Warner Bros. Discovery is breaking up

Turns out changing Max back to HBO Max wasn’t the biggest pivot Warner Bros. Discovery had in store for us this spring.

The entertainment giant said this morning it will split up into two standalone, publicly traded companies, in the hopes they’ll be more attractive to investors apart than together.

• Global Networks: This company will house Warner’s cable channels TBS, TNT, CNN, Discovery, and more. It will also include the television rights to US sporting events like March Madness and content production.
• Streaming & Studios: Max—er, HBO Max—will live here, as will the company’s movie studios (DC, for example) and prodigious film and TV library.

This wasn’t a shock

CEO David Zaslav had been making moves signaling a breakup was coming since late last year.

Still, it’s a stark acknowledgement that the blockbuster 2022 merger between Warner Media and Discovery was a total flop—operationally, and on the stock market. Shares of WBD have fallen more than 60% (and another 3% yesterday) since the deal was completed, showing that investors were never sold on a Frankenstein mashup of a media company whose programming ranged from 90 Day Fiancé to The Last of Us. And shareholders made their displeasure with leadership known: In a symbolic vote, more than 59% rejected Zaslav’s $51.9 million compensation package.

A growing trend

Entertainment companies are purging their declining traditional TV businesses to focus investors on higher-growth streaming units that don’t include the cable baggage. Comcast did this last year when it announced plans to spin off most of its cable TV business into a new unit named Versant.

With Warner Bros. Discovery putting two options on the menu, investors could bet on a pure-play streaming option (like they would a Netflix) or take their chances on traditional TV sticking around longer than anticipated. After all, the cable networks still generate more revenue and cash flow for Warner Bros. Discovery than the properties being folded into the new streaming company.

But keep an eye on debt. Warner Bros. Discovery borrowed a lot of money to complete the merger and must divvy up $37 billion in debt between the two new companies. According to the WSJ, most of it will be foisted on the balance sheet of the cable business. The breakup is expected to be completed by the middle of next year.—NF