Warner Bros. Discovery will split into two separate companies
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- The move will put the company’s iconic movie studio, television production, HBO and HBO Max and DC Studios into a single entity known as Streaming & Studios. Cable channels CNN, TNT, Discovery and its European over-the-air networks will operate under the banner of Global Networks.
- The combined company is currently worth less than $23.5 billion — a more than 60% loss in value since April 2022, when Warner Bros. Discovery was created.
Warner Bros. Discovery is dividing its assets into two separate publicly traded companies, the media conglomerate announced Monday.
The move will put the company’s iconic movie studio, television production, HBO and HBO Max and DC Studios into a single entity known as Streaming & Studios. Cable channels CNN, TNT, Discovery and its European over-the-air networks will operate under the banner of Global Networks.
The split is a recognition the merger that created Warner Bros. Discovery three years ago was a flop.
Chief Executive David Zaslav’s strategy back then was bigger is better. But Wall Street soured on that debt-heavy consolidation that married nearly two dozen basic cable channels, including HGTV and Food Network, with the prestige properties of HBO and the Warner Bros. studios in Burbank.
With the breakup, which is expected to be complete by mid 2026, executives hope to attract investors in the company’s growing streaming business without exposure to the mature traditional TV business, which is in steep decline.
“The decision to separate Warner Bros. Discovery reflects our belief that each company can now go further and faster apart than they can together,” Zaslav, the chief executive, told investors on a conference call.
HBO Max became simply Max in 2023. Now Warner Bros. Discovery is going back to basics and reclaiming a brand long associated with high-quality programming.
Zaslav will head the Streaming & Studios unit. Gunnar Wiedenfels, chief financial officer of Warner Bros. Discovery, will serve as president and CEO of Global Networks. Both will continue in their present roles at WBD until the separation.
Warner Bros. Discovery’s beleaguered shares surged briefly on Monday’s news. But throughout the day, gains were erased and Warner Bros. Discovery’s stock ended down nearly 3% to $9.53 a share.
The combined company is currently worth $23.5 billion — a more than 60% loss in value since April 2022, when Warner Bros. Discovery was created.
Zaslav orchestrated that $43-billion merger by combining his smaller Discovery with Warner and HBO portfolio, then owned by AT&T. The Dallas phone company had taken a blood-bath in its four-year foray into entertainment and was eager to exit.
Since then, Warner Bros. Discovery has cut thousands of employees, projects and other expenses to pay down the enormous debt to finance the 2022 merger. The company’s cable channels were hit with another round of layoffs just last week.
Downsizing in every corner left Warner Bros. Discovery without resources to effectively compete against Netflix and Amazon Prime Video, which have built streaming services that boast something for everyone, which had been Warner Bros. Discovery’s original ambition.
David Zaslav’s success or failure turning around Warner Bros. Discovery could dictate the future of the film studio and storied television brands.
Instead, the company’s focus became paying down its debt. It has successfully retired about $20 billion, but the company still is grappling with $33 billion in debt from the merger.
S&P Global Ratings last week downgraded the company’s debt to “junk” status, citing its continued challenges with linear cable channels. Last summer, the company took a $9-billion write-down to reflect the lower value and subdued outlook for the basic cable channels.
Over the last three years, Zaslav-led initiatives, including folding the smaller Discovery+ streaming service into HBO Max, failed to create the desired bounce. Discovery has long been known for its low-cost, nonscripted programming such as “Naked and Afraid” on Discovery, “90 Day Fiance” on TLC and “Beat Bobby Flay” on the Food Network.
“They can’t go on like this,” Bank of America analyst Jessica Reif Ehrlich said, referring to the lagging stock and string of missteps by Warner Bros. Discovery boss David Zaslav.
In another effort to give the streaming service mass-audience appeal, Zaslav and his team stripped “HBO” from the title of the streaming service two years ago, calling it simply “Max.”
Last month, the company announced another reversal by restoring the HBO name to the streaming service, which has seen growth with HBO shows such as “The White Lotus” and the Max original, “The Pitt.”
“We feel like we’ve found a very compelling strategy of quality,” Zaslav told analysts.
The Discovery+ streaming service will be shuffled into the Global Networks company.
Big changes are coming to Warner Bros. Discovery’s board. Zaslav’s mentor — the cable television pioneer John Malone — announced his plans to step down as a voting member.
“The diverging fortunes of streaming and traditional pay TV have been unmistakable for years, so it was only a matter of time before the dominoes started falling,” Paul Verna, Emarketer’s vice president of content, said in a statement.
“Like the recent pivot by WBD to revert back to the previous name of its flagship streaming service, HBO Max, this move reveals a company fumbling its way through disruption,” Verna said.
Investors also have expressed dismay with Zaslav’s and other executives’ fat compensation packages.
Last year, amid the company’s swooning stock price and asset write-downs, Zaslav was awarded $51 million in compensation. In a nonbinding vote, nearly 60% of Warner Bros. Discovery shareholders last week voted against the 2024 compensation packages during the annual meeting, according to a regulatory filing.
CEO David Zaslav earned $51.9 million last year. Shareholders can show support for or against executive pay although such votes are non-binding.
Next year’s split is envisioned to be a tax-free event for stockholders, who will receive shares in both companies.
Warner Bros. separately said it had lined up a $17.5-billion bridge loan from JPMorgan Chase & Co., which is expected to be recapitalized before the spinoff. That loan will help the company as it seeks to parcel its current debt load between the two companies.
The cable network business — which still generates the majority of the company’s earnings — will bear the brunt of the debt load, the executives said.
Under the deal, the Global Networks firm will keep a 20% stake in the studios company, giving it revenue opportunities to help pay down debt.
Both entities could become attractive targets for takeover by larger media companies.
Apple, NBCUniversal or Paramount Global (should it finalize its sale to David Ellison’s Skydance Media) may be interested in combining its streaming service with HBO Max and absorbing Warner Bros.’ once-industry-leading studio operations.
Analysts point to the David Zaslav-led company’s expected loss of the NBA contract and underperformance in key business units during the last two years.
Zaslav has hinted at the split since Comcast announced last summer that it was putting MSNBC, CNBC, the Golf Channel, USA Network and other outlets into a new company called Versant, separating the mature businesses from the rest of the company as it focuses on streaming.
Comcast has said Versant would have the financial muscle to buy other cable channels, and Global Networks could make a good fit, although there may be regulatory concerns that come from combining such a huge share of the market as well as Versant’s MSNBC with CNN, owned by Warner Bros. Discovery.
In December, Warner Bros. Discovery began preparing for Monday’s announcement by reorganizing internally to create two business units for its earnings and balance sheet.
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