Warner Bros. Discovery, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, welcome to the Warner Bros. Discovery First Quarter 2026 Earnings Conference Call. Operator instructions were provided. Additionally, please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mr. Peter Lee, Senior Vice President, Investor Relations. You may now begin.

Good afternoon and thank you for joining us for our Q1 2026 earnings call. Joining me today from Warner Bros. Discovery's management is David Zaslav, President and Chief Executive Officer; Gunnar Wiedenfels, our Chief Financial Officer; and JB Perrette, CEO and President, Global Streaming and Games. This afternoon, we issued our earnings release, shareholder letter and trending schedule. And these materials can be found on our website at ir.wbd.com. Today's presentation will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements about the benefits of the proposed transaction between WBD and Paramount Skydance, future financial and operating results, the combined company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of WBD's management and are subject to significant risks and uncertainties outside of our control that could cause actual results to differ materially from our current expectations. For additional information on factors that could affect these expectations, please see the company's filings with the U.S. Securities and Exchange Commission, including but not limited to, the company's most recent annual report on Form 10-K and its reports on Form 10-Q and Form 8-K. WBD is not under any obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. In addition, we will discuss non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to the closest GAAP financial measure can be found in our earnings release and in our trending schedules, which can be found in the Investor Relations section of our website. I will turn the call over to David for some brief remarks, after which we will take your questions. Before doing so, I ask that you limit your questions to topics related to our Q1 results and related business and financial topics. As noted in our shareholder letter, management will not be taking questions regarding the proposed Paramount Skydance transaction. And with that, I'll turn it over to David.

I'd like to start by taking a moment to remark on the great life and extraordinary legacy of Ted Turner, who was sadly lost today. The words giant and visionary get tossed around loosely in our industry but Ted Turner truly embodied both. Ted was a generational entrepreneur, someone who believed deeply in the power of ideas and in telling stories and building platforms that could inform, connect and inspire people around the globe. His global vision for our industry was way before its time and presciently powerful. And alongside Ted through much of that journey was John Malone, whose partnership, strategic vision and shared belief in the power of cable helped build and strengthen many of these iconic businesses over decades. In many ways, it was a full circle moment for John and me when Warner Bros. Discovery came together in 2022. And we had the opportunity to work with the great businesses and brands that Ted imagined and built. Ted was so happy. From CNN to TNT and TNT Sports to TBS, Cartoon Network and Turner Classic Movies, Ted built businesses that changed the world. Decades later, they remain vibrant and central to who Warner Bros. Discovery is today. His vision and spirit are very much alive in all the work we do. Ted inspired a generation and inspired so many young hopefuls like me to believe in the dream and join the cable business. With Ted, everything was possible. And along the way, he gave us all courage. He gave us a great life and meaning. He changed the world. He was a great American and I love him. May his memory be a blessing. Now turning to the quarter. We're excited to share the results of another strong quarter for Warner Bros. Discovery, marked by excellent progress in delivering on each pillar of our strategy and propelling our ongoing transformation. I'd like to start by highlighting how our team continues to translate the investments we've made over the last 4-plus years into entertainment people love and results shareholders expect. Beginning with Streaming, in Q1, we introduced HBO Max to important new markets while also delivering high-quality content that engaged existing subscribers and attracted new ones. We successfully launched HBO Max in the U.K., Germany, Italy and Ireland. While our Sky licensing relationship has long made WBD content available in these significant European markets, for HBO Max to be a truly global and scaled streaming service, it was imperative that we build a direct relationship with these audiences. We prepared diligently and invested aggressively to ensure success, and we delivered. Thanks to these successful launches, we've now meaningfully exceeded our guidance of over 140 million total subscribers by the end of Q1. We have strong and accelerating momentum and expect to finish the year with more than 150 million subscribers globally. And more importantly, we are seeing healthy acceleration in subscriber-related revenue growth, which we expect will pick up real pace in Q2 and through the rest of the year. We believe the key to strong subscriber and subscriber-related revenue growth is delivering content that audiences love. And boy, they love what they're getting on HBO Max today. Thanks to the brilliance of the HBO team, Warner Bros. Pay-1 movies, Warner Bros. TV, one of the industry's best and strongest TV studios and an industry-leading film and television library amassed over a century, HBO Max's content is thriving in a highly competitive market. Fresh off its Emmy and Golden Globe wins, the second season of The Pitt reinforced its place as a cultural phenomenon, averaging more than 20 million viewers an episode. And A Knight of the Seven Kingdoms proved one of the breakout TV hits of 2026, not just rewarding Game of Thrones fans but bringing many viewers into that universe for the first time. With 36 million viewers per episode, A Knight of the Seven Kingdoms is among the most popular debut series in HBO history. In fact, HBO has never featured more active shows averaging more than 20 million global viewers than it does right now, complemented by comedy hits like Rooster, limited series like DTF St. Louis and an international local language series such as Like Water for Chocolate in Mexico and Maxima in Argentina. We've created an offering that is distinct, balanced and earns a pricing premium through consistent excellence. With Euphoria now back, a new season of House of the Dragon on the way and the upcoming debuts of the television series Lanterns, Stuart Fails to Save the Universe and Harry Potter and the Philosopher's Stone on Christmas Day, we see nothing but strong growth ahead for HBO Max. The second pillar of our strategy has been elevating our WB Studios back to industry leadership. Since bringing WBD together, we've transformed WB Studios on nearly every level. Last year, those changes broke through creatively and financially. If there were any remaining questions about Warner Bros. creative renaissance, they were answered unmistakably at this year's Academy Awards. Warner Bros. was recognized with 11 Oscars, including One Battle After Another becoming Warner Bros.' first best picture winner in more than a decade and the most Oscars in the studio's 103-year history. From the beginning, we committed to attracting and working with the world's best creative talent to tell culture-defining stories and to marketing and releasing those films in theaters. These Oscar wins and the string of box office successes in our Motion Picture Group validate our conviction. This year, Warner Bros. Motion Picture Group will release 14 films, including Dune: Part Three, Supergirl, Clayface, Practical Magic 2 and Digger starring Tom Cruise. We're slated to release up to 18 films in 2027, including Lord of the Rings: The Hunt for Gollum, Batman and the Superman sequel, Man of Tomorrow. And Warner Bros. Television continues to be one of Hollywood's most prolific independent TV suppliers with 80-plus active shows spanning more than 20 streamers and linear platforms. As we are making strides in areas such as games and experiences where we believe we have meaningful unrealized opportunity ahead, we are well positioned to achieve our goal of at least $3 billion in annual WB Studios adjusted EBITDA. The work we've done to return our WB Studios to leadership has set the foundation for the company's next chapter. Finally, the third pillar of our strategy has been optimizing our global linear networks. Disruption in the linear television market has created well-known challenges. Faced with those challenges, our team has shown great resolve and ingenuity in keeping our network brands and content highly relevant. We're seeing the fruits of those efforts across sports, news and general entertainment. We've significantly evolved our sports portfolio with a focus on breadth, value and international exposure. During Q1, we increased linear viewership of the Milano Cortina Winter Olympics by 50% compared to the Beijing Winter Olympics in 2022 and more than doubled streaming hours and tripled streaming viewers compared to Beijing in 2022. We had a record-breaking March Madness this year with the most watched men's national championship game ever broadcast on TNT Sports. And we're off to a strong start with both the MLB regular season and the NHL playoffs. We're also seeing resilience in general entertainment networks. We continue to innovate and refine our content strategy. And in Q1, we saw a 16% sequential improvement in year-over-year general entertainment delivery trends versus Q4. Even excluding sports, networks like TLC and TBS grew prime time viewership by double-digit percentages versus the prior year. Increases were even more pronounced in news. The world has confronted a wave of recent disruption. As it has, CNN has proven again it's where people go for news they trust, delivering 30% year-over-year growth in total minutes spent across platforms in Q1. These strategic and operational successes all help set the stage for the next chapter in our transformation. And no event was more significant in Q1 than our reaching an agreement for Paramount Skydance to acquire WBD at a cash price of $31 per share. Our shareholders clearly agreed that this offer represents outstanding value, as 2 weeks ago, they voted to approve the sale to Paramount Skydance. We've said consistently that we're living through a period of historic disruption in media and entertainment. How content is made, how it's distributed and how it's consumed is evolving with increasing velocity. When you look across Warner Bros. Discovery today in Studios, Streaming and Global Linear Networks, each segment of our business is demonstrably more nimble and better positioned for future success than when Warner Bros. Discovery was formed. That's a testament to the hard work and dedication of our talented team of 30,000-plus colleagues who have remained focused and relentless in pushing Warner Bros. Discovery forward. With that, we'll now take your questions.

Operator instructions were provided. Your first question comes from Rich Greenfield with LightShed Partners.

JB, now that we've sort of finished the major European rollouts and it feels like your global rollouts are now complete, I was wondering if you could share your observations on HBO Max as a business and where the product stands today. Anything you could say about where you think the future of HBO Max is? And then on sports, Disney and Josh D'Amaro this morning really highlighted the point that sports has growing importance on streaming platforms. It's why they want to keep ESPN inside of Disney. You all have a very different perspective on sports and streaming. It'd be helpful to understand what you see or your unique perspective.

Yes. Thanks, Rich. It is an exciting moment. I think when we look at the 4-year journey that we've been on, when we set out in 2022 and said we believed the world was going to require a global footprint, you'd have a handful of big global streamers that could be successful and we knew that we had to be one of those. We worked tirelessly. We assembled a world-class team pulling from the best of the tech and media worlds. We invested and spent that first year redeveloping a whole new platform and product that was flexible and dynamic and allowed us to deliver high-quality and consistent streams of all content types, including high concurrency events like the Olympics. We obviously expanded globally. We are in about 40% of the total addressable market at the time. We're now more than double that. We iterated on the strategy and the positioning, learned from mistakes and were guided by customer feedback and data, transforming the service into a must-watch service that people value because it delivers on the principle that better is better, not necessarily more is better. We're also hugely beneficiaries of the incredible team that Casey and the entire WBD creative leadership have put together, with a content slate that has gotten better, broader and more consistent 365 days a year. When we started this journey with about mid-90 million subs, we've added almost 50 million subs over that period. We were losing $2 billion and last year we were profitable by $1.4 billion. You saw the results today, growing increasingly double-digit on the bottom line. We're seeing the benefits of the operating leverage start to really kick in as growth in profits accelerates through the year. Going forward, we still have multiple levers of growth. We're still nascent in some big markets. The Potter franchise over the next decade will be a huge tailwind with what I think will be the biggest streaming event for us ever at the beginning of the year and continuing across the next few years. The content slate continues to strengthen. We're moving more wholesale subs into retail, and the ARPU and LTV of that is accretive. Our ad sales business, particularly internationally, is still very nascent and growing. Our product has seen significant investment and we're improving day to day to help engagement. The engagement and churn metrics we've seen over the last couple of months and as we look into 2026 are the best we've seen in the four years we've been building this. On sports, I would say we know the power of sports and we've been playing in that space internationally for 15-plus years. The thing is, we want to prove the ability to do sports profitably in streaming. It's a harder equation in the streaming space. Sports can be acquisitive and help engagement and there are indirect values. We're experimenting to figure out the model that allows sports and streaming to be profitable. We have various experiments: simulcast in the U.S., a stand-alone premium sports offering a la carte in the U.K., sports bundled into the basic HBO Max tier in Brazil and Mexico, and stand-alone sports in Chile and Argentina. We see the power of sports but will continue to be disciplined and experiment to find models that deliver engagement, subscribers and profit.

HBO Max is a global high-growth asset and is really the linchpin of our ability to achieve our ambitions. The piece of the business you will see will be a huge benefit to Paramount when our deal closes together with their assets. For JB, Casey and the whole creative leadership at Warner Bros., to turn HBO Max from losing over $2 billion to effectively a positive swing is a major achievement. More importantly, it's a high-growth asset that makes our studio and streaming business a sustainable growth asset, which was the basis on which we executed the strategy of splitting the company, which ultimately led to strong interest and the Paramount transaction. HBO Max pulls together our TV library and the great motion picture content from Warner Bros. and DC. Having a leading global player is something we're excited about, especially combined with Paramount's strengths.

Operator instructions were provided. Your next question comes from Robert Fishman with MoffettNathanson.

David, with the launch of YouTube TV sports and just overall cord-cutting trends, curious what your latest thoughts are on how the pay TV landscape will evolve from here. Are we reaching a floor for sports fans? And what do you think happens to the cable networks that aren't primarily sports? And then just maybe following up on your first comments. You've long discussed the advantages of bundling streaming services in the U.S. while also thinking about the international DTC opportunity. So curious through all of your different conversations with Netflix and Paramount, any updated views you have on the power of a global scaled streaming service and how some of these smaller services can still best compete over the long run?

Let me start with the second one, the idea of bundling or consolidation. When you sit down and see in any market around the world 15 to 20 choices of apps, and when people are trying to figure out what to watch, they often have three people on a couch searching where it is and how to get into it. It's not a good consumer experience. For four years, we've been saying the consumer experience will get restructured and that there will be value creation for those that become emerging leaders. Bundling together, as seen with Disney, reduced churn and improved the consumer and economic experience. We've been working on bundling. The idea of Paramount coming together with Warner Bros. is in the same vein of creating a more robust and compelling consumer experience. JB has been leading globally on bundling and, over the last 1.5 years, many regional players have worked with us on that.

Yes, Robert, we're big believers in bundling. We've seen the benefits from an LTV perspective on our base. Three years ago, we had few bundled subscribers with other programmers. Now, in addition to the Disney bundle here, we've launched bundles in Germany with RTL+, with Viu in Southeast Asia, and we're part of bundles in Latin America and across our global footprint. Our highest LTV subscribers often come from bundled subscribers. Bundles are beneficial to marketing expense, reduce churn and are a healthy and growing part of the business that will be increasingly important to the ecosystem.

On the ecosystem for channels, we had a great quarter focusing on creating content in sports, food, home and general entertainment. Our overall networks were up significantly. There's a real focus on creative teams making content that nourishes viewers. Sports and CNN are doing very well; ratings for CNN were up significantly. As for the broader multichannel landscape, there are encouraging signs from some distributors. Ultimately, we can't control the entire ecosystem but we can continue to produce great programming and the results reflect that effort.

If I can add one point that's important: we have long stopped viewing our linear networks as just linear networks. Our creative teams are creating content that works across platforms, and we are generating significant returns on dollars spent. We're increasingly seeing meaningful revenue contributions from international markets and from streaming utilization of this content. In some cases, more than 50% of revenues are coming from streaming utilization internationally. The demand for this content and the viewer engagement is still there and continues to be a great business for us.

Operator instructions were provided. Your next question comes from Steven Cahall with Wells Fargo.

As we think about Studios, the guidance for adjusted EBITDA is relatively in line with 2025. I was looking to understand that a level deeper. You had a really strong slate in 2025. I know you've got a big slate this year, too, but trying to understand if there are drivers to that profitability in 2026 that maybe offset a slightly smaller slate expectation in 2025. And then some folks like Paramount account for internal licensing differently. I know that was a contributor in Q1 as well. Is there any good way for us to think about the revenue or the EBITDA of the studio business excluding that internal licensing? And then on networks, I think EBITDA was down roughly about the same as revenue, which was a big improvement on the back half of last year. Any way you think about the revenue plus EBITDA trajectory longer term for networks? Do you think you can continue to hold EBITDA at or better than the pace of the top line?

Steve, let me start with internal licensing. It doesn't make sense to exclude internal content sales from studio performance. That's why we've chosen an internal fair market value model: whatever we sell internally, we could also sell externally. The only difference would be timing and possibly generating a little less profit over the ultimate period for that content if sold externally, because it takes JB's team a bit more time to generate profits by utilizing content internally. We've disclosed what gets eliminated and I've said before that over the past few years, as we've shifted from externally focused content licensing to a more internal utilization model, we've essentially created value in company profits that are eliminated and sitting on the balance sheet and are beginning to flow back into consolidated profits as we get the benefit from utilizing the content. It took a little longer to hit the P&L, but it's going to be a helpful driver for us. On the studio side, 2025 was a fantastic year for the studio and outstanding for the Motion Picture Group. Maintaining that profit level is healthy and an ambition for the team. There will be quarter-to-quarter fluctuations due to timing of content sales and renewal of deals, which cause bumps in individual quarters. For longer-term growth opportunities, we see opportunity in experiences and consumer products — an area that historically didn't receive much attention. We've opened a Potter tour in Tokyo and are working on another in Shanghai, along with smaller experience activations. These will increasingly contribute to profits this year and beyond. On linear networks, I want to avoid very specific long-term guidance. What you saw this quarter are encouraging signals: better delivery and share gains in key international markets. We're seeing monetization shift but still generating strong returns with a different mix and incremental value coming from international streaming utilization. We're continuing to focus on efficiency management. While earlier we offset significant percentages of revenue declines with cost actions, we still see opportunities to improve efficiency. AI is becoming more meaningful as a contributor to efficiencies and greater volume creation in certain workflows. There's a lot to be optimistic about, but it's not the right time to provide new long-term guidance for that business.

Operator instructions were provided. Your last question will come from Kannan Venkateshwar with Barclays.

David, you've scaled Warner — sorry, Discovery over the years by orders of magnitude. There are areas where scale benefits, like the tech stack or marketing. But is there an asymptote that you start to hit as you get larger? Do the benefits of scale increase proportionately with size? The reason I'm asking is we're starting to see some engagement stagnation across premium services, especially the larger services, with Netflix engagement being an example. On the legacy TV side, it took time to integrate the Warner assets with Discovery. It would be good to get your context on, as you scale the business, where you start hitting hurdles and whether beyond a certain point scale becomes a disadvantage. And Gunnar, from your perspective on the planned spin, are there costs right now in the P&L that would not have existed if the spin was not being planned? Could some of these efficiencies be in the future?

On scale, having more scale of great content and storytelling on your menu is clearly valuable. What we've learned is that aggregating content together in one place creates the most value. Many of our channels' content feeds HBO Max, and some content gets significant incremental value by being resold on AVOD to niche audiences who love specific genres. Putting scale in one place can be effective — in the U.K., for example, we have TNT Sport and separate entertainment offerings, allowing us to cater to different audiences and extract more value. The biggest issue with scale is a global footprint. When competing regionally, U.S.-only or language-specific services used to be very compelling businesses. But as platforms like TikTok, Instagram, Amazon, Netflix, HBO Max and Disney operate globally and amortize content across markets, it becomes harder to be a purely regional player. A global strategy and the ability to understand what works and restructure content to create more value are increasingly important. JB, you've been in this fight.

Kannan, the short answer is we don't see that inflection point coming anytime soon. Some leaders who've been at this for 15 to 20 years may be in more mature innings, whereas we're in earlier innings having been at this for 5 or 6 years. The levers I described earlier — operating leverage, platform and core infrastructure investments — still present opportunities to convert top-line growth into bottom-line improvements. We're still early in penetration in certain markets we recently launched in. Content is our product, and the data we've used to guide content investments is making us smarter about the types of content that nurture and retain customers. The slate Casey and the team deliver is already strong and getting better. Between stronger content, improving ad sales, and continuous product improvements, we believe we have years of opportunity to gain operating leverage and drive profitability.

Kannan, on separation-related expenses in the P&L: there are still some separation-related expenses flowing through, but geographically and functionally these costs are below the line and therefore have only a marginal impact on EBITDA. There's a lot going on below the line — restructuring expenses, the Netflix break fee that flowed through our P&L, and expenses related to the sale process and the pending Paramount Skydance sale. For free cash flow, we had a pretty meaningful negative cash impact last year and may not get quite to that level but may be close in 2026 as well. We flowed roughly a $100 million negative cash impact through the first quarter, and more is expected from advisory fees, incremental interest from the bridge, tax leakage, and related items. That will continue to be a factor and we'll keep highlighting it over the course of the year.

Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect.