Warner Bros. Discovery’s move on Thursday to restructure itself was essentially window dressing — it doesn’t change the fundamental challenges facing the media company. But it buys time for CEO David Zaslav to try to find a way out of the deepening hole caused by plummeting linear TV profits. And it telegraphed loudly that WBD is open to dealmaking when the new Trump administration takes over next month.
Analysts seemed to agree that the move to formally split WBD into two divisions — one the declining Global Linear Networks and the other called Streaming & Studios — is likely only the first step by Zaslav to deal with the company’s TV assets, which Warner Bros. Discovery relies on more heavily for profits than its major studio rivals.
“While perhaps this reorganization will make any potential deal that much easier to pull off and may shed a different light on the varying fundamentals of these businesses, we also must acknowledge that nothing in the announcement changes anything core to WBD’s business,” MoffettNathanson Research wrote in a note. “The company will still rely on linear network cash flows to fund de-levering and continued DTC [Direct to Consumer] investment.”
What comes next is less clear. Zaslav could follow Comcast’s lead and fully spin off its cable properties in a separate entity — essentially pushing them off on an ice floe — that could sell off TV assets or acquire more, depending on the strategic opportunities.
What is clear is that the WBD CEO in recent weeks has signaled louder than any of his fellow chief executives that he is ready to do a deal — or multiple deals — if the regulatory environment is more relaxed under Trump 2.0. The new administration “may offer a pace of change and an opportunity for consolidation that may be quite different, that would provide a real positive and accelerated impact on this industry that’s needed,” Zaslav said two days after the election.
In a statement on Thursday announcing the restructuring, which WBD expects to complete by mid-2025, Zaslav seemed to re-emphasize that messaging. The new structure “better aligns our organization and enhances our flexibility with potential future strategic opportunities across an evolving media landscape…as we evaluate all avenues to deliver significant shareholder value,” he said.
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With less than three weeks left in 2024, WBD’s move was the capstone on a year in which all the major entertainment players that own significant cable TV networks effectively declared a rummage sale on those assets. If 2024 will be remembered for one major entertainment industry trend, it will be that it was the year when the industry woke up to reality: traditional TV is dying and it’s not coming back.
Wall Street cheered WBD’s news, sending the company’s beleaguered shares up 15%, in a repeat of how the Street responded to Comcast’s spinoff announcement.
The company’s thesis for doing the restructuring is to more formally re-direct Wall Street’s gaze to its high cash-generating portfolio of linear networks, while allowing a more focused look at the part of the business that still has growth potential: streaming and its studios assets.
Zaslav has made progress in lowering the company’s debt and leading its streaming platform Max to profitability. WBD posted a profit of $289 million during the third quarter of 2024, fueled by the addition of 7.2 million DTC subscribers to reach 110.5 million — the largest quarterly subscriber growth since the company launched Max in May of 2023.
Warner Bros. Discovery CEO David Zaslav (Kristy Sparow/Getty Images)
But some analysts remain skeptical that WBD can successfully navigate the pivot to streaming without more painful casualties, like the $9.1 billion write down of the value of its linear portfolio in August. The company reported in its most-recent quarter that linear networks segment revenues grew 2.9% to $5.01 billion, while the segment’s EBITDA fell 11.8% to $2.12 billion. The percentage of total media revenues that come from streaming was 26%, lower than Paramount (27%) and Disney (42%). And WBD had $40.23 billion in total debt at the end of September, down 8% from the end of 2023.
Disney, in large part because of its more diverse set of assets, is the only major studio poised to make the leap to being a financially healthy competitor to streaming leader Netflix. The company led by CEO Bob Iger draws more than 30% of overall quarterly revenues from its Experiences division (parks, resorts and cruise ships), while WBD relies more heavily on a linear portfolio that includes HBO, TBS, TNT, Discovery and CNN.
WBD is also still trying to fill an NBA-sized hole in TNT’s lineup after losing out on the league’s $76 billion TV rights deal; TNT has been effectively replaced by Amazon, and other TV packages are going to Disney/ESPN and NBC Universal. The loss of the NBA further ravaged WBD’s stock price and led Wall Street to question how serious a player the company would be in live sports, the one area where cable TV is hanging on even as Netflix continues to pull sports into the streaming era once and for all. (WBD won back some international NBA rights in November after the league settled a lawsuit.)
A deal WBD announced earlier this week — to renew a multi-year distribution agreement with Comcast for its U.S. content and for Sky in the U.K. — could help. It comes after Warner Bros. Discovery extended its deal with Charter in November, one year early. “Post-NBA, there was understandable concern that Warner Bros. Discovery would have difficulty securing equal or better economics for its portfolio of cable networks, especially for TNT,” MoffettNathanson said. “However, it seems as though WBD ended up doing exactly that.”
The research firm added that “now, with renewals with two of its largest MVPDs signed and done, the fallout from WBD’s losing U.S. NBA rights seems settled, [and] the company has more optionality heading into 2025.”
