Shares jump 13% after restructuring announcement
Follows path taken by Comcast's 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 prices)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its declining cable businesses such as CNN from streaming and studio operations such as Max, laying the groundwork for a prospective sale or spinoff of its TV service as more cable subscribers cut the cable.
Shares of Warner leapt after the business said 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 considering alternatives for fading cable TV services, a long time golden goose where earnings are eroding as millions of customers accept streaming video.
Comcast last month revealed plans to divide many of its NBCUniversal cable television networks into a brand-new public company. The brand-new business would be well capitalized and placed to get other cable television networks if the market consolidates, one source told Reuters.
Bank of America research analyst Jessica Reif Ehrlich composed that Warner Bros Discovery's cable television service assets are a "extremely logical partner" for Comcast's new spin-off business.
"We strongly believe there is capacity for fairly substantial synergies if WBD's linear networks were combined with Comcast SpinCo," composed Ehrlich, using the market term for traditional tv.
"Further, our company believe WBD's standalone streaming and studio possessions would be an appealing takeover target."
Under the new structure for Warner Bros Discovery, the cable television business consisting of 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 shows an inflection point for the media industry, as investments in streaming services such as Warner Bros Discovery's Max are lastly paying off.
"Streaming won as a habits," said Jonathan Miller, primary executive of digital media investment firm Integrated Media. "Now, it's winning as a service."
Brightcove CEO Marc DeBevoise said Warner Bros Discovery's brand-new business structure will differentiate growing studio and streaming properties from rewarding but diminishing cable service, providing a clearer financial investment photo and likely setting the phase for a sale or spin-off of the cable television system.
The media veteran and consultant forecasted 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 obtaining the even bigger target, AT&T's WarnerMedia, is positioning the business for its next chess relocation, composed MoffettNathanson expert Robert Fishman.
"The question is not whether more pieces will be moved or knocked off the board, or if additional combination will happen-- it is a matter of who is the purchaser and who is the seller," wrote Fishman.
Zaslav signaled that scenario throughout Warner Bros Discovery's financier call last month. He stated he prepared for President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media market debt consolidation.
Zaslav had taken part in merger talks with Paramount late in 2015, though an offer never materialized, according to a regulative filing last month.
Others injected a note of caution, keeping in mind Warner Bros Discovery brings $40.4 billion in debt.
"The structure modification would make it simpler for WBD to sell its linear TV networks," eMarketer analyst Ross Benes said, referring to the cable organization. "However, finding a purchaser will be tough. The networks owe money and have no signs of growth."
In August, Warner Bros Discovery made a note of the worth of its TV properties by over $9 billion due to uncertainty around charges from cable television and satellite distributors and sports betting rights renewals.
This week, the media business revealed a multi-year deal increasing the general costs Comcast will pay to disperse Warner Bros Discovery's networks.
Warner Bros Discovery is sports betting the Comcast agreement, together with a deal reached this year with cable and broadband provider Charter, will be a design template for future negotiations with distributors. That could assist stabilize 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)
