Warner Bros. Discovery will split its business into global linear networks and a separate streaming and studios division. It expects to complete the division of the business by the middle of 2025. Standby for more mergers and acquisitions, partnerships, and rebundling.
Warner Bros Discovery currently reports against separate segments of the business: studios, networks, and direct-to-consumer.
Under the new structure, the company will hive off the traditional linear networks and bring together the studios business with the online video platforms.
Global Linear Networks will include the traditional television networks providing news, sports, scripted and unscripted programming. That includes brands like CNN, TNT Sports, Eurosport, HBO, and Discovery Channel. It is charged with “maximizing profitability and free cash flow to continue deleveraging”. In other words, pay down its debt burden by milking the cash cow while it can.
Streaming and Studios will provide a globally scaled online video platform that currently includes HBO, Max, and Discovery+, and will include the entertainment studios, led by the Warner Bros brand, and their intellectual properties. It will focus on “driving growth and strong returns on increasing invested capital”.
The new corporate structure will also “increase optionality to pursue further value creation opportunities for both divisions in an evolving media landscape”.
“Since the combination that created Warner Bros. Discovery, we have transformed our business and improved our financial position while providing world class entertainment to global audiences,” said David Zaslav, its chief executive.
“Our new corporate structure better aligns our organization and enhances our flexibility with potential future strategic opportunities across an evolving media landscape, help us build on our momentum and create opportunities as we evaluate all avenues to deliver significant shareholder value.”
Currently, may appear to be a change in accounting policy, but it looks like something more substantial may be expected.
No less than three firms of financial advisers are involved in the announcement: J.P. Morgan, Evercore, and Guggenheim Securities.
Analysts suggest that it could unlock enterprise value by freeing a growing online business from billions of dollars of debt.
Warner Bros. Discovery was supposed to create scale and value by combining WarnerMedia networks like HBO and CNN with the Discovery properties. Its stock has sunk to about a third of its value since its creation in 2022. In August, WBD wrote down $9 billion off the value of its television assets. However, the markets appear to appreciate the latest announcement, with the share price up by about 15%.
Comcast last month announced plans to spin off several of its television networks, including MSNBC, USA, CNBC, Oxygen, and Syfy, into a standalone company.
Both WBD and Comcast are responding to the decline of traditional cable television and the apparent opportunities of online video. By separating their linear and online operations, they can position themselves for potential mergers, acquisitions, or spinoffs in the future. They may anticipate a regulatory environment that may be more conducive to mergers and acquisitions under the next government administration.