The move by Warner Bros. Discovery on Thursday said it was window dressing – it doesn’t change the problems facing the media company. But it will buy time for CEO David Zaslav to try to find a way out of the deep hole caused by the collapse of TV payments. And it telegraphed loudly that WBD is open to reform when the new Trump administration takes over next month.
Analysts seem to agree that the decision to officially split WBD into two divisions – one is the shrinking Global Linear Networks and the other is called Streaming & Studios – is likely Zaslav’s first move to deal with the TV equipment company, the Warner Bros. Discovery. depends on more profits than its major studio competitors.
“Although this reorganization will make any agreement easier to withdraw and may shed light on the various aspects of these businesses, we must also acknowledge that no announcement will change anything important to WBD’s business,” MoffettNathanson Research wrote. in the article. “The company will continue to rely on the network’s cash flow to de-levering and continue DTC [Direct to Consumer] investment.”
What follows is not very clear. Zaslav could follow Comcast’s lead and turn its cables into something different – putting them on ice – which could sell TV assets or acquire more, depending on strategic opportunities.
What is clear is that the head of the WBD in recent weeks has signaled more than any of his other officials that he is ready to make a deal – or more deals – if the regulatory environment becomes more liberal under Trump 2.0. The new regime “can provide the speed of change and the possibility of integration that may be different, which will provide real and immediate implementation of the necessary industry,” Zaslav said two days after the election.
In a statement on Thursday announcing the renovation, which WBD hopes to complete by mid-2025, Zaslav seemed to reiterate the message. The new structure “better aligns our organization and enhances our flexibility and future opportunities in a changing media environment… as we explore all ways to deliver significant shareholder value,” he said.
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With less than three weeks left in 2024, the WBD movement was the centerpiece of a year in which all major entertainment players with major cable TV networks announced sales on those properties. If 2024 is going to be remembered for one of the biggest entertainment industry trends, it will be that it was the year the industry woke up to a reality: traditional TV is dying and it’s not coming back.
Wall Street cheered the WBD news, sending the company’s shares plunging as much as 15%, in a repeat of how Rue responded to Comcast’s announcement.
The company’s thesis for restructuring is to re-direct Wall Street’s attention to the high-yielding portfolio of line networks, while allowing more attention to the part of the business that still has the potential to grow: circulation and its studios. assets.
Zaslav made progress in reducing the company’s debt and leading its marketing platform Max to profitability. WBD posted a profit of $289 million in the third quarter of 2024, boosted by an increase of 7.2 million DTC subscribers to reach 155 million – the largest subscriber growth since the company’s Max launch in May 2023.
Warner Bros. Discovery CEO David Zaslav (Kristy Sparow/Getty Images)
But some researchers remain skeptical that WBD can successfully move from a pivot to a rotation without painful injuries, such as $9.1 billion write down of the value of the linear portfolio in August. The company reported in its latest quarter that linear network segment revenue increased 2.9% to $5.01 billion, while segment EBITDA fell 11.8% to $2.12 billion. The percentage of total media revenue from broadcasting was 26%, lower than Paramount (27%) and Disney (42%). And WBD had $423 million in total debt at the end of September, down 8% from the end of 2023.
Disney, in large part because of its diverse set of assets, is the only major studio ready to make the leap to become a healthy financial competitor to Netflix’s leader. The company led by CEO Bob Iger draws more than 30% of its total quarterly revenue from its Events division (parks, resorts and cruises), while WBD relies heavily on a line portfolio that includes HBO, TBS, TNT, Discovery and CNN.
WBD is still trying to fill an NBA-sized hole in TNT’s lineup after losing a $76 billion TV rights deal; TNT has been replaced by Amazon, and other TV packages are going to Disney/ESPN and NBC Universal. The loss of the NBA further affected WBD’s stock price and caused Wall Street to question how serious the company can be in sports, an area where cable TV is hanging even though Netflix continues to pull games in the same commercial period. to all. (WBD won some of the NBA’s international rights in November after the league settled the case.)
The WBD deal announced earlier this week – renewing a multi-year distribution deal with Comcast for its US content and for Sky in the UK – could help. It comes after Warner Bros. Discovery extended its contract with Charter in November, one year earlier. “Post-NBA, there was a reasonable concern that Warner Bros. Acquisition would have trouble maintaining the same or better earnings for its portfolio of cable networks, especially TNT,” said MoffettNathanson. “However, it looks like WBD has finally done exactly that.”
The research firm added that “now, with the renewal of the two major MVPDs signed and implemented, the fallout from WBD’s loss of US NBA rights appears to have been resolved, [and] The company has other options going into 2025.”
And Zaslav, too, has bought some time.
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