Warner Bros Discovery splits streaming from cable TV in latest media shakeup

Warner Bros Discovery (WBD.O) 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 breakup is the latest unravelling of decades of media consolidation that created global conglomerates spanning content creation, distribution and in some cases, telecommunications.

It unwinds WarnerMedia and Discovery’s 2022 merger, aiming to grow the streaming and studios business without the declining networks unit weighing them down.

The new streaming-and-studios company will include Warner Bros, DC Studios and HBO Max – the crown jewels of WBD’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, while CFO 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.

“We’ve continued to analyze how our industry is evolving,” Zaslav told investors. “The right path forward became increasingly clear … to separate global networks and streaming and studios into two independent, publicly traded companies.”

Most of the company’s debt would be held by the global networks company. WBD had gross debt of $38 billion as of March. The company said it secured a $17.5 billion bridge loan from J.P. Morgan that it would use to restructure its debt.

Shares of WBD rose 7% on Monday, but the stock remains down nearly 60% since the merger, hurt by cable subscriber loss, tough streaming competition and investor concerns over the debt-laden company’s direction.

Media executives had initially anticipated a wave of consolidation under President Donald Trump’s administration, though that has not come to pass.

“For a series of reasons, that proved harder than anyone thought,” said Jonathan Miller, a veteran media executive who now serves as chief executive of Integrated Media. “It looks like the characteristic of this year will be how do we get our house in order, and do what we can that’s under our control.”

Comcast is spinning off most of its NBCUniversal cable networks portfolio into a separate company, Versant. Lions Gate Entertainment(LION.N) completed the separation of its Starz cable network from its film and television studio in May.

Such breaking up of media conglomerates could set the stage for further deal-making, said one veteran media executive who spoke on condition of anonymity.

Brian Wieser, CEO of Madison and Wall, an advisory firm for media, technology and other companies, said the split will not fix underlying weakness at Warner Bros Discovery.

“If anything, (it) could make them worse off by favoring financial engineering over focusing on improving existing operations or pursuing new opportunities for growth … a deal like this can hamstring both sides of the company until the transactions are closed,” said Wieser.

Last week, about 59% of WBD shareholders at the annual meeting voted against executive pay packages, including Zaslav’s $51.9 million 2024 compensation, in an advisory vote that signaled dissatisfaction.

Like other entertainment companies, WBD is struggling with declining ratings and revenue at its cable networks. Consumers have been dropping pay-television subscriptions in favor of streaming services.

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“WBD is a hotchpotch of businesses which have failed to win over the market,” said AJ Bell analyst Dan Coatsworth. The split gives Warner Bros “a better chance to gain broader investor interest and focus management on fewer things.”

In December WBD announced a separation of streaming and studio operations. The company has been positioning its streaming service as a premium destination with titles such as “The Last of Us” and “Hacks,” 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 underscore this renewed emphasis on premium content, and aid global expansion. The streaming service had about 122 million subscribers as of March. It expects its subscriber base to exceed 150 million by the end of 2026, which would still trail Netflix’s more than 300 million subscribers and the combined 181 million subscribers of Disney+ and Hulu.

MORE DEALS

Some analysts now expect more deals in the media sector, pointing to Comcast’s plan to spin off most of its cable networks, including MSNBC and CNBC.

“The outlook for the cable network business broadly is pretty ugly and I assume there will be consolidation there,” said Jeff Wlodarczak, analyst at Pivotal Research Group.

He said WBD’s cable networks could be a logical fit for Comcast’s upcoming cable spinoff, while its streaming and studios business might combine with another player such as Comcast’s Peacock.

Any merger will require approval from U.S. antitrust regulators who have signaled they intend to focus on mergers that reduce competition in ways that harm consumers or workers.

Industry observers say consolidation would likely increase consumer prices. The trend has already begun, as streaming services look to turn a profit.

Zaslav has said he expects a more deal-friendly environment under Trump. During his first term, Trump repeatedly attacked CNN, and his Department of Justice moved to block the AT&T–Time Warner merger. The pending Paramount Global(PARA.O)-Skydance Media merger has yet to gain regulatory approval, as Trump presses his civil suit against Paramount’s CBS News for its “60 Minutes” interview last October with his Democratic rival for the White House, former Vice President Kamala Harris.

J.P. Morgan and Evercore are advising WBD on the deal, while Kirkland & Ellis is serving as legal counsel.