WBD Admits That Scale Did Not Create Value as it Separates Cable Assets
Warner Bros. Discovery is the latest media titan to consign linear to the bench. In a move reminiscent of Comcast’s divisional spinoff last month, WBD will split its lucrative but declining cable networks business from its lucrative and growing streaming and studios businesses. Analysts say the move increases the likelihood of a corporate breakup.
As it is WBD said in a statement that effective mid-2025 it would create a “new corporate structure,” in which the television business “will focus on maximizing profitability and free cash flow,” while the streaming and studios division “will focus on driving growth and strong returns on increasing invested capital."
The two new operating units will be called Global Linear Networks and Streaming & Studios. “This new structure should give the company more flexibility for future strategic actions, such as a strategic spin of their studio and streaming assets,” according to analysts at Bank of America speaking to the FT. “We believe Warner Bros standalone streaming and studio assets would be an attractive takeover target for multiple suitors.”
Unlike Comcast’s restructure, however, observers believe the odds are less favorable to WBD because it needs the cash from its linear channels to pay down the heavy debt it took on when Discovery Networks merged with WarnerMedia paying AT&T $43 billion in 2022. At the time that debt was worth $53 billion.
The company’s linear networks have been struggling for a while now, with WBD taking a $9.1 billion writedown on its channels in August after TNT lost live NBA games to Amazon Prime Video.
The powerhouse of the new Streaming & Studios division is Max, which got a further boost this week when it agreed a multi-year distribution agreement with Comcast (Xfinity in the US and Sky in the UK) which sets lays the groundwork for the European launch of Max.
The agreement actually increases the overall fees Comcast will pay to distribute WBD networks, including TNT, CNN, and Food Network, though the long term prospects for cable are a weight on the group’s overall finances. WBD believes its new corporate structure will also “increase optionality to pursue further value creation opportunities for both divisions in an evolving media landscape,” the company said in a release.
Certainly there is an expectation that the incoming Trump White House will look more favorably on M&A activity over the next few years with some analysts believing 2025 could see considerable shakeup as media businesses continue to slim down and consolidate.
Others are less sure about WBD’s own potency in the market. “While perhaps this reorganization will make any potential deal that much easier to pull off, and may shed a different light on the varying fundamentals of these businesses, we also must acknowledge that nothing in the announcement changes anything core to WBD’s business,” wrote MoffettNathanson senior analyst Robert Fishman, reported by Forbes.
Eyes will now turn to the other main media conglom, Disney. As noted by Deadline, Disney CEO Bob Iger also said last year that the company’s linear networks “may not be core” to its business.
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