Shares dive 13% after reorganizing announcement
Follows course taken by Comcast's brand-new spin-off business
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Challenges seen in offering debt-laden direct TV networks
(New throughout, adds information, background, comments from industry experts and experts, updates share 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 groundwork for a potential sale or spinoff of its TV service as more cable subscribers cut the cable.
Shares of Warner jumped after the business said the new structure would be more deal friendly and it expected to complete 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 revenues are deteriorating as millions of consumers embrace streaming video.
Comcast last month revealed strategies to split most of its NBCUniversal cable television networks into a new public company. The new company would be well capitalized and positioned to obtain other cable television networks if the market combines, one source informed Reuters.
Bank of America research study analyst Jessica Reif Ehrlich composed that Warner Bros Discovery's cable television service properties are a "extremely rational partner" for Comcast's new spin-off company.
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"We strongly believe there is capacity for fairly large synergies if WBD's direct networks were integrated with Comcast SpinCo," composed Ehrlich, utilizing the market term for standard television.
"Further, our company believe WBD's standalone streaming and studio assets would be an attractive takeover target."
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Under the brand-new structure for Warner Bros Discovery, the cable television organization including TNT, Animal Planet and CNN will be housed in a system called Global Linear Networks.
Streaming platforms Max and Discovery+ will be under a different division together with film studios, including Warner Bros Pictures and New Line Cinema.
The restructuring reflects an inflection point for the media industry, as financial investments in streaming services such as Warner Bros Discovery's Max are lastly settling.
"Streaming won as a behavior," said Jonathan Miller, chief executive of digital media investment company Integrated Media. "Now, it's winning as a service."
Brightcove CEO Marc DeBevoise said Warner Bros Discovery's brand-new business structure will distinguish growing studio and streaming properties from rewarding however shrinking cable television TV business, providing a clearer financial investment photo and most likely setting the stage for a sale or spin-off of the cable television unit.
The media veteran and adviser anticipated Paramount and others may take a similar course.
CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before getting the even larger target, AT&T's WarnerMedia, is positioning the company for its next chess relocation, wrote MoffettNathanson expert Robert Fishman.
"The concern is not whether more pieces will be moved or knocked off the board, or if additional debt consolidation will take place-- it refers who is the buyer and who is the seller," composed Fishman.
Zaslav signaled that situation during Warner Bros Discovery's call last month. He stated he anticipated President-elect Donald Trump's administration would be friendlier to deal-making, opening the door to media industry combination.
Zaslav had actually participated in merger talks with Paramount late in 2015, though a deal never ever emerged, according to a regulative filing last month.
Others injected a note of caution, noting Warner Bros Discovery brings $40.4 billion in financial obligation.
"The structure modification would make it much easier for WBD to offer off its direct TV networks," eMarketer expert Ross Benes stated, referring to the cable business. "However, discovering a buyer will be difficult. The networks are in debt and have no signs of development."
In August, Warner Bros Discovery documented the worth of its TV assets by over $9 billion due to unpredictability around costs from cable and satellite distributors and sports betting rights renewals.
This week, the media business announced a multi-year deal increasing the general fees Comcast will pay to distribute Warner Bros Discovery's networks.
Warner Bros Discovery is wagering the Comcast arrangement, together with an offer reached this year with cable and broadband company Charter, will be a template for future negotiations with suppliers. That could assist stabilize pricing for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles
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