Warner Bros. Discovery, Inc. (NASDAQ:WBD) 2022 BofA Securities Media, Communications & Entertainment Conference September 8, 2022 2:20 PM ET
Company Participants
Gunnar Wiedenfels – Chief Financial Officer
Conference Call Participants
Jessica Reif Ehrlich – Bank of America Securities
Jessica Reif Ehrlich
Okay, well, we are thrilled to have Gunnar Wiedenfels here, the CFO from Warner Bros. Discovery, which of course we think is a very exciting story. So let’s hear from you. It’s been several months since the transaction of Warner Bros. Discovery closed. Could you talk about some of the key observations and maybe surprises that you’ve seen so far?
Gunnar Wiedenfels
Sure. Thank you, first of all, for having me Jessica, and hello everyone. Look, we’re 150 days in, and as with any of these transactions, yes, there are some surprises. We spoke a little bit on our second quarter earnings call about some of the less pleasant surprises, but there’s also been a lot of very, very positive stuff that’s been going on and I keep getting more and more encouraged with every meeting that I come out of.
And when we look at what David laid out when we reported the second quarter in terms of what the key priorities are here, creating the most compelling, diverse content, leveraging our amazing storytellers, leveraging that enormous global distribution footprint across all of the distribution outlets that we can orchestrate to monetize the content and to really run this Warner Bros. Discovery as one company with one vision. Then I’m seeing a lot of, clearly early, but a lot of strong indications for progress across all of these.
The content speaks for itself on the distribution side and monetization side, the upfront in the U.S. ad market was a phenomenal success. And looking at the way the companies coming together behind stuff like the House of The Dragon launch across the global portfolio, our synergy efforts, there’s a lot of movement in one direction as one company. It’s very, very encouraging.
Question-and-Answer Session
Q – Jessica Reif Ehrlich
And could you talk about some of your immediate priorities as a management team?
Gunnar Wiedenfels
Well, look, I mean, the first priority has been to get the team in place. I think David has now established an almost complete very, very strong management team. The team is gelling very well, it’s great to see the team operating together with a lot of conviction, a lot of focus on execution, a lot of courage to make decisions, and quickly. Get the company on the track that we want to see it on. That’s been a huge priority initially clearly and there’s been a lot of press on this that the course corrections just making changes quickly where we don’t agree with the track that WarnerMedia was on, that took a lot of courage and execution focus early.
And then as I said, we’re spending a lot of time really ramping up that synergy program, and it’s very, very encouraging. We said, when we reported the second quarter earnings that, we had — already had a $1 billion worth of initiatives implemented, obviously with the savings coming in over a 12 month period. We’re continuing to make progress there. And it’s great to see the entire company engage.
And it’s really, again, one of the great opportunities here as we talk about integrating WarnerMedia and Discovery, the reality is we’re integrating five companies: Warner Bros., HBO, Turner, CNN, and Discovery. So there’s a lot of opportunity, and it’s exciting to see some of the people who own those initiatives to step up and really think big and think about the big opportunity by really running this company as one.
Jessica Reif Ehrlich
Right. So the strategy is becoming clearer and clearer, and it – well, as you cross correct and try to maximize the value of content across each window it looks like you’re starting to — or thinking about licensing contents to third parties wherever appropriate. How long does it take to reverse some of the strategic pivots that you said you found some stuff that you want to change and how significant of an opportunity do you think it is to revenue and EBITDA?
Gunnar Wiedenfels
Well look, I think the opportunity is enormous. I almost view this as a Boeing 747 flying on 1 engine, and we’re firing up the other 3. There is so much opportunity. It doesn’t happen overnight, right? But the general idea is we, like, I think very, very few other players have the ability to get the best return on every dollar of content spend, because we have control over one of the most complete exploitation change across all of these windows. We have a ton of content that’s been sitting idly for just purely principal reasons and we’re firing this up.
There’s a lot of excitement across the organization. People are happy that they have the ability to do the job they were hired for, and we’re seeing a lot of demand, a lot of interest on — across all of the distribution windows. And I think this is going to start flowing through. It doesn’t happen overnight, of course. But we’re open for business as David said.
Jessica Reif Ehrlich
Okay. Is there any way you can quantify like, some of the dormant content? Like, you just sold Lord of The Rings to Amazon, as just an example of a third-party sale, which is probably pretty big. But is there anything else that you can kind of like point to or give us any color on sizing? What the opportunity could be?
Gunnar Wiedenfels
Look, I think the Lord of the Ring example is a great one. It’s a non-exclusive window. Obviously, the way we look at it is we look at what we’re giving up versus what additional revenue we’re generating. As a matter of fact, there’s positive knock-on effects on our own platforms as well. So that’s a perfect example of how it just makes sense to get that additional monetization for the content.
Another great example really from all of these angles is the way Elvis was handled. Because it’s one great example of how the leadership team comes together and makes these windowing decisions really with the best interest of the combined company in mind. No ego, no religious beliefs about the value of one platform over the other. It’s still in the theatres way, way longer than what the team originally “promised” as a theatrical window, successful home entertainment window following after that. And it’s now starting to contribute on the HBO Max platform. And over the course of this whole discussion, there’s a healthy debate, but we look at the data, we look at the facts. We agree or disagree on certain assumptions and over the course of this — the ultimate estimate for the film has been coming up and up and up, right?
Jessica Reif Ehrlich
Why has there been so much movement on content cancellations? What are you seeing that’s different than the prime management team?
Gunnar Wiedenfels
Look, I think there’s two levels here on which I would answer that question. One is I don’t think it’s unusual. We’re a creative industry and one of the elements of creativity is that there’s judgment and differences in the views on what the potential of a certain piece of IP might be, right?
And you’ve got a new management team coming in. You’ve got a new studio leadership with Pam and Mike, they’re obviously, going through and have gone through what’s in the pipeline, they’ve formed their creative views and assessments. My team has helped them by providing financial data — data points to the extent possible and a framework to assess the potential from a purely financial perspective. And then they’ve made those decisions. That’s not unusual. I mean, there’s a lot of press going on right now. Media likes to talk about media, I guess. But that’s — I think that’s how these things go as a new team takes over.
The bigger picture from a forward looking perspective is the strategic shift that we’ve made and David has said a lot about that on our earnings call. It’s really this belief in the theatrical window, it’s the belief in leveraging all of the various exploitation windows to use our unique position to monetize our phenomenal content as much as possible as opposed to this idea of, as an example, just producing feature films for just one streaming window.
Jessica Reif Ehrlich
Do you consider like, the opportunities that you’re talking about, like in content, is that part of like better business practice or is it part of your like $3 billion in synergy? Does it go into the synergy bucket?
Gunnar Wiedenfels
It does not. I mean, look at the end of the day, money is money, right? So it’s a bit of a philosophical discussion how you want to label it. But the way I define synergies is, we’re actually generating from combining these two business, I would just call that, as you said, better business practice. We’ve set course correction initiatives before. So it certainly helps contribute to the bottom line here, but the synergies are mostly as we said, outside of content.
Jessica Reif Ehrlich
Okay. But content is like the absolute heart of the new combined company. And you have like an amazing roster of iconic IP. I mean, David always lists them, but there’s — this is actually more than he even said, besides like DC and Harry Potter, et cetera, and new line this — and he — I think he always says Loony Tunes, but there’s Cartoon Network and Hannah Barbera. I could just go on and on because there were so many companies buried within the old Warner Bros., like the old time Warner. I — just curious, as you have this incredible treasure trove of content, who’s figuring out or how do you figure out what to tackle first?
Gunnar Wiedenfels
Well, I think there are a couple of clear priorities, right? I mean if you go through that list, DC obviously stands out and there’s a lot in flight with a number of the films that are slated for next year and 2024. And as you know, David is still looking for someone to lead that specifically, the Wizarding World-Harry Potter, obviously a huge potential if we can get it right, and there’s a game coming out towards the end of the year.
So there is a lot in flight, but clearly if you look at it from a risk and reward perspective, leveraging some of that existing IP, some of those existing brands, obviously improves your return profile in a very significant way, and that’s clearly going to continue to be a priority.
Jessica Reif Ehrlich
Well, it’s going to take years to roll through some of that library, but that’s —
Gunnar Wiedenfels
That’s true.
Jessica Reif Ehrlich
So there’s a lot of press surrounding the cancellation of Batgirl, which seemed like as announced — I mean, it seemed like a prudent business decision. Is this a reset of your overall DC strategy?
Gunnar Wiedenfels
No. It goes back to what I said earlier. I mean there’s a new team coming in forming a view. We’re providing a financial framework to assess these things. Mike and Pam make a decision. To me, it’s blown out of proportion a little bit in terms of the attention externally. The focus is on a go-forward basis here, we’re spending more than ever in the history of the 2 legacy companies on content. We will continue to make a significant investments. We’ll make them differently with a different financial rigor, with a different focus on full utilization across all platforms et cetera. But this is the lifeblood of the company and we’ll continue to be investing behind it.
Jessica Reif Ehrlich
And last question on just like all the, the press surrounding some of the decisions you guys have made. Have you had any pushback or repercussions from either talent or the agents or the industry?
Gunnar Wiedenfels
No. Look, I think the — again, media likes to talk about media. So, I perceive the situation at Warner Bros. Discovery differently and much more positively than some of what you see in the press. As I said earlier, we’ve got a leadership team that’s coming together very, very well. I see, again, if I look at our synergy program, hundreds of people from both legacy organizations stepping up embracing the change that’s going on. And there’s a lot of excitement.
As I said earlier, there’s — across the entire organizations, there’s a lot of excitement about that strategic vision of being in business across the entire value chain as opposed to just focusing on one platform. There’s enormous excitement. And we have healthy relationships with talents, and I think we are offering one of the best platforms for anyone in the creative space.
Jessica Reif Ehrlich
So, moving on to guidance. Last year when you announced the deal, you put out a target of $14 billion in EBITDA and a 60% free cash flow conversion. And now that target’s been revised to $12 billion in EBITDA in ’23 to be clear. Some of this is obviously macro. Can you walk us through — can you take us through the bridge of what drove the original $14 billion down to the current $12 billion?
Gunnar Wiedenfels
Look, I’m happy to even though I’d like to talk about sort of how we get to the $12 billion, but as I said, a few weeks ago, there were three building blocks here. Number one, as you already mentioned, macro, and that continues to be one of the question marks I think as we’ve also heard from others yesterday and today, certainly in Europe to some extent. The other one is the streaming landscape that has changed quite significantly and we’re — I guess the company was set up on a track that was assuming very different assumptions for the evolution of that business, not only for WarnerMedia, but for the entire industry.
And then number three, the fact that some of the detailed financials that we had access to after closing different to some extent, from what we had been given access to before the merger. Again, some of that hopefully very soon is going to be behind us. As I said earlier, it’s nothing that we can sort of turnaround overnight, but we have aggressively course corrected. And what matters to me is the $14 billion is a question of when not if, and I have a high degree of confidence.
Jessica Reif Ehrlich
So let’s go to the — how you get to the $12 billion. So the $9 billion to $9.5 billion that you guided to for this year, going to $12 billion, it’s just — if you just assume the incremental synergies you kind of get there. So what is that — what are you trying to say about the core Warner Bros. Discovery? Is it not growing? Are you just being conservative?
Gunnar Wiedenfels
Well, I view that number as sort of a good balance target for next year. I wouldn’t necessarily say it’s conservative. I get your point if you take our synergy guidance, and I’m very confident in how that’s ramping up. That gets you there. But I also don’t want to be out here. It’s very early still to talking about a full year of 2023, and I do want to reiterate that there’s uncertainty in the macroeconomic environment, no question about it. So the puts and takes here are, a very bad macro environment would certainly be a big headwind here. On the other hand, we might make a little more progress a little faster on the synergy side than what we’re modeling right now. I view this as a good sort of bar for next year.
Jessica Reif Ehrlich
And not to beat the dead horse, but just maybe just one more question on the same kind of thing. But a lot of what happens in ’22 where it seems like they were onetime drags, like the CNN Plus, you shut that down, right? Then your D2C losses, you said publicly that this year should be peak losses. So that should improve. So — and then, I mean, won’t there be improvement from ’22 to ’23 that like — so I don’t know, just is there something —
Gunnar Wiedenfels
No doubt, there will be improvements from D2C. No question about it. That’s one of the contributors. Remember, there’s also — some of that is driven by synergies, right? So you can’t just sort of stack these all on top of each other. And then you’re right, there is a certain amount of flow through, especially in the first half of next year, of measures we’ve taken in the second half or since April of this year. So there’s definitely some improvement there. So again, I’m confident in our ability to deliver these numbers.
Jessica Reif Ehrlich
Right. So a key tenet of your thesis is your ability to scale your streaming platform globally. But on your most — the most recent earnings call, the second quarter call, you guys highlighted that you plan to launch the combined service in mid-’23. What do you need to do to make this successful, to merge these 2 services? What are the steps you have to take?
Gunnar Wiedenfels
Well, the guiding principle here for us is the conviction that you have one chance to get it right. And that’s what’s driving us here. We applied that same model when we launched Discovery+ and have enjoyed close to 5 stars out of the gate, industry-leading churn rates. It’s just very, very important. And we all agree that, that’s the priority. That’s — the teams are working as hard and as quickly as possible. But in order to deliver that superior experience to the — to our subscribers, we have to make choices about the various components of our technology stack, and we have to integrate them and build out the functionalities, and from the perspective of really the best consumer experience, neither Discovery+ nor HBO Max today, are what we view as the target. So there’s some work to do.
Jessica Reif Ehrlich
We wouldn’t argue with that. Yes.
Gunnar Wiedenfels
Good. But the team is on it, and we’ll get it out as quickly as we can while still meeting that very high standard that we have set ourselves.
Jessica Reif Ehrlich
And then some companies are going in a different direction. They’re choosing to bundle, but you’ve chosen to combine. Why do you think this is the right approach? And can you talk about, like, kind of what were you — what were the factors that went into the final conclusion?
Gunnar Wiedenfels
It’s a number of factors, and I would highlight 2 that I would consider to be the most important factors. Number one is the financial profile, and number two is the user experience. One of the core elements of the thesis of combining the content is that we have some very, very — we have 2 very, very attractive offerings in the market with HBO Max and Discovery+, and they’re very complementary in their nature.
And one central thesis here is the ability to, by combining these 2 content portfolios, create something that attracts viewers sort of for the lighthouse type of content that HBO Max offers on the one hand, but then also the Discovery content, which drives daily engagement and that daily viewership and that long daily viewership on the other hand. And I believe that, that’s a very, very powerful combination. Remains to be seen. We need to prove that out, but I have deep conviction in that thesis. And you only get that by combining the product.
The other point very simply is if we want a global platform with millions and millions of subscribers to efficiently scale from a financial perspective, it has to be on one technology stack. It has to be one integrated —
Jessica Reif Ehrlich
So on that tech stack, is it fair to say that you won’t recognize the bulk of cost? Because there’s obviously a lot of overlap in tech cost between the 2 platforms. So is it fair to say that you won’t recognize the benefit of that until you consolidate, like, whenever you launch into ’23?
Gunnar Wiedenfels
Look, Jessica, I mean, what we’ve always said is that, obviously, it is going to take a certain amount of time to get to the full potential of our synergy capture. But when I said that I’m expecting $2 billion to $3 billion of capture for next year, that’s all taking into account all of these practical realities such as the fact that the tech teams are sort of heads down developing this combined product. So you’re right that the full potential on that front might take a little longer. Other elements more in the sort of true overlap SG&A space might happen a little faster. And some other things might be on the long tail into 2024 and beyond.
Again, the — one of the big opportunities, but also challenges is a very fragmented systems environment that we’re looking at. And we’ve embarked on that journey to rip out these old systems and put in sort of unified one company, state-of-the-art systems, that’s going to take a little while. But again, that’s all factored into this $2 billion to $3 billion range that I gave for next year.
Jessica Reif Ehrlich
Right. Right. And within your $130 million subscriber guidance, what’s the composition of domestic subs versus international, ad-lite versus premium? Like what color can you give us? .
Gunnar Wiedenfels
Well, first of all, it’s actually not a subscriber guidance, and I want to make a point of that because I just fundamentally don’t believe that subscribers are a great metric of the success of this company. There — we gave the number to help all of you sort of think about how we think about the scale of this business. But I would happily give up some of those subscribers. That makes us a better, more profitable business or have more subscribers if that’s the right outcome. It’s just a factor.
We haven’t broken out what’s international and what’s domestic. But obviously, if you look at today’s starting point, we’re much further along on the domestic side than internationally. And so it’s fair to say that a big chunk of the growth is going to happen internationally. We’re focusing initially on the markets where either of the 2 products is already in place, and then we’re planning for additional market launches in the second wave.
Jessica Reif Ehrlich
Right. So it’s been reported, you’re looking to partner again with Amazon as a distribution partner, which is obviously in contrast to the strategy taken by the prior owners. Can you talk about why you think that’s the right approach? And should we assume that you’re more open to this form of broad distribution, like, with other partnerships?
Gunnar Wiedenfels
You should absolutely assume that we are very open to partnerships. We’re convinced again, that the optimal path for a company like Warner Bros. Discovery is to make the content available to as many viewers as possible. And that certainly does include those kinds of B2B2C partnerships. And again, it’s not a black-and-white decision. It depends on the economic terms. It depends on more qualitative terms such as control and access to user data, et cetera.
But again, as you heard us say, we’re not going to be religious about these kinds of decisions. Again, it’s not easy to turn that around overnight. But on the Discovery side, we’ve had sort of long-standing, very, very productive relationship with Amazon and others in comparable positions. And I don’t see why we shouldn’t be able to replicate that for Warner Bros. Discovery.
Jessica Reif Ehrlich
You’ve also discussed plans to launch a FAST service. Can you — what’s the timing of that? How big of an opportunity do you think it could be? I mean, obviously, there’s a vast library that’s —
Gunnar Wiedenfels
That’s exactly right. And as we said on the earnings call a few weeks ago, the #1 priority is getting this combined SVOD product out there with the established tiered structure of completely ad free and an ad-lite tier. But to your point, we have so much content, and we — there is a segment no doubt, in pretty much every market that’s not going to be willing to pay.
You could argue we’re participating in that market through a licensing deal with other players, but there’s always going to be an abundance of content, and we’re convinced that there is a — there’s a place for us to play here. Again, the first priority is to get that SVOD product launched. But in the spirit of utilizing the content across as many platforms and offerings as possible, FAST is certainly a very interesting area to play in.
Jessica Reif Ehrlich
Right. So David has a line that I just love, “We’re in show business and not the show friends business.” And I’ll just use some really good quotes obviously. But it seems like other people are sort of coming around to this. You hear a lot of comments about content spending kind of moderating. Could you talk about what your thoughts are on this?
Gunnar Wiedenfels
Okay. The most important point here for me is that I’ve always felt that one of the advantages of this combination is that Warner Bros. Discovery has a bit of a built-in hedge, right, because the TV studio obviously has been benefiting from the levels of spend and the growth on that side. I think on balance, I’m glad to see a more rational approach to content spend, I think, driven by just the practical reality of those changes to the industry that I called out on our earnings call.
And as you already pointed out, we’ve made some course corrections. At the same time, we are aware that we were in business to create content, to tell fascinating stories, and we’ll continue to fund that. And as I said, we’re spending at historically high levels for both legacy companies. And despite all the changes we’re making right now, we remain committed to be spending a lot, maybe slightly differently, as I said.
Jessica Reif Ehrlich
And on that point, actually, I want to ask your question because when you — the companies have very different — the 2 companies, pre-merger, have very different capabilities. So Discovery, obviously is more reality, nonfiction. And Warner Bros. much more episodic — well, this is actually a pretty broad array of content. But is there an opportunity, like, by combining to your synergy within the content division or the content area, how significant could that be?
Gunnar Wiedenfels
I think it could be very significant. And I say that partly with the experience in mind when we combined Discovery and Scripps, just the fact that you are looking at a broader portfolio optimizing a larger portfolio of networks or whatever, programming outlets using a larger IP asset and creative output engine, obviously you get better outcomes. And you could see that in the network’s performance when we combined Scripps with Discovery for several years following the closing of the transaction.
And I have no doubt that we’re going to see similar impacts and maybe even more so now because we’re not only talking about these linear portfolios that Kathleen Finch and Gerhard on the International side and [Louis] for Sports were optimizing, and we’re in the early days there. But I’m sure we’re going to see some positive impact, but maybe most importantly, on the HBO Max platform. And it’s great that we have — that we’re combining teams here that are very, very good at what they do. We have the best scripted teams. We have the best unscripted teams. And we know that these genres have very, very different characteristics when it comes to attracting, engaging and retaining subscribers on the platform. And again, we’ll learn more once we actually launch that combined product. But I’m really excited about the sandbox that this opens for us to optimize is going to be phenomenal.
Jessica Reif Ehrlich
Right. Advertising has been fairly choppy recently for the whole industry, but it seems like one of the biggest opportunities, revenue possibilities from scale from combining. Can you just describe like — or can you give some color on what the opportunity is? How — whether it’s narrowing the CPM gap? Or how can you describe that?
Gunnar Wiedenfels
I certainly agree with your assessment. It’s an enormous opportunity. And again, we’ve done it before. If you just go back and look at how viewership and advertising monetization has changed following the combination of Discovery and Scripps, I think there’s a lot of evidence there. I think there is an enormous opportunity here. We have really built a very, very compelling portfolio. And I have no doubt that we’re going to be able to successfully take that to the market.
And to your point, there’s still some irrational gaps on the pricing side. And if we just take the — this year’s upfront as an example, it was a phenomenal success. And again, this is all obviously based on outside estimates or so. But we think that cable probably was down in volume in the upfront, and on the pricing side, probably up mid-single digits. We expanded our volume relative to prior year. We expanded our sellout rate relative to prior year. And I expect our effective rate of change to be in the low to mid-teens range. So very, very significantly beyond what we think others in the industry have done.
As always, we’ll see when these numbers come through, how well it’s really done, but it’s a great testament to the value of our network portfolio. And we’ve really just started. I mean remember that we put this together sort of in a very, very short time after closing the transaction. So I do think there’s a lot more opportunity.
I do, again, want to make a point of caution here as well about the economic environment, right? I mean that’s going to be a big factor, I think. It’s certainly something that we keep in mind and that maybe to some extent explains the wider ranges that we’re talking about.
Jessica Reif Ehrlich
Right. What are you seeing in the current marketplace? Can you talk about scatter and —
Gunnar Wiedenfels
Look, not very different from what you’ve heard others talk about over these past 2 days. It’s been scatter has been a little softer for quite some time now, especially CPG, retail, et cetera, or other verticals that are supply chain impacted have been a little bit softer. And I would generally say that visibility continues to be limited.
Internationally, certainly a little better in APAC and Latin America, but a more mixed picture not surprisingly, in Europe. And it’s just — I mean it’s a combination factors at play there right now that just makes me a little cautious about making any predictions here.
Jessica Reif Ehrlich
Right. One last advertising question, then I’ll move on. But do you — we have had a big focus on AVOD throughout the conference. Do you view AVOD the dollars going into your — the direct-to-consumer platform? Do you view that as incremental? Or is it like a share shift from linear — would you think that some of that money will come from other areas like digital, YouTube, social media, et cetera?
Gunnar Wiedenfels
Well, I think if you look at the trends over the last couple of years, it will be a little bold to say it’s all incremental. And I do think we will continue to see some of those shifts. But there’s certainly, on a net basis for someone like Warner Bros. Discovery, I think there’s significant upside. And I do think that we’re going to enjoy additional scale benefits as we just broaden our reach in that space. We’re already benefiting from some more refined products such as pause ads, binge ads and contractual keywords, et cetera. But once we really get into the full scale of that portfolio, then it opens up access to market segments such as sort of hyper local marketing, et cetera, that previously wasn’t available. So certainly, some real net upside here.
Jessica Reif Ehrlich
Do you need to get the ad tech — your tech stack done to actually do that geo targeting?
Gunnar Wiedenfels
Yes. I don’t think it’s rocket science. We’re — that’s an area where I think from today’s perspective, we’re already seeing a lot of progress, and we have what it takes.
Jessica Reif Ehrlich
Right. So looking out to sports, as a company, you have a background in sports from discovery in Europe. And now with Turner, you have like a big domestic sports rights portfolio. David has said publicly that he doesn’t necessarily want to be a renter of content rather an owner. So what does that mean as you renew some of these sports deals? And we know NBA is coming up, but are you alluding to potential equity partnerships? What — different kinds of arrangements? Is there any — can you elaborate on what that comment means?
Gunnar Wiedenfels
Look, clearly, sports is a core part of our strategy and even more so now, to your point, with coverage across the entire global footprint, right? But we’re also going to continue to be disciplined, and it’s very easy in sports not to be disciplined and for base the trophy assets. We’ll be careful. We’ll be personally rational and evaluating these opportunities.
But I do think what makes a difference is that we have that ability to partner with leagues by bringing to the table our full global footprint here. And we have a very strong established sports viewership in Latin America, very strong viewership in Europe on the back of Eurosport with the various sports verticals that we own in that market and to your point, with Turner in the U.S. as well.
So I do think there’s a lot of opportunity. What specifically those individual deals might look like is to be seen, but I think we have a lot to play with to find out-of-the-box solutions.
Jessica Reif Ehrlich
I’ll try to squeeze in two more questions. But one is on the affiliate business. Again, going to your scale, your newfound scale across so many channels, how do you balance that with the accelerating video declines that we’ve seen this — in the first half of 2022? Are there ways that you can use this scale to mitigate these headwinds? Or is it all just price increases? What can you do?
Gunnar Wiedenfels
Well, look, I think — I’m not trying to make a prediction about sort of where sub trends are going. We’re kind of modeling what we’re seeing today. But what we’ve also seen is our ability to offset a good part of that trend because we have a very, very compelling portfolio. We’re doing ours sort of outside estimates and analysis on the value that we bring to the table. And I’m convinced that we’re a bargain.
And if you look at these discussions that we’re having with our affiliate partners, they’re always intense. There’s a lot at stake, but we’ve also time and time again come to mutually beneficial solutions. And I have a lot of confidence that we’re going to be able to continue that.
Jessica Reif Ehrlich
Okay. So the final topic is free cash flow. And you’ve been an amazing CFO and steward of capital. Just — but you’ve given targets for free cash flow conversion. And can you talk a little bit about the opportunities that you see in moving from what you’ve said 33% plus conversion rate this year, but approaching 60% over the longer term. What do you need to do to get there?
Gunnar Wiedenfels
It’s 2 things, Jessica. One is just an awareness. The fact that we’re — that cash matters, which takes some time. But at the end of the day, what doesn’t get measured doesn’t get managed. We’ve seen some great success implementing that mindset across the entire Discovery organization. I see some very encouraging early success across Warner Bros. Discovery. And it’s just that — awareness that, when I get paid makes a difference. And so we’re essentially applying those practices to the combined company.
The rest is math, right? I mean cash restructuring expenses are going to be heavily impacting this year and next year. And then that’s over if that comes out of our free cash flow. Interest is going to come down as we de-lever. Working capital, I have no doubt — I mean, again, just to give you 2 data points, we’re looking at 22 accounts receivable systems across WarnerMedia and 13 accounts payable systems. There’s very limited transparency. As we start to create that transparency, we can apply better management to it. So I think there’s a run rate here of several years of working capital benefits that we can capture.
And then most importantly, cash conversion is also a function of that EBITDA growth. And if we go from 9%, 9.5% to at least EUR 12 billion of next year, a lot of that is going to flow through to free cash flow and automatically just mathematically bring up that cash conversion. So I feel very, very good about our upside opportunity here.
Jessica Reif Ehrlich
Great. So with that, thank you so much for coming here.
Gunnar Wiedenfels
Thank you. Thank you for having me.
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