Warner Bros Discovery Sets Stage For Potential Cable Deal By
Shares dive 13% after restructuring announcement
Follows path taken by Comcast's brand-new spin-off company
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Challenges seen in selling debt-laden linear TV networks
(New throughout, includes details, background, comments from market insiders and experts, updates share costs)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday chose to separate its declining cable companies such as CNN from streaming and studio operations such as Max, laying the groundwork for a prospective sale or spinoff of its TV company as more cable television customers cut the cord.
Shares of Warner jumped after the company said the brand-new structure would be more deal friendly and it anticipated to complete the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.
Media companies are thinking about alternatives for fading cable TV businesses, a longtime cash cow where incomes are deteriorating as countless customers welcome streaming video.
Comcast last month unveiled strategies to split many of its NBCUniversal cable networks into a new public company. The brand-new business would be well capitalized and placed to obtain other cable television networks if the market consolidates, one source informed Reuters.
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Bank of America research study analyst Jessica Reif Ehrlich composed that Warner Bros Discovery's cable television properties are a "very rational partner" for Comcast's brand-new spin-off company.
"We strongly think there is capacity for relatively substantial synergies if WBD's direct networks were integrated with Comcast SpinCo," wrote Ehrlich, using the industry term for traditional 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 company 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 in addition to movie studios, consisting of Warner Bros Pictures and New Line Cinema.
The restructuring shows an inflection point for the media industry, as financial investments in streaming services such as Warner Bros Discovery's Max are finally paying off.
"Streaming won as a behavior," stated Jonathan Miller, chief executive of digital media investment business Integrated Media. "Now, it's winning as a business."
Brightcove CEO Marc DeBevoise stated Warner Bros Discovery's new business structure will separate growing studio and streaming properties from successful however shrinking cable television business, offering a clearer investment picture and likely setting the phase 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 acquiring the even bigger target, AT&T's WarnerMedia, is placing the company for its next chess move, composed MoffettNathanson expert Robert Fishman.
"The concern is not whether more pieces will be moved around or knocked off the board, or if further debt consolidation will occur-- it is a matter of who is the purchaser and who is the seller," composed Fishman.
Zaslav indicated that circumstance 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, unlocking to media market debt consolidation.
Zaslav had actually engaged 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, noting Warner Bros Discovery carries $40.4 billion in debt.
"The structure modification would make it simpler for WBD to sell off its linear TV networks," eMarketer analyst Ross Benes stated, referring to the cable organization. "However, discovering a buyer will be difficult. The networks are in financial obligation and have no indications of growth."
In August, Warner Bros made a note of the worth of its TV possessions by over $9 billion due to uncertainty around charges from cable and satellite suppliers and sports betting rights renewals.
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This week, the media business revealed a multi-year offer increasing the overall costs Comcast will pay to disperse Warner Bros Discovery's networks.
Warner Bros Discovery is sports betting the Comcast contract, together with a deal reached this year with cable television and broadband provider Charter, will be a template for future settlements with distributors. 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; Editing by Shilpi Majumdar, Arun Koyyur, Keith Weir and David Gregorio)
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