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Warner Bros Discovery Sets Stage For Potential Cable Deal By
Shares dive 13% after reorganizing announcement
Follows course taken by Comcast’s new spin-off company
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Challenges seen in selling debt-laden linear TV networks
(New throughout, includes details, background, comments from industry insiders and experts, updates share costs)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) – Warner Bros Discovery on Thursday decided to separate its decreasing cable TV businesses such as CNN from streaming and studio operations such as Max, laying the foundation for a prospective sale or spinoff of its TV organization as more cable television customers cut the cable.
Shares of Warner leapt after the business 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 business are considering choices for fading cable services, a longtime cash cow where incomes are eroding as countless consumers welcome streaming video.
Comcast last month revealed plans to split many of its NBCUniversal cable networks into a brand-new public company. The brand-new business would be well capitalized and placed to acquire other cable television networks if the market consolidates, one source informed Reuters.
Bank of America research expert Jessica Reif Ehrlich wrote that Warner Bros Discovery’s cable television service properties are a “very logical partner” for Comcast’s brand-new spin-off company.
“We strongly think there is capacity for relatively large synergies if WBD’s linear networks were combined with Comcast SpinCo,” composed Ehrlich, utilizing the market term for conventional television.
“Further, our company believe WBD’s standalone streaming and studio assets would be an attractive takeover target.”
Under the brand-new structure for Warner Bros Discovery, the cable 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 separate department together with film studios, including 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 finally settling.
“Streaming won as a behavior,” 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 studio and streaming assets from profitable but diminishing cable TV business, offering a clearer financial investment image and most likely setting the phase for a sale or spin-off of the cable unit.
The media veteran and adviser 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 acquiring the even larger target, AT&T’s WarnerMedia, is positioning the company for its next chess relocation, composed MoffettNathanson expert Robert Fishman.
“The concern is not whether more pieces will be moved around or knocked off the board, or if additional debt consolidation will take place– it is a matter of who is the purchaser and who is the seller,” wrote Fishman.
Zaslav indicated that scenario throughout Warner Bros Discovery’s financier call last month. He said he anticipated President-elect Donald Trump’s administration would be friendlier to deal-making, opening the door to media industry debt consolidation.
Zaslav had actually engaged in merger talks with Paramount late in 2015, though an offer never ever emerged, according to a regulatory filing last month.
Others injected a note of caution, noting 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 expert Ross Benes stated, referring to the cable TV service. “However, discovering a buyer will be tough. The networks are in financial obligation and have no signs of development.”
In August, Warner Bros Discovery made a note of the value of its TV possessions by over $9 billion due to uncertainty around charges from cable television and satellite distributors and sports betting rights renewals.
This week, the media company revealed a multi-year deal increasing the general costs Comcast will pay to disperse Warner Bros Discovery’s networks.
Warner Bros Discovery is wagering the Comcast contract, together with a deal reached this year with cable television and broadband service provider Charter, will be a design template for future negotiations with distributors. That might help stabilize 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)