Warner Bros. Discovery (WBD) has announced a significant restructuring, separating its declining cable television networks, including CNN, from its streaming and studio operations, such as Max. This strategic move paves the way for a potential sale or spinoff of the cable TV business as cord-cutting continues to accelerate. The news sent WBD shares soaring over 15%, closing at $12.49.
This restructuring positions WBD to capitalize on the growth of streaming while addressing the challenges of the shrinking cable TV market. The move echoes similar decisions by other media companies grappling with the industry’s evolving landscape. Comcast, for instance, recently announced plans to spin off its NBCUniversal cable networks into a separate publicly traded company.
Bank of America analyst Jessica Reif Ehrlich suggests that WBD’s cable assets could be a “very logical partner” for Comcast’s newly formed spin-off entity. She also posits that WBD’s standalone streaming and studio assets could become an attractive acquisition target for other companies. The separation allows for a clearer valuation of each business segment and facilitates potential mergers or acquisitions.
Under the new structure, WBD’s cable TV networks, including TNT, Animal Planet, and CNN, will be housed under a unit called Global Linear Networks. Meanwhile, streaming platforms Max and Discovery+, along with film studios like Warner Bros. Pictures and New Line Cinema, will operate under a separate division focused on growth and innovation in the digital entertainment space. This division will likely be the focal point for future investment and strategic partnerships.
This restructuring underscores a pivotal moment for the media industry as investments in streaming services finally yield positive results. Jonathan Miller, CEO of Integrated Media, a digital media investment company, observes, “Streaming won as a behavior. Now, it’s winning as a business.” This shift in consumer behavior and revenue generation necessitates a strategic realignment of resources and priorities for media companies.
Brightcove CEO Marc DeBevoise notes that the new corporate structure provides a clearer investment picture by differentiating the growing studio and streaming assets from the profitable but declining cable TV business. This separation could make WBD a more attractive investment opportunity for those seeking exposure to the burgeoning streaming market. He predicts that other media giants, such as Paramount, might follow suit.
WBD CEO David Zaslav, known for his deal-making prowess, orchestrated the acquisition of Scripps Networks Interactive and the subsequent merger with AT&T’s WarnerMedia. MoffettNathanson analyst Robert Fishman suggests that Zaslav is strategically positioning the company for its next major move. The restructuring sets the stage for potential divestitures, acquisitions, or further consolidation within the media industry.
During a recent investor call, Zaslav hinted at the possibility of increased deal-making under the incoming presidential administration. He previously engaged in merger talks with Paramount, although a deal did not materialize. The current restructuring could reignite these discussions or pave the way for new partnerships.
However, challenges remain. WBD carries a substantial debt load of $40.4 billion. eMarketer analyst Ross Benes cautions that while the restructuring facilitates the sale of the linear TV networks, finding a buyer could prove challenging due to the debt and lack of growth in the cable TV sector. The company’s financial health will be a key factor in its ability to execute its strategic vision.
In August, WBD wrote down the value of its TV assets by over $9 billion, reflecting the uncertainty surrounding fees from cable and satellite distributors and sports rights renewals. Recent multi-year deals with Comcast and Charter, increasing the fees paid for distributing WBD’s networks, offer a glimmer of hope for stabilizing the domestic pay TV market. The success of these agreements as a template for future negotiations will be crucial for the long-term viability of the Global Linear Networks division. The future of WBD hinges on its ability to successfully navigate this transitional period in the media landscape.
