that is best exemplified by HBO. We added Channing and the whole team to it. When we got here, Warner Bros. did not produce for HBO. The relationship between Casey and Channing and the fact that they're working together with JK on Harry Potter and they work together on The Pit and they work together on The Penguin just elevates us.
We're the biggest and best producer of TV and motion pictures in the world, and we're much more efficient about making sure a lot of that great content gets to Casey and that it gets nourished before it goes on the air.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Great. Thanks. Next question, please.
Ric Prentiss — Managing Director, Raymond James
Thanks. Good morning. I want to look at ARPU trends in the streaming. There's been a lot of moving pieces there. Can you walk us through a little bit about how you see that playing out domestically and internationally? I want to circle back to the earlier question about the monetization of IP. I think last quarter you mentioned moved up from $0.22 to $0.30 versus Disney doing $1. Can you lay out some of the items that you think you can achieve there? That might be part of the valuation gap, if you will, as far as where the unseen increased value in Paramount or other people might be missing as far as what you can really achieve, even on your own. ARPU streaming and that monetization question.
JB Perrette — CEO and President of Global Streaming and Games, Warner Bros. Discovery
Yeah. Ric, it's JB. On the ARPU streaming side, obviously, in the near term, as we sort of disclosed on the second quarter call over the summer, on the U.S. ARPU trend, because of really two factors. One is the reset back-to-market rates of an affiliated party transaction that had happened starting in the back end of the second quarter this year, flowing through to the second quarter of next year. We do see some pressure on ARPU in the U.S. for the next three quarters, but then have high confidence of returning back to ARPU growth starting in the back half of 2026 in the U.S. The second component that is changing the dynamics of the ARPU a little bit, both internationally and in the U.S., is obviously we're about 12-18 months into our rollout of our ad-supported SKU, which is particularly internationally.
It has been in the U.S. for a couple of years. Internationally, really only started rolling out in 2024. In that build-out, naturally, you're going to see some ARPU pressure as that lower-priced distribution SKU ramps and rolls out and gains more share of our total subscriber base. In the monetization, we're being, on the ad piece of the monetization, we're being very judicious because we do see ourselves, just like we talked about in the quality of content and storytelling side, we also see ourselves as a premium service and want to make sure we keep our premium rates in the marketplace. The opportunity and the good news there is we are seeing very good pricing across the globe, but we also are holding on and fighting for that premium pricing and not just throwing in the towel to drive volume.
Over time, as we increase fill rates, particularly internationally, we continue to see a good upward trajectory of ARPU internationally, not to mention, obviously, that we are also continuing to have a good cadence of price increases scheduled. You saw one, obviously, in the U.S. recently. Internationally, the same will happen on a good regular cadence. The combination of better monetization on the ad sale side, pricing increases, and then continued enforcement on the password-sharing side of the house, which both between the add-on member as well as the generally just new subscriptions, is going to drive further ARPU upside. It will be a little noisy for the next couple of quarters because of those two points and then getting back to healthy growth in 2026.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Ric, on franchise management and the opportunity there, I think the most important change is that for the first time, we've had a team to oversee the coordination of every activity related to our content franchises across the company. Not every franchise, but the most important ones, are to make sure that we really leverage those brands and the content in the best way possible. We've got one phenomenal example. The company has always done a great job with Harry Potter, and you can see what's possible with the full coordination between licensing, consumer product experiences, now soon a series, the films, etc. That has always been a stronghold. The team has now sort of worked actively and systematically to prioritize the next set of franchises.
DC is one example that you already see in real life with Peter Safran and James Gunn taking a fundamentally different approach, soup to nuts, from an integrated canon for the storytelling, coordinated approach to what stories become theatrical, what stories become serial, what stories become interactive in the gaming space. They are embracing all forms of monetization from the get-go, thinking consumer products during production already. The team is already looking towards what the next priority franchises could be with Game of Thrones, with Hannah Barbera, Looney Tunes. It is just a fundamentally different approach than what the company has done historically. When we first came together as Warner Bros. Discovery, there was a complete disconnect. Sometimes the consumer products team would read in the news about a release date changing for a film, which would throw a monkey wrench in their entire annual plan.
We've made a lot of process changes, brought in a new team, and I think this is going to pay dividends over many, many years to come.
Ric Prentiss — Managing Director, Raymond James
Great. Thank you.
Gunnar Wiedenfels — CFO, Warner Bros. Discovery
Thank you very much. Thank you.