Warner Bros Discovery Sets Stage For Potential Cable Deal By
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Shares dive 13% after restructuring announcement
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Follows course taken by Comcast's brand-new spin-off company
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Challenges seen in selling debt-laden direct TV networks
(New throughout, includes information, background, comments from industry insiders and analysts, updates share rates)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday chose to separate its declining cable television businesses 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 subscribers cut the cable.
Shares of Warner leapt after the 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 options for fading cable television TV businesses, a long time golden goose where incomes are wearing down as millions of consumers embrace streaming video.
Comcast last month unveiled plans to divide most of its NBCUniversal cable television networks into a brand-new public company. The brand-new company would be well capitalized and positioned to get other cable networks if the market consolidates, one source informed Reuters.
Bank of America research study analyst Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable tv assets are a "really sensible partner" for Comcast's new spin-off company.
"We highly believe there is potential for fairly sizable synergies if WBD's linear networks were integrated with Comcast SpinCo," composed Ehrlich, using the industry term for conventional tv.
"Further, our company 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 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 separate division in addition to film studios, consisting of Warner Bros Pictures and New Line Cinema.
The restructuring reflects an inflection point for the media market, as financial investments in streaming services such as Warner Bros Discovery's Max are lastly settling.
"Streaming won as a behavior," said Jonathan Miller, president of digital media financial investment business Integrated Media. "Now, it's winning as a service."
Brightcove CEO Marc DeBevoise stated Warner Bros Discovery's new corporate structure will distinguish growing studio and streaming possessions from rewarding however shrinking cable television TV organization, giving a clearer investment picture and most likely setting the phase for a sale or spin-off of the cable television unit.
The media veteran and advisor predicted Paramount and others might take a comparable 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 placing the company for its next chess move, wrote MoffettNathanson analyst Robert Fishman.
"The question is not whether more pieces will be moved or knocked off the board, or if additional debt consolidation will happen-- it is a matter of who is the buyer and who is the seller," wrote Fishman.
Zaslav signified that scenario throughout Warner Bros Discovery's financier call last month. He said he prepared for President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media market debt consolidation.
Zaslav had 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 care, keeping in mind Warner Bros Discovery brings $40.4 billion in debt.
"The structure change would make it much easier for WBD to sell its linear TV networks," eMarketer analyst Ross Benes said, describing the cable TV business. "However, finding a purchaser will be difficult. The networks are in debt and have no signs of development."
In August, Warner Bros Discovery made a note of the value of its TV properties by over $9 billion due to uncertainty around costs from cable and satellite suppliers and sports betting rights renewals.
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Today, the media company revealed a multi-year offer increasing the overall charges Comcast will pay to disperse Warner Bros Discovery's networks.
Warner Bros Discovery is wagering the Comcast contract, together with an offer reached this year with cable television and broadband company Charter, will be a design template for future negotiations with suppliers. That might help support prices 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)
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