Warner Bros Discovery sets stage for potential cable deal by splitting operations

By Deborah Mary Sophia, Aditya Soni and Dawn Chmielewski

(Reuters) -Warner Bros Discovery (NASDAQ:WBD ) on Thursday decided to separate its declining cable TV business from the streaming and studio operations, laying the groundwork for a potential sale or spinoff of its TV business as cord-cutting picks up pace.

Its shares jumped 13% as the company said the new structure would be more deal friendly and that it expected to complete the split by the middle of 2025.

Media companies are considering options for their fading cable TV businesses as millions of consumers embrace streaming video, contributing to the decline in cable TV revenue, long the industry's cash cow.

Comcast (NASDAQ:CMCSA ) last month plans to split most of its NBCUniversal cable networks into a new public company, while Comedy Central owner Paramount Global had earlier this year agreed to merge with streaming-era upstart Skydance Media.

Bank of America research analyst Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable television assets are a "very logical partner" for Comcast's new spin-off company, as the television business continues to generate a substantial amount of cash.

"We strongly believe there is potential for fairly sizable synergies if WBD's linear networks were combined with Comcast SpinCo," wrote Ehrlich, using the industry term for traditional television.

"Further, we believe WBD's standalone streaming and studio assets would be an attractive takeover target."

Under the new structure for Warner Bros Discovery, broadcast networks like TNT, Animal Planet and CNN will be housed in a unit called "Global Linear Networks". 

Streaming platforms Max and Discovery+ will be under a division along with film studios, including Warner Bros Pictures and New Line Cinema.

Brightcove CEO Marc DeBevoise said Warner Bros Discovery's new corporate structure will differentiate the company's growing studio and streaming assets from its profitable but shrinking cable TV business, giving a clearer investment picture and likely setting the stage for a sale or spin-off of the cable unit.

The media veteran and adviser predicted Paramount and others might follow a similar path.

Others injected a note of caution.

"The structure change would make it easier for WBD to sell off its linear TV networks. However, finding a buyer will be challenging. The networks are in debt and have no signs of growth," eMarketer analyst Ross Benes said.

Warner Bros Discovery wrote down the value of its TV assets by over $9 billion in August due to uncertainty around fees from cable and satellite distributors and sports rights renewals.

The media company this week announced a multi-year deal that increases the overall fees Comcast would pay to distribute Warner Bros Discovery's networks.

It is betting that the Comcast agreement, together with a deal reached earlier this year with cable and broadband provider Charter, will serve as a template for future negotiations with distributors. That could help stabilize pricing for the domestic pay TV market.



CEO David Zaslav said last month he expected deal-making environment to improve under the incoming Trump administration.

Zaslav had engaged in merger talks with Paramount late last year, though a deal never materialized, according to a regulatory filing from last month.

Source: Investing.com