Warner Bros Discovery With plans to split it into two public companies by next year, the media giant announced Monday that it is the industry’s latest tumultuous upheaval as consumers move from cable to streaming.
WBD will be split into film properties and streaming services HBO MAX and streaming and studio companies, including global network companies including CNN, TNT Sports, Discovery and more.
CEO David Zaslav will lead the streaming and studio company. Currently CFO Gunnar Wiedenfels will become CEO of Global Networks Business.
Warner Bros Discovery is expected to complete the split by mid-2026.
“By operating as two differently optimized companies in the future, we are reinforcing these iconic brands the focus and strategic flexibility needed to compete most effectively in today’s evolving media situation,” Zaslav said in the release.
The news confirms previous reports by CNBC and others that CNBC and other WBDs are considering such divisions. In December, the company announced a restructuring that many viewed as a precursor to a full break.
Warner Bros Discovery shares rose more than 2% in noon trading Monday.
Cable cutting
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Warner Bros. Discovery joins Cable Giant Comcast to separate the traditional PAY-TV network from the broader media business.
Comcast“nbcuniversal is currently in the process of spinning out its portfolio of cable networks, including CNBC, into a new public company called Versant. NBCuniversal will continue to oversee the streaming service Peacock, including NBC’s broadcast network and film business.
WBD has the largest portfolio of cable TV networks, born from the 2022 merger between Warner Bros. and Discovery, bringing together channels such as CNN, TBS, and TNT, as well as Discovery, TLC and HGTV.
The move from both Warner Bros. Discovery and Comcast is because the industry is supporting streaming to combat customer losses from traditional Pay-TV bundles.
The main focus is building streaming platforms and reaching profitability in particular.
The traditional Pay-TV drug to the broader media business was featured last year when WBD reported $9.1 billion in writing in the TV network business. The company said the move was caused by a reassessment of the book value of the TV network segment.
Still, traditional television networks remain profitable and generate large amounts of cash. Live sports, aired on traditional television, still brings the largest live audience, making sports essential to most media companies’ portfolios.
Wiedenfels pointed out in a call with investors on Monday that much of the free cash flow generated from traditional television businesses over the years has been used to build streaming platforms.
However, cash from traditional businesses supports streaming, but the content is not translated on the MAX platform. When the company announced its name change in May, it added that streaming platforms will focus more on quality than quantity.
In a call Monday, Zaslav said the sport was not the “real driver” of the streaming platform.
Make a move
In a call Monday, WBD executives emphasized that each company will be “free and clear from a transaction perspective.” The split is tax-free, but executives will be willing to concede that profits are made to make the right deal, according to someone close to the issue that is not allowed to publicly talk about potential M&As.
Zaslav says it has gone through a period of “generational disruption” as it seeks more integration in the media industry.
Cable network separation by NBCuniversal is intended to provide additional options for investing in the business and merge with other networks, CNBC has previously reported. Versant CEO Mark Lazarus told CNBC that Spun-Out Company is aiming to acquire it.
The current Warner Bros Discovery itself is a product of integration. WarnerMedia and Discovery merged in 2022 to link WarnerMedia’s portfolio of HBO, TNT Sports, other television networks, and film business with Discovery’s Pay-TV network group.
Since then, the company has been working to reduce the debt burden caused by the merger.
The company had paid off its $19 billion in debt, but by the end of the first quarter it was still just under $34 billion, Wiedenfels said in a call Monday.
Last month, S&P Global Ratings reduced WBD’s credit rating to junk status, citing “continuous revenue and cash flow reductions” in the traditional television business.
The debt burden will be split between the two separate companies once the split is complete, the company said.
“It’s safe to assume that a majority of debt will live on a global network and lesser portion, but it’s not an unimportant part of streaming or studios,” Wiedenfels said.
The companies are expected to have strong liquidity, particularly global network operations. This is expected to generate significant free cash flow that will be used to further repay the debt.
Disclosure: Comcast is the parent company of CNBC. Bersant will become CNBC’s parent company under the proposed cable spinout.
– Jacob Pramuk and Sara Salinas of CNBC contributed to this report.
