Warner Bros Discovery Sets Stage For Potential Cable Deal By

Shares dive 13% after reorganizing announcement

Follows path taken by Comcast’s brand-new spin-off business

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Challenges seen in selling debt-laden direct TV networks

(New throughout, includes information, background, remarks from industry insiders and experts, rates)

By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni

Dec 12 (Reuters) – Warner Bros Discovery on Thursday decided to separate its declining cable television services such as CNN from streaming and studio operations such as Max, laying the foundation for a prospective sale or spinoff of its TV business as more cable customers cut the cable.

Shares of Warner jumped after the company said the new structure would be more deal friendly and it anticipated to finish the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.

Media companies are thinking about choices for fading cable TV companies, a longtime cash cow where earnings are wearing down as countless customers accept streaming video.

Comcast last month unveiled plans to divide the majority of its NBCUniversal cable networks into a brand-new public company. The new company would be well capitalized and placed to acquire other cable networks if the market consolidates, one source informed Reuters.

Bank of America research analyst Jessica Reif Ehrlich wrote that Warner Bros Discovery’s cable tv possessions are a “extremely sensible partner” for Comcast’s new spin-off business.

“We highly think there is potential for relatively large synergies if WBD’s linear networks were combined with Comcast SpinCo,” wrote Ehrlich, using the industry term for conventional tv.

“Further, we think WBD’s standalone streaming and studio possessions would be an attractive takeover target.”

Under the new structure for Warner Bros Discovery, the cable organization including TNT, Animal Planet and CNN will be housed in an unit called Global Linear Networks.

Streaming platforms Max and Discovery+ will be under a separate department in addition to movie studios, consisting of Warner Bros Pictures and New Line Cinema.

The restructuring shows an inflection point for the media market, as investments in streaming services such as Warner Bros Discovery’s Max are finally paying off.

“Streaming won as a behavior,” said Jonathan Miller, chief executive of digital media investment firm Integrated Media. “Now, it’s winning as a service.”

Brightcove CEO Marc DeBevoise stated Warner Bros Discovery’s new business structure will separate growing studio and streaming possessions from profitable however shrinking cable television organization, providing a clearer financial investment photo and most likely setting the phase for a sale or spin-off of the cable unit.

The media veteran and consultant forecasted Paramount and others might take a comparable path.

CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before acquiring the even larger target, AT&T’s WarnerMedia, is positioning the business for its next chess relocation, composed MoffettNathanson expert Robert Fishman.

“The concern is not whether more pieces will be walked around or knocked off the board, or if additional debt consolidation will happen– it is a matter of who is the purchaser and who is the seller,” wrote Fishman.

Zaslav signaled that scenario during Warner Bros Discovery’s investor call last month. He stated he anticipated President-elect Donald Trump’s administration would be friendlier to deal-making, unlocking to media industry debt consolidation.

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

Others injected a note of care, noting Warner Bros Discovery brings $40.4 billion in debt.

“The structure modification would make it easier for WBD to sell its linear TV networks,” eMarketer analyst Ross Benes said, referring to the cable television service. “However, finding a purchaser will be tough. The networks owe money and have no indications of growth.”

In August, Warner Bros Discovery wrote down the worth of its TV assets by over $9 billion due to unpredictability around charges from cable television and satellite suppliers and sports betting rights renewals.

Today, the media business revealed a multi-year offer increasing the overall costs Comcast will pay to distribute Warner Bros Discovery’s networks.

Warner Bros Discovery is sports betting the Comcast agreement, together with an offer reached this year with cable television and broadband supplier Charter, will be a template for future negotiations with distributors. That could assist stabilize rates for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles; Editing by Shilpi Majumdar, Arun Koyyur, Keith Weir and David Gregorio)