Warner Bros Discovery splits streaming from cable TV

The networks unit, which will hold up to a 20% stake in its counterpart, will house CNN, TNT Sports and Bleacher Report. File Picture: Visit California

Warner Bros Discovery said it would split into two publicly traded companies, separating its studios and streaming business from its fading cable television networks as the parent of HBO and CNN looks to compete better in the streaming era.

The break-up, announced on Monday, is the latest sign of the great unravelling of decades of media consolidation that have created global conglomerates spanning content creation, distribution, and in some cases telecommunications.

It unwinds WarnerMedia and Discovery's 2022 merger, giving the streaming and studios business more room to scale without being weighed down by the declining networks unit.

The new streaming and studios company will include Warner Bros, DC Studios, and HBO Max — the crown jewels of Warner Bros Discovery's entertainment library.

The networks unit, which will hold up to a 20% stake in its counterpart, will house CNN, TNT Sports and Bleacher Report.

CEO David Zaslav will lead the streaming and studios unit after the break-up, while chief financial officer Gunnar Wiedenfels will head the networks unit. The separation will be structured as a tax-free transaction and is expected to be completed by mid-2026.

"By operating as two distinct and optimised companies in the future, we are empowering these iconic brands with the sharper focus and strategic flexibility they need to compete most effectively in today's evolving media landscape," Mr Zaslav said.

Company's debt

Majority of the company's debt would be held by the global networks company. Warner Bros Discovery had a gross debt of $38bn (€33.3bn) as of March.

Shares of Warner Bros Discovery rose 8% in pre-market trading, but the stock remains down nearly 60% since the merger — hurt by cable subscriber loss, tough streaming competition, and investors' concerns over the debt-laden company's direction.

Last week, about 59% of Warner Bros Discovery shareholders voted against executive pay packages, including Zaslav's $51.9m 2024 compensation, at the annual shareholder meeting.

"[Warner Bros Discovery] is a hotchpotch of businesses, which has failed to win over the market. [With the split] Warner Bros has a better chance to gain broader investor interest and focus management on fewer things," said AJ Bell analyst Dan Coatsworth.

Warner Bros Discovery had laid the groundwork for a sale or spin-off of its declining cable TV assets in December, announcing a separation from its streaming and studio operations.

The split comes as Warner Bros Discovery tries to position its streaming service as a premium destination with titles such as  The Last of Us after initially betting that a blend of HBO dramas and Discovery's lifestyle content would broaden its appeal.

It revived the HBO Max branding last month to aid the global expansion of its streamer that had about 122m subscribers as of March and expects its subscriber base to exceed 150m by the end of 2026.

That would still trail Netflix's more than 300m subscribers and the combined 181m subscribers of Disney+ and Hulu.

• Reuters