Thank you all for joining us for Discovery Inc's Third Quarter 2020 Earnings Call. Currently, all participant lines are muted. Following the presentations, we will have a question-and-answer session. I'm now pleased to turn the call over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Please go ahead, sir.

Good morning, everyone. Thank you for joining us for Discovery's Q3 earnings call. Joining me today are David Zaslav, our President and Chief Executive Officer; and Gunnar Wiedenfels, our Chief Financial Officer. You should have received our earnings release, but if not, please feel free to access it on our website at www.corporate.discovery.com. On today's call, we will begin with some opening comments from David and Gunnar, and then we will open the call to take questions. Before we start, I'd like to remind you that comments today regarding the company's future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are made based on management's current knowledge and assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see our Form 10-K for the year ended December 31, 2019, and our subsequent filings made with the U.S. Securities and Exchange Commission. And with that, I'd like to turn the call over to David.

Good morning, everyone, and thank you for joining our Q3 earnings call. I'm pleased to report another very strong quarter and set of operating results even amidst continued challenges from COVID and market uncertainty. Discovery continues its strong, steady and stable operating performance despite the secular challenges across the industry. Discovery remains uniquely constructed to navigate and grow during this time of uncertainty, disruption and accelerated change. Our core strategic advantages differentiate Discovery and give the company a distinct lane in which to attract audiences and drive success. Discovery is the leader across multiple popular family-friendly verticals with universal appeal, anchored by brands and personalities that resonate globally and help people curate. We own and control the vast majority of our content, almost all of which is unencumbered across all regions and platforms. We're above the globe. And we are able to monetize our content across one of the broadest global footprints in the industry, across traditional linear ecosystems, including both free-to-air and pay-TV, as well as direct-to-consumer streaming platforms. These advantages, coupled with a flexible, low-cost production model, give Discovery a super efficient programming and content model that drives industry-leading operating margins and free cash flow conversion. We are a free cash flow machine that supports our ability to invest in strategic, high-growth next-gen opportunities. Our plans for an aggregated direct-to-consumer offerings have come into clear focus, and we look forward to providing a look at our product, road map and go-to-market strategy in early December. We believe you will come away as enthusiastic as we are about where we are going with our global direct-to-consumer streaming strategy. As you know, the cornerstone of Discovery's strategy has always been and will continue to be nourishing, entertaining and delighting our fans around the globe, with programming anchored by personalities that are recognized, trusted and loved across durable genres and verticals that connect directly with viewers. Our content and beloved brands are more resilient today than ever before. You see that in the viewership scale that we've achieved globally has increased significantly over the last six-plus months. The global pandemic has refocused all of us on what matters most: the people, family and friends in our lives. A reordering of priorities and interest in content that is positive, safe and enriching. Our brands, personalities and content are a magnet for those seeking comfort and familiarity during a time of great unease and uncertainty all over the world. In many respects, we are seeing this play out with our audiences in a meaningful way, everywhere around the globe and our content and genres fit squarely into this moment. To that point, our share of viewing, both in the U.S. and across most key international markets are up substantially. In the U.S., we have gained the most share among prime time TV viewers aged 18 to 49, year-to-date, growing by 130 basis points. And in the third quarter, even during a heavy news cycle, we have grown share by 150 basis points as viewers aged 18 to 49 are turning to our Discovery channels. In fact, our top network, TLC, beat every one of the cable news nets in the third quarter. Internationally, we achieved our fifth consecutive quarter of year-over-year share growth, up 5% in the third quarter, while our audience increased 10% year-over-year, outpacing put-level growth, another positive sign for the popularity and durability of our content categories and brands around the world. In terms of commercial success, behind the firming advertising marketplace around the globe, we have posted healthy sequential improvement, again, in our advertising revenue growth, which, while still negative year-over-year, is showing demonstrable improvement around the world. We have seen advertising partners resurface around the globe. And as measured by our performance in the recent upfront market here in the U.S., we are very encouraged. With respect to the upfront, now that it is wrapped, I'm proud of what our team has accomplished. We were methodical, confidence in the popularity of our brands and demand for our categories; we held firm in our assessment of our deliverables, and I believe we took another big step forward toward achieving fair value for our reach and engagement, resulting in continued growth in share of wallet. We've seen great momentum from what we refer to as our premier product, which is really breaking out. We offer advertisers an unduplicated broadcast equivalent reach across our portfolio, at a far more competitive CPM than broadcast and a very significant premium to even our highest realized CPMs on our individual networks. It's a win-win. Gunnar will take you through Q3, on our outlook, but we remain confident that as we return to a more normalized operating environment, television will continue to demonstrate its value and importance within the media ecosystem. And perhaps, even more so now, given the increasing fragmentation in viewing patterns and difficulty in reaching eyeballs. With regards to distribution, we continue to hold our own, a reflection of the value we bring to the table. In an environment where many of our peers are being priced down aggressively at their tier, we grew modestly in the U.S., helped by recent renewals. And I'm pleased to note that just recently we completed mutually beneficial renewals with Mediacom and NCTC. Those deals are on top of the positive deals we concluded early in the year with Comcast, Charter and Cox. And very soon, we look forward to addressing the many homes in the country that currently do not receive our content. The narrative is similar, if not a bit more advanced internationally, where we have begun to lean in more intently directly to consumers. In markets like Norway, Sweden and the U.K., we have entered into win-win deals with distributors, hybrid partnerships that expand our long-standing linear distribution relationships to also include B2B2C, with additional flexibility to go directly to the consumers ourselves. Our new direct-to-consumer partnership with Sky in the U.K. exemplifies this approach, where they will offer our U.K.-based aggregated product, Discovery+, to their millions of SkyQ customers starting this month. It's early days, no doubt. But given our share of market, which in certain regions is north of 30%, and secured by highly valued local content, we are optimistic that the path we are on will address the opportunities that are surfacing from evolving consumption patterns around the globe. We remain well positioned strategically, operationally and financially to advance and further refine our direct-to-consumer approach. Our management team has evolved under strong technology, product and content leadership, and we have a definitive path to drive engagement and scale, an unparalleled library of beloved brands and personality-driven content, which will support a roster of exclusive and windowed content, all culminating in a platform that is global in focus and local in appeal. It's a critical time for our company and our leadership team. And I look forward to sharing more about why we are so enthused for the next chapter of Discovery in early December. With that, let me turn it over to Gunnar to take you through the quarter and a financial update.

Thank you, David, and good morning, everyone. Nine months into the global pandemic and the macroeconomic fallout resulting from it, I am very pleased with our performance and the command and control we have demonstrated over our business despite the uncertainties that exist here in the U.S. and around the globe. We continue to be laser-focused on efficiency across our global cost footprint and reallocating capital to higher growth next-generation initiatives. We are also proud that we have been able to return nearly $230 million to shareholders through our share repurchase plan in the third quarter, for which we noted we would allocate approximately 50% of our free cash flow. This amount represents essentially just that from the time we reengaged in our program. Turning to our third quarter results, and starting with U.S. networks. Advertising revenues decreased 8% year-over-year. This was largely a result of COVID-related weakness in demand as well as continued declines in pay-TV subscribers leading to lower universe estimates. We were, however, helped by healthier scatter CPMs in the quarter, which were up high single-digits year-over-year. Distribution revenues increased 2% year-over-year as affiliate rate growth offset subscriber declines. Subscribers to our core fully distributed networks, which account for nearly 80% of our distribution revenues, declined by 4%, while our total portfolio subscribers declined by 6%. You'll note this is a slightly lower decline than in previous quarters as we benefited from additional distribution of certain networks as a result of our recent renewals as well as continued strength from virtual MVPDs, but we remain well distributed across the many operators. As David noted, we are pleased to have recently completed additional distribution renewals with NCTC and Mediacom. Now, turning to international networks, which I will discuss on a constant currency basis. International advertising revenues decreased 9% year-over-year, led primarily by sequentially stronger advertising momentum in many of our key European markets. Indeed, markets such as the U.K., Germany, Spain, and Finland all finished with positive year-over-year growth for the quarter. Our European region was down high single-digits in the third quarter. In Latin America, while key markets appear to have bottomed and trends have sequentially improved, the overall region's recovery will likely follow an uneven path. And the Asia-Pacific region, our smallest, was approximately flat year-over-year during the quarter, with some markets now generating positive year-over-year advertising growth. International distribution revenues decreased 4% year-over-year. Like last quarter, Bundesliga was a modest headwind to year-over-year growth. Additionally, our schedule of sporting events is condensed while a number of events that have been delayed still have not aired, which obviously impacts subscription revenues as well as advertising revenue. Finally, we are seeing a modest pickup in churn from the more economically sensitive segments of the pay-TV ecosystem in Latin America, primarily from subscribers who are delinquent on payments and are no longer being reported by distributors. We expect this to be more COVID-related and the shorter-term disruption. I'd also like to offer an update on ad sales for the fourth quarter. October has been strong by this year's standards, with domestic ad sales roughly flat and international ad sales down just slightly. This may not be a trend we would necessarily extrapolate, however, for the full quarter, given, number one, some tailwinds from political advertising in the U.S. in October; and number two, risks from rising COVID case numbers globally and beginning government countermeasures, especially in Europe, which pose risks at the back end of the current quarter. That said, we are confident to see sequential improvement in the fourth quarter versus Q3 again. Total operating expenses for the quarter were up 2% ex-FX. Cost of revenues were up 7% ex-FX, largely due to sports, given the number of postponed events from the first half of the year, like the French Open and the Tour de France, which were rescheduled into the third quarter. Q4 should look like Q3 from a content ramp perspective from both linear as well as direct-to-consumer, where we also increase our investment in sports initiatives like Allsvenskan in Sweden, which is primarily available as a premium tier on Dplay. Furthermore, content production is almost back to normal, with only 10% of our current production still paused, primarily due to travel or local restrictions. Total SG&A decreased 6% ex-FX, behind reduced marketing and travel and entertainment spend. Year-to-date, total operating expenses are down 2% ex-FX, and we remain on track for total operating expenses to be flat ex-FX for the full year. Moreover, we continue to expect the total operating expenses for our traditional linear business will be down mid-to-high single digits year-over-year ex-FX, with the savings reinvested in our next-generation initiatives. During the third quarter, we recognized the deferred tax benefit in the U.K. and a benefit from a favorable multiyear state resolution. Year-to-date, our effective book tax rate is 21%. For the full year, we expect an effective tax rate in the low 20% range. GAAP diluted EPS increased 26% to $0.44 per share due to the above-mentioned tax benefit this quarter versus a tax expense in the prior year quarter, as well as a goodwill and intangible asset impairment charge taken in Q3 2019 related to our Asia Pacific region. Adjusted EPS, on the other hand, decreased 7% to $0.81 per share. Now turning to free cash flow. Free cash flow decreased 11% in the third quarter, largely due to COVID-related weakness to revenue and AOIBDA. For the trailing 12-month period at the end of the third quarter, free cash flow was $3 billion again, a testament to our free cash flow generation capabilities and our continuing focus on extracting efficiencies even amid the most tumultuous macroeconomic backdrop in the history of the company. As a reminder, we faced an unusually difficult free cash flow comparison in the fourth quarter, where we converted over 100% of our Q4 AOIBDA to free cash flow last year and increased cash content spend in the fourth quarter of this year as we return to more normalized production levels. Our balance sheet and liquidity profile remains healthy as we ended the quarter with net leverage of 3.3 times at the midpoint of our target leverage ratio with $1.9 billion of cash on hand and including $250 million of short-term investments and an undrawn $2.5 billion revolver. Furthermore, during the quarter, we executed a debt exchange, which pushed our weighted average debt maturities to roughly 15 years and lowered our cost of debt to 4%. Finally, FX was an approximate $15 million tailwind on revenues and around $15 million headwind on AOIBDA. For the fourth quarter, we expect foreign exchange impact to revenues to be a $5 million tailwind and a $15 million headwind on AOIBDA. Lastly, as we head into the final weeks of the year and prepare for 2021, I am encouraged by Discovery's position in the media landscape, even in the face of macroeconomic and secular challenges ahead globally. I believe our solid financial footing will enable us to weather the macroeconomic storm while supporting our strategic initiatives to meet the secular challenges head-on. We remain very enthused and excited about our strategic pivot and the news that we plan to share with you in the coming weeks. Now David and I are happy to take your questions.

Thank you. Our first question comes from Doug Mitchelson from Credit Suisse. Your line is open.

Thanks so much. Good morning, everyone. David – one for David, one for Gunnar. David, the T-Mobile re-launch of a streaming Live TV service was certainly interesting, and you talked on this call about distribution being relatively broad on all platforms. With the Discovery networks and the stand-alone $10 a month vibe service separate from a new sports focus, $40 bundle of channels. Can you talk about the strategy there? And then whether this would allow other distributors to pursue a similar strategy? And then for Gunnar, just hoping for an update. I know you gave the cost investment in digital initiatives. But not the revenue – I was just hoping for an update on where 2020 is shaping out in terms of losses on the digital investments? And what's the path forward from here to 2021 and beyond for that? Thank you.

Great. Thanks, Doug. Good morning, everyone. We were very surprised with how T-Mobile decided that they were going to bundle our networks, particularly because we have a clear agreement where our networks are required to be carried on all their basic tiers OTT offerings. So let's just characterize it this way. We're in active discussions with them to quickly resolve that issue. We don't believe they have the right to do what they're doing right now. And they know, it's very clear to them, and they're focused on it.

Okay. That's interesting.

Okay, Doug and on revenues and losses from our next-generation initiatives, remember, we started the year with a guidance of $1 billion-plus in revenue and losses of roughly $600 million. We've obviously pulled that. But what I can say is that we have continued to enjoy some revenue growth. All of our numbers include contributions from our direct-to-consumer portfolio, obviously not at the level that we originally envisaged, but we're very pleased with the progress. We've also reduced some of the investments, but continued prioritizing the strategic build-out of the portfolio. So we still expect a slightly increased investment number here for the year and we'll say more later. And also for 2021, it's a little bit too early. But again, we're fully committed to the Discovery future in the direct-to-consumer space, and we'll make all efforts to support that.

David, if you mind me following up, because you did mention that you had a lot of the cable deals done this year. Have you already sort of – do you have line of sight on partnerships for the launch of your OTT service in the United States? In other words, is the distribution partnership already wrapped up or well enough underway that you have line of sight and visibility, or is there more to do there before you're really ready to launch that service?

We're planning a detailed presentation in early December, which we're really looking forward to. During this session, we will discuss our strategies across all categories, explaining our direction, advantages, and global approach, as well as the support we have. The entire company has been committed to this effort. You'll receive a comprehensive package in early December that we believe you'll find very appealing. We've been engaged in direct-to-consumer initiatives worldwide for quite some time, gaining valuable insights. We have identified successful areas and understand why they work. What you'll see will highlight these benefits. As we mentioned in our last call and today, we value our partnerships with multiple distributors, who also see the importance of unique content for their platforms. For instance, Sky and various distributors in Europe have committed to assist us. Additionally, we've had a strong year in delivering quality content, enhancing brand engagement, and expanding viewership. This success is evident through the completion of our affiliate deals in the U.S. with several prominent distributors, allowing us to carry all our channels at competitive pricing. This arrangement benefits both parties, as we are significantly outperforming expectations while they sell our channels. Currently, the key offerings consist mainly of sports, news, and our content, and with political dynamics evolving, news may return to a more normal state, providing further advantages. We've secured full carriage for all our channels, accompanied by substantial increases. This accomplishment showcases the impressive work and strong intellectual property we possess domestically. We are the leading network for women and rank second overall, often achieving ratings comparable to major broadcasters. We'll elaborate on how we are leveraging these advantages later on.

Thank you both.

Thank you. And our next question comes from Rich Greenfield from LightShed Partners. Your line is open.

Hi, thank you. I have a couple of questions. Regarding the upcoming Discovery Strategy announcement, I'm curious about how Eurosport fits into that, especially in international markets. Are you considering a structure similar to Disney, where sports content like ESPN+ is treated separately from Disney+ and Hulu? As you approach the market, does your overall Discovery strategy include your sports initiatives overseas, or will those be viewed as distinct products? Additionally, in your Q2 release, you mentioned that the abandonment of certain MVPD deals impacted subscription revenue as you geared up for direct-to-consumer offerings. It seems that this trend is broadening and affecting more markets beyond the Nordics. Can you clarify how you're making decisions to prioritize long-term direct-to-consumer positioning over short-term affiliate revenue?

Sure. Thanks, Rich. Well, first, we're the leader in sports in Europe, and we're the leader with local IP. And the real advantage that we think we have, and we'll get into more detail in December, is you have mostly big U.S. services with a little bit of local. And we have dramatic local, local entertainment. We have all of our brands and cable content in language in 200 countries. And all throughout Europe, we have local sports. And we do have, as you know, some other local sport like the PGA. But one of the great things about this company, because we're in 200 countries, we have the ability, like we did in Denmark, to say, hey, we might be able to take one step back and two forward, how would it work if we opportunistically take all of our local content, all of our local sport and go-to-market? And what does it look like? And what is our SAP? And who will work with us? And how quickly can we sail? And so when we talk to you in December, we have a lot of learnings on what's worked and what hasn't. There are – when we can take one step back and we think that we have the goods to go two steps forward, we're now basing it on metrics and our knowledge. We think we can do too. We think we really have a free cash flow machine that will continue for a very long period of time to generate real return with great margins, but then we'll be investing thoughtfully and knowledgeably above the globe with our – we've been holding our global content to go at it. And now we're going to go out it in a way that we think is quite unique, and I've said it for a long time, local content, all of our existing genre is local and looking at this opportunity to add local sport. And in some cases, it could also be local news. It's a big differentiator for us. Everybody else is looking at going above the globe or even expanding into other countries, and they're facing two issues. One, holy cow, I don't own any of my content outside the U.S., what do I do now? So do I go buy it back? Do I wait to create it? Now it's going to take so much longer to create. So that's a real issue. We don't have that issue. And we have an extensive library as well as this – the real local element. So I think as you look at all the other players, great players in the marketplace, they're at a huge disadvantage here, and we think we're at a very significant advantage and so we're going to play into that, and we're going to play into it hard.

Thank you. Very helpful.

Thank you. Our next question comes from Michael Nathanson from MoffettNathanson. Your line is open.

Thanks. I have one for David, one for Gunnar. David, on the upfront, I know the story was that you guys definitely held out for more pricing. I wonder, can you talk a bit about what you actually achieved on the pricing side? How much inventory would – did you sell versus the past? And just when you look at your premium product in terms of the best pricing versus broadcast, how far is that gap? And do you think it meaningfully close this upfront? And then for Gunnar, I know we're gaining from Investor Day sometime in December, but just thematically, how do you think about working capital in a more DTC world? Do you – do you think anything changes within the business model where you maybe will invest more in content and amortize it? But just give me a sense of maybe the impact on cash flow as you build out more DTC products globally? Thanks.

Thanks, Michael. There were several factors that worked in our favor. Our content maintains a strong sense of familiarity and comfort, and we have returned to 90% of our production capacity while consistently producing content during the pandemic at lower costs. We found that collaborating with personalities like Joanna Gaines, Guy Fieri, and Mike Rowe in their homes resonated well with our audience. Consequently, when we approached the upfront negotiations, our market share had significantly increased. With the Scripps acquisition and our substantial investment in original content, unlike many others in the past couple of years, our share continues to grow. Currently, we often outperform many broadcasters on various nights with an unduplicated reach that impresses advertisers. They recognize that we offer superior engagement. Traditional broadcasters have either not been making investments or are unable to now, allowing us to provide fresh content. Our findings confirm that we have an advantage, and I believe we have outperformed our competitors. Additionally, our cost per thousand impressions has risen, and we have managed to increase our rates, especially with our Discovery Premier Package. Broadcasters are working with rates in the 60s, while we are in the low to mid-40s, but we expect a 50% increase. We have better reach with more original content and engagement, particularly with women, which enhances brand affinity. I believe we've performed exceptionally well in the upfront market due to the groundwork we laid over the last three years, demonstrating our value. Given that broadcasters are mostly relying on reruns while we offer original programming, it raises questions about the disparity in pricing. If the core package includes sports, news, and our offerings, which provide consistent, high-engagement original content, then we should also see a valuation increase. We're actively addressing this issue and gaining traction, which feels like a significant opportunity for us. Much credit goes to John Stein Loff, as we've been collaborating on this for a couple of years and are starting to see breakthroughs. We also note our strong performance in scatter, driven by a wealth of original content and momentum.

Yes, regarding your question about free cash flow and working capital, I believe the direct-to-consumer business offers advantages because we receive payments upfront from consumers directly, unlike the traditional TV cash cycle, which often involves lengthy payment terms with business partners. This is a positive aspect. On a broader scale concerning free cash flow, any start-up or growth business incurs initial investments as we work to scale our operations. We have been focusing on this for two years and are very pleased with the progress in our technology and platform, giving us a bit of a lead. We are also hiring staff and producing content. The major variable impacting future expansion is the cost of acquiring subscribers. We are prepared to invest in successful initiatives that demonstrate strong customer lifetime value. However, as you grow and experience success, the expenditures can increase. Nonetheless, I am extremely confident in our company's ability to generate free cash flow, and prioritizing organic growth is crucial for us. We are ready to support that.

It seems that other companies' pivots have significantly impacted their cash flow, but it appears this situation is more manageable for you, considering the investments you've made so far?

That said, we've been consistent in stating that we are functioning within a highly efficient model thanks to our global presence, established platform, and effective content genres. Therefore, we should be in a stronger position than our competitors.

We believe that the pandemic and remote operations have provided valuable lessons. We've discovered ways to produce content more cost-effectively while making it more engaging and compelling. Currently, we're nearly back to full production, and we see real opportunities to reduce costs without impacting our performance or content investment. We may be able to decrease spending on some content since we can produce it more cheaply, allowing us to focus our investments on substantial exclusive content for our global direct-to-consumer platform.

All right. Thanks, guys.

Thank you. And our next question comes from Jessica Reif Ehrlich from Bank of America. Your line is open.

Thank you. I have a couple of questions. First, you've been quite aggressive with cost management, as these numbers clearly show. However, given the impact of COVID and the ongoing transformation in the industry, several media companies have recently announced major reorganizations. How are you considering the structure for Discovery? Is there further potential for adjustments? Secondly, David, you mentioned the Sky direct-to-consumer offer, which we believe is a rebranding of Dplay to Discovery+ in the U.K. and Ireland, along with the introduction of a subscription tier. What is the reasoning behind rebranding the service, and how was the GBP 499 price point determined?

Thank you, Jessica. We've undergone a significant restructuring, focusing on viewing all intellectual property as a unified entity. However, we believe in maintaining distinct teams for different content types, such as food, crime, and natural history. Our teams are highly skilled and are well acquainted with the brands and top producers in the industry. We own many production companies, which strengthens our creative output. Investing in talented individuals and deepening their expertise in their specific areas continues to benefit us, especially in producing content for HG, which is currently thriving. Kathleen Finch, in particular, leads an exceptional team, and we feel dismantling that structure would counter our progress. While some may find it cost-effective to simplify content production, we believe our approach is driving significant results through our existing platforms. Internationally, we are experiencing robust growth in the traditional ecosystem, increasing our market share and generating substantial free cash flow. We're optimistic about enhancing pricing as our share grows and as market dynamics shift in our favor. Although we see opportunities to cut costs, we won't compromise on content, which remains crucial for our success. We're learning what audiences deeply desire, allowing us to strategically position our content. We will share more about our continued focus on high-quality content and global ownership, emphasizing that we are a global intellectual property company, not just a distribution entity. In December, we'll discuss our plans in more detail, but for now, we've quietly been working on creating content that resonates. The launch of Sky fits into our strategy of leveraging a global platform across multiple channels to present unique content at scale, which will greatly benefit our differentiation both locally and globally. We'll provide more insights on this in December.

Can I just ask one follow-up...

I would like to add that since the closing of the Scripps merger, we have implemented some significant reorganizations that have contributed to our performance, and we are feeling very positive about it, but there has certainly been a lot happening.

You've clearly cut costs, not even a question. And then just to follow-up on what David just said and everyone's trying to come at it from different ways. But we know that you're going to talk to us in December about the strategy, but on a higher level, can you give any color on how you're thinking about SVOD versus AVOD or a hybrid strategy?

We are operating in the AVOD space in the U.S. with our Go product, and we'll provide more information in December. This initiative has been very successful for us, particularly with advertisers during the upfront season. We believe there are significant improvements we can make to the product that will present real opportunities. Ultimately, we aim to get our content in front of a global audience, and we will discuss our strategy and focus areas in detail. We've put a lot of thought into this and will share more information in early December.

Thank you. And our next question comes from Kutgun Maral from RBC Capital Markets. Your line is open.

Great. Thanks for taking the question. I wanted to ask about U.S. affiliate revenue trends, between the pricing visibility you have following your recent renewals, potential upside from the new bundles, like the entertainment-only tier on T-Mobile's TVision and with what appears to finally be some relief on the pay-TV sub decline trends, how are you thinking about the sustainability of the recent affiliate revenue strength, looking out to the medium term, perhaps into 2021? And just on T-Mobile, I thought your commentary over there was pretty interesting. It sounds like there's some friction with how programming lineups ended shaping up. But one could argue that the entertainment-only tier was a major win for you. So I'm just trying to first better understand that relationship. And second, see if you think we'll see further changes to how linear bundles are structured as you lean into your DTC strategy? Thanks.

Sure. Thanks so much. Well, look, we were encouraged by Tom Rutledge's performance. I mean it's pretty compelling. He's running a hell of a company, and the beneficiary is the country, getting more access to broadband and turning the corner on cable subs, Comcast had a very good quarter. So it feels like sports was off the platform. We were in the middle of a tough pandemic. People were maybe saying, what, let me go buy Netflix, maybe that's been enough. It's hard to predict these things. The good news for us is we're on all platforms and we probably have the best carriage in terms of skinny bundles. Our content has never been stronger. Our scale has never been higher. And we've done very well in all of our renewals and getting everything carried. And so, what looks like it may be stabilization is very good for us. On T-Mobile, I think I've said enough. In the end, our stuff is carried on the broad platforms and then it is good for us. If in addition to that, someone wants to take the great content that we have and offer it in a smaller bundle for less money, that's good, but not that way.

Understood. Thanks so much.

Thank you. And our next question comes from Michael Morris from Guggenheim. Your line is open.

Thank you. Good morning. I have two questions. First, I'm interested in how you're viewing the impact of increasing peer content on free ad-supported over-the-top services. Do you think this trend poses a threat to the current economic model? As you plan your products moving forward, how do you weigh the benefits of having your own controlled app environment against selling your branded content to third-party platforms like Pluto or Tubi, Roku Channel, and others? Secondly, could you provide more detail on your investment in content going into the D2C launch? Are you anticipating a significant increase in cash expenditure in 2021 to enhance your product portfolio? You mentioned the value of the library and its support for your strategy. Is there a way to quantify how much that extensive library benefits you in terms of the content available to consumers? Thank you.

Thank you, Michael. There is a lot of content available, both AVOD and SVOD, and the good news is there appears to be a strong demand for it. One of the challenges we face is curation. People don’t just want more content; they want content they recognize and love, and they need help finding it. I think Iger has been quite astute in his approach with the very successful Disney+. As a former cable guy, I know that cable works because of curated channels—everyone has their favorite six out of hundreds. With Disney, you can clearly see the brand categories like Marvel, Star Wars, and Disney Family. This creates an inviting experience that showcases not just a vast library but specific collections that resonate with viewers, much like having those six favorite channels. The market is currently flooded with similar content—movies and scripted series are competing for attention, and it can be overwhelming with so many new shows being pushed. It’s difficult for consumers to discern what’s worth their time. However, this competitive marketplace is beneficial for us as more money flows into content, and people become increasingly accustomed to consuming content across all platforms. This environment works in our favor as much of the incoming content looks alike. Marketing becomes costly as it’s necessary to differentiate each series, explain what it’s about, who stars in it, and why it's worthy of attention. We have consciously held back our content for this moment, and now we're well-positioned to stand out from the crowd. When audiences see our brands and characters, they'll immediately recognize who we are, whether they value us, and feel assured in their choices. Instead of seeing just another pile of content, they'll see what they love. We look forward to discussing this further in December.

Michael, regarding content costs and investment development, it's too early to provide guidance for 2021. However, I can say that we are ready to invest if we see a strong ROI, as we have done in the past. That said, there is significant value in our existing library and our current content output, which totals 8,000 hours a year, and any new product can leverage that. As I mentioned earlier, I believe our profile will always appear more favorable with less cash burn compared to what others might achieve.

We have been evaluating our assets and have chosen to retain them. The idea of selling content outside the U.S. can be appealing, as it allows for the possibility of successfully distributing some of our top content to other platforms while still maintaining a competitive offering. Additionally, selling to multiple platforms and adopting a non-exclusive strategy can lead to immediate financial gains. However, we believe these strategies may be detrimental in the long run and potentially create confusion.

Thank you very much.

Thank you. And our next question comes from Kannan Venkateshwar from Barclays. Your line is open.

This is David Joyce for Kannan. Your advertising front, you were ahead of expectations in the quarter. Could you provide any context on what the digital strategies have done for you there from the Discovery Go Apps or from your targeted advertising efforts? And also wondering what that opportunity set is going forward? Is that opening up the advertiser base for you? And then just one final thing on the upfronts, given the timing shift and the advertisers tending to seek for a calendar upfront, is there any structural implications for moving to that calendar upfront from the broadcast? Thank you.

Thank you, David. We are performing well in the digital area and our pricing is favorable. We've been effectively utilizing those revenues, and the performance has been strong. We will provide more updates in December on how we can further capitalize on this. October was flat, but November looks promising. Unlike many others, political advertising did not dominate our top five. We're seeing success because we have greater confidence in our market offerings and the value we deliver. Our scatter pricing has been strong, and we expect this trend to continue. Additionally, we are forming partnerships with various advertising agencies that are examining restructuring and seeking dependable original content on our platform, along with engagement and pricing opportunities. I believe we are making significant progress in this area. The upfront was also quite robust for us. While there has been discussion of a significant change in the upfronts, I believe we will see a calendar upfront, but overall, the upfront was very healthy.

All right. Thank you.

Our next question comes from Steven Cahall from Wells Fargo. Your line is open.

Thanks. First, I just wanted to follow up on question. It sounded like your sub decline improvements were more idiosyncratic than industry, and we've certainly seen some MVPD recent reports looking a little better. So just wondering if everything is equal, going ahead, we would have even further improvements in your universe sub declines, just driven by some of that MVPD improvement? And then relatedly, we've definitely had questions about whether or not you've got an unusual amount of pricing lift this year with these new renewals. So just wondering if you could comment on whether that's correct or whether the kind of 2% we're seeing now is more like a decent run rate for domestic affiliates going forward? And then just on the DTC side, I know there's a lot that's going to come in December. GOLFTV is a product that's already in the market. So I was wondering if you could give us an update on how GOLFTV has performed so far this year. I think you launched it in a couple of new markets? Thank you.

Steve, let me start with the 2 affiliate questions. Again, I don't want to speculate about some trends. Again, we're happy to see a slightly better number this quarter. I certainly hope that might be the case for a while, but it's really not in our control. What is in our control is the degree of carriage that we're getting. And as David said, and all the recent renewals, we've been getting very good results here. So there were some talk in the market about potentially getting tiered or losing carriage for networks, none of that has happened. And again, we closed two more deals today in this quarter that we talked about today. And if you look at our reported numbers, you see the 2% growth, 4% sub declines on the core net. So you can kind of do the math of what our underlying economics are. And as we've said previously, we're very pleased with the deals that we closed this year that are supportive for this environment.

There is always a balance when executing these deals. We are well protected, which benefits both us and the distributors, as our content is widely available across all tiers. Although we've secured significant increases on all our deals, it's possible we could have negotiated for slightly more. Ultimately, from our standpoint, having that full protection was crucial, and it seems the distributor found that agreeable as well. Regarding GolfTV, we've been collecting data on golf, cycling, and the Eurosport player, as well as on several niche products we offer. We plan to share our insights in December, discussing what we have learned, the areas where we are seeing growth, and how we are navigating the balance with platforms featuring AVOD, where users may spend considerable time. We will also explore whether maintaining niche offerings in the long term makes sense or if consolidating them into a unique offering would be more advantageous. We will provide further details on our aggressive global strategy in December.

Got it. Thank you.

Thank you. And we'll take our final question from Ben Swinburne from Morgan Stanley. Your line is open.

Thank you. Good morning. David, I guess just to wrap up on D2C and, again, I know you want to save most of this for December. But one of the things that has clearly been a point of tension in the market with your distributors is launching a product that might compete with what they sell. I'm just wondering, if we're sort of past that now? And if you look at, obviously, CBS All access has been in the market for a while, it's a pretty direct competitor with CBS network, AMC Plus launch recently. Do you think we're beyond that issue with your distributors? And now there's much more alignment? And secondly, the Scripps deal has been so transformative for the company, I'm sure you'd agree, in a variety of ways. And I know there aren't other Scripps out there. But you generate so much cash flow, have balance sheet capacity. I'm just wondering if you think you'll be more active in M&A over the next couple of years, as you build scale? Because it seems like you've got a lot of infrastructure, you have a lot of library content and there aren't going to be 20 global D2C companies, I'm sure you'd agree. So if you're thinking about being more aggressive in that front? Thanks a lot.

Thanks, Ben. I definitely agree about the Scripps deal. Ken Lowe demonstrated remarkable skill; he's a true entrepreneur who built HGTV from the ground up. He transformed a previously free service into something valuable and made significant investments, creating an incredible company with strong leadership. We're fortunate to have him still on our Board and as a close friend for 30 years. I've learned a lot from him, and he remains actively involved with us, which is a key advantage for our company. After acquiring Scripps, we were generating $1.4 billion in free cash flow while they had $650 million. Initially, we thought we could reach $1 billion, but just 18 months later, we exceeded an additional $1 billion in free cash flow, and it's been consistently strong. Our share has increased significantly. We've integrated the talented creative leaders from Ken's team and expanded that content worldwide, utilizing various channels and platforms. In just 18 months, we improved our leverage from 4.7x to under 3.5x. If the right asset becomes available, we have more synergies than anyone else in every country, thanks to our free-to-air and cable channels that serve as marketing tools for direct-to-consumer and product sales. Our infrastructure is robust. We've proven that we can adapt quickly while continuing to grow our business. Currently, we have a highly competitive global IP company that stands out in the market. Many competitors are lagging in developing their IP, but we maintained our production throughout the pandemic and have resumed operations successfully. Our position is strong, competing against many players who lack local presence or the ability to expand internationally. Much of their content is similar to that of others, and when opportunities arise, they tend to all pursue the same big items. We have a distinct advantage in a market that is increasingly aware of our global share and performance, making our free cash flow generation very impressive. We've been carefully holding onto and producing IP, so we don't feel the need for any specific acquisitions. While it’s tempting to think about diversification through M&A for potential synergies, we believe any acquisition must significantly accelerate our growth or enhance our IP to further differentiate and scale our business. Overall, we feel confident about our current position, and we look forward to providing further insights in December and sharing our vision globally to validate our strategy.

Thanks David.

Thank you. And that does conclude our question-and-answer session for today's call. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect. Everyone, have a wonderful day.