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 offering debt-laden linear TV networks

(New throughout, includes information, background, remarks from market insiders and analysts, updates share costs)

By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni

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

Shares of Warner jumped after the company stated 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 business are considering choices for fading cable services, a longtime cash cow where earnings are wearing down as millions of consumers welcome streaming video.

Comcast last month revealed plans to divide many of its NBCUniversal cable networks into a brand-new public business. The new company would be well capitalized and placed to acquire other cable television networks if the industry combines, one source informed Reuters.

Bank of America research analyst Jessica Reif Ehrlich composed that Warner Bros Discovery’s cable television service assets are a “very logical partner” for Comcast’s new spin-off business.

“We highly think there is potential for fairly sizable synergies if WBD’s direct networks were combined with Comcast SpinCo,” wrote Ehrlich, utilizing the industry term for standard television.

“Further, we believe WBD’s standalone streaming and studio assets would be an appealing takeover target.”

Under the new structure for Warner Bros Discovery, the cable television TV service consisting of 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 division along with movie studios, consisting of 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 finally settling.

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

Brightcove CEO Marc DeBevoise stated Warner Bros Discovery’s brand-new business structure will differentiate growing studio and streaming possessions from rewarding but shrinking cable television organization, giving a clearer investment photo and most likely setting the stage for a sale or spin-off of the cable system.

The media veteran and consultant anticipated Paramount and others might take a similar course.

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 placing the business for its next chess move, wrote MoffettNathanson expert Robert Fishman.

“The concern is not whether more pieces will be walked around or knocked off the board, or if further combination will occur– it refers who is the buyer and who is the seller,” wrote Fishman.

Zaslav indicated that scenario throughout 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 participated in merger talks with Paramount late in 2015, though an offer never ever emerged, according to a regulative filing last month.

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

“The structure change would make it easier for WBD to sell off its direct TV networks,” eMarketer expert Ross Benes stated, referring to the cable TV organization. “However, discovering a purchaser will be challenging. The networks owe money and have no indications of development.”

In August, Warner Bros Discovery made a note of the value of its TV properties by over $9 billion due to unpredictability around fees from cable and satellite distributors and sports betting rights renewals.

This week, the media business revealed a multi-year deal increasing the overall charges Comcast will pay to disperse Warner Bros Discovery’s networks.

Warner Bros Discovery is wagering the Comcast agreement, together with a deal reached this year with cable television and broadband service provider Charter, will be a template for future settlements with distributors. That might assist support 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)