Dear Fellow Stockholders,
April 8, 2023 marks the one-year anniversary of the launch of Warner Bros. Discovery. We have made great strides over the last 12 months, and I am pleased to report that the bulk of the difficult restructuring decisions are behind us. Today, we have full command and control of our business, a strong leadership team in place, and the right strategy to ensure the future growth and profitability of our company.
Three strategic pillars frame all of our decision-making, strategically, operationally, and financially: Content Creation, Distribution & Monetization, and a One Company Mindset. Simply stated, we want to tell the best stories, share them with the broadest audience possible, and we do so by working together as One Team.
At Warner Bros. Discovery, our asset mix – one of the most complete and diversified in the industry – positions us to drive a balanced approach to creating long-term value for stockholders. We possess the full slate of production and distribution capabilities as one of the preeminent makers and sellers of content in the world. Our portfolio represents the entirety of the ecosystem, stretching across premium, pay TV, free-to-air, theatrical, streaming, licensing, and gaming. And we are home to many of the most iconic brands and franchises in the history of entertainment, including: Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna Barbera, Game of Thrones, CNN, HBO, HGTV, Discovery, Warner Bros. Pictures, Warner Bros. Television, and many more.
The opportunity this presents is truly unmatched, and we intend to continue investing smartly in content that resonates with people and has an impact. Like Warner Bros.’s founders – Harry, Albert, Jack, and Sam Warner – we want our company to be the place for bold, innovative storytelling with the power to not only entertain but also change how people see themselves and the world. A great example is the extraordinary film Navalny, which won this year’s ACADEMY AWARD® for best documentary feature – the first OSCAR® in CNN’s nearly 43-year history.
Entering into our second year, we are well-positioned for long-term success. While last year was a year of restructuring, 2023 is a year of building, and we are off and running. Of note, we have demonstrated our ability to generate meaningful free cash flow with more than $3.3 billion reported in 2022, and we paid down $7.3 billion of debt in 2022. We also expect to reduce our net leverage from 5x at the close of 2022 to comfortably below 4x by the end of 2023.
Celebrating Warner Bros. Studio’s Centennial
This year, we celebrate the storied Warner Bros. Studio’s centennial and look forward to building on its extraordinary legacy. In 2023, Warner Bros. Pictures Group will see its output double with a host of exciting projects in the works, including Barbie, Dune 2, The Color Purple, and DC’s The Flash and Aquaman and the Lost Kingdom. We have embarked on a new era for DC under the singular creative vision of James Gunn and Peter Safran. We believe that DC Studios represents one of the biggest untapped opportunities for the company. James and Peter have kicked off chapter 1 of their multi-year plan with five films and five television series already in the works, including new Batman and Superman movies set for release in 2025. The incomparably talented Gunn plans to write and direct Superman.
As a company that is able to tell stories across an array of platforms and mediums, we see tremendous opportunity in the gaming space. In fact, as the only media company scaled in gaming, we consider our Games business to be a meaningful differentiator and a core part of our overall strategy. And we are confident that our biggest franchises are going to be stronger than ever due to the fan engagement with our gaming business. Our newest offering, Hogwarts Legacy, has performed exceptionally well, exceeding $1 billion in retail sales to date. It is on track to be one of the best-selling, if not the best-selling, game of the year.
HBO has never been stronger and is firing on all cylinders behind the recent successes of HBO Originals Euphoria, House of the Dragon, The White Lotus, and our latest megahit The Last of Us. These shows have averaged as many as 30 million viewers per episode with strong week-over-week growth. And we look forward to launching the next wave of compelling programming, starting with the highly anticipated fourth and final seasons of fan favorites Barry and Succession, as well as new series such as The Idol featuring The Weeknd. HBO programming is must-see with all of its cultural impact and excitement, and it will serve as the foundation for our enhanced streaming service.
As we reported in our Q4 results, we are making meaningful progress on our goal to achieve profitability in streaming. And with HBO as the cornerstone, we will accelerate these efforts in 2023. HBO Max already delights consumers across the world with programming from HBO and Warner Bros. Studios, but we believe it can become so much more. Our enhanced streaming service will include everything viewers love about HBO Max along with the best content from discovery+, appealing to every member of the household. HBO content drives subscriber acquisition with some of the biggest shows that viewers cannot miss, and discovery+ content provides thousands of hours of comfort viewing, driving subscriber retention. We will offer both ad-free and ad-supported tiers at launch, along with a significantly enhanced product platform to drive better performance, improved user experience, and stronger engagement. We are excited to showcase this new product offering and provide more details around our planned rollout at a press event on April 12th.
Expanding into Free Ad-Supported Television (FAST)
Because we seek to serve all consumer segments in the ways they desire, we continue to explore the opportunity presented by Free Ad-Supported Television (FAST) offerings, such as the company’s recent Roku and Tubi arrangements, that would give consumers who do not want to pay a subscription fee access to great library content.
On the TV side, Warner Bros. Television Group has approximately 100 shows currently in production across our own platforms as well as third-party broadcast, cable, and streaming outlets. Many of them are among the most popular with viewers, including Emmy® award-winners Ted Lasso and Abbott Elementary; Young Sheldon, network TV’s #1 comedy; The Voice, the #1 most watched unscripted show on network TV; fan favorites You and Manifest on Netflix; and new hits such as Night Court on NBC, Shrinking on Apple TV+, The Jennifer Hudson Show in syndication, and Velma on HBO Max.
Our U.S. Networks, including TBS, TNT, TLC, Discovery, HGTV, Food Network, Investigation Discovery, Cartoon Network/Adult Swim, OWN and others, delivered more than 138 million total viewers on average per month in 2022, with six of them ranking among the top 10 cable networks for the year. Together, the networks in the group accounted for more than 30% of all P25-54/P18-49 primetime cable viewing and more than half of the top 30 highest-rated unscripted freshman series in primetime, including: 1000-lb Best Friends (TLC), Hoffman Family Gold (Discovery), and Beat Bobby Flay Holiday Throwdown (Food Network). And there are times when our share is significantly higher, with marquee sporting events such as March Madness, and the MLB and NBA Playoffs.
Speaking of sports, WBD Sports is a global leader in the delivery of premium sports content across all platforms, including expansive partnerships with the NBA, MLB, the NCAA Division I Men’s Basketball Championship, the NHL, and the United States Soccer Federation. Additionally, WBD Sports Europe features the much-loved brand Eurosport, with its Eurosport UK offering now sitting alongside BT Sport under our joint venture. This brings together one of the most extensive collections of live sports for fans in the UK and Ireland, including the Premier League, UEFA Champions League, UEFA Europa League, Premiership Rugby, MotoGP, UFC, Boxing, WWE, tennis Grand Slams, cycling Grand Tours, and the winter sports World Cup season. Earlier this year, WBD Sports Europe also secured a new media rights deal with the International Olympic Committee for the 2026-2032 Olympic Games, extending our position as “Home of the Olympics in Europe.” And we continue to look for new ways to expand our Sports business and connect with fans, including with Bleacher Report, the #1 digital destination for young sports fans.
Finally, on the news side, we are focused on building an asset for the long-term across cable and digital that is worthy of the great global brand, CNN. We want CNN to be the place for fact-based reporting and thoughtful discourse that is broader than politics as sport with a focus on “Journalism First,” and we are already seeing a more inclusive range of voices and viewpoints coming on air. We must get this right – nowhere is this more important, in my view. It isn’t going to happen overnight, however, I do believe we are on the right path and making meaningful progress.
Commitment to Sustainability and Community
Our overarching goal at Warner Bros. Discovery is to entertain, inform and, when we are at our best, inspire people. And we do so not only through the stories we tell and the content we create, but just as important are our efforts aimed at helping to protect the environment, respect human rights, and positively impact local communities. At the same time, we are dedicated to supporting our employees through inclusivity and diversity in our businesses and through our storytelling. Doing well by doing good is core to who we are. To this end, we recently launched our new WBD Environmental, Social, and Governance (ESG) website, which outlines our initiatives and programs pertaining to our planet and the communities where we have a presence, our approach to corporate governance, and our commitments around diversity, equity, and inclusion.
We have strong momentum going into our second year as Warner Bros. Discovery and intend to seize on the multitude of opportunities before us. We have one of the greatest asset mixes in the industry, many of the most creative and accomplished minds in the business, and we are more confident than ever in the strategy we are executing against. And we believe that, while we are still in the midst of a generational transformation for our industry, we are well-positioned to drive shareholder value and sustainable profitability over the long-term.
We are grateful for the continued support of you, our stockholders, and look forward to all that is in store. Off we go!
David M. Zaslav
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