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Shares dive 13% after reorganizing statement
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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, adds information, background, remarks from industry experts and analysts, updates share prices)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its decreasing cable television companies such as CNN from streaming and studio operations such as Max, laying the foundation for a prospective sale or spinoff of its TV business as more cable customers cut the cord.
Shares of Warner leapt after the company stated the brand-new structure would be more deal friendly and it expected to finish 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 television companies, a longtime cash cow where revenues are wearing down as millions of consumers welcome streaming video.
Comcast last month unveiled plans to divide many of its NBCUniversal cable networks into a brand-new public business. The new company would be well capitalized and positioned to acquire other cable networks if the industry combines, one source informed Reuters.
Bank of America research expert Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable tv assets are a "very logical partner" for Comcast's new spin-off business.
"We highly think there is capacity for fairly large synergies if WBD's direct networks were combined with Comcast SpinCo," wrote Ehrlich, using the industry term for traditional television.
"Further, our company believe WBD's standalone streaming and studio properties would be an attractive takeover target."
Under the brand-new structure for Warner Bros Discovery, the cable TV service 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 department along with movie studios, including Warner Bros Pictures and New Line Cinema.
The restructuring reflects an inflection point for the media market, as investments in streaming services such as Warner Bros Discovery's Max are lastly paying off.
"Streaming won as a behavior," stated Jonathan Miller, chief executive of media investment firm Integrated Media. "Now, it's winning as a service."
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Brightcove CEO Marc DeBevoise said Warner Bros Discovery's new corporate structure will distinguish growing studio and streaming properties from successful however shrinking cable television TV company, offering a clearer financial investment photo and likely setting the stage for a sale or spin-off of the cable unit.
The media veteran and advisor predicted 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 analyst Robert Fishman.
"The concern is not whether more pieces will be walked around or knocked off the board, or if further combination will take place-- it refers who is the buyer and who is the seller," composed Fishman.
Zaslav signaled that scenario throughout Warner Bros Discovery's investor call last month. He said he prepared for President-elect Donald Trump's administration would be friendlier to deal-making, opening the door to media industry combination.
Zaslav had actually engaged in merger talks with Paramount late last year, though an offer never emerged, according to a regulative filing last month.
Others injected a note of care, keeping in mind Warner Bros Discovery carries $40.4 billion in debt.
"The structure change would make it easier for WBD to offer off its linear TV networks," eMarketer analyst Ross Benes said, referring to the cable television TV service. "However, discovering a buyer will be challenging. The networks are in debt and have no indications of growth."
In August, Warner Bros Discovery documented the worth of its TV assets by over $9 billion due to unpredictability around costs from cable television and satellite suppliers and sports betting rights renewals.
Today, the media business announced a multi-year offer increasing the overall charges Comcast will pay to distribute Warner Bros Discovery's networks.
Warner Bros Discovery is sports betting the Comcast agreement, together with an offer reached this year with cable and broadband company Charter, will be a design template for future negotiations with distributors. That might help stabilize rates for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles
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