MUMBAI: Following in the footsteps of other gorilla media companies trying to find a way to retain value in the face of the streaming tsunami, Warner Bros Discovery (WBD) announced on 12 December that it had got its board’s go ahead to cleave itself into two operating divisions, namely
* Global Linear Networks: A premier linear television business that operates networks with compelling news, sports, scripted and unscripted programming.
* Streaming & Studios: A globally scaled streaming platform and storied film and entertainment studios with a portfolio of intellectual property.
WBD will serve as the parent company. The intent behind this corporate restructuring: enhance its strategic flexibility and create potential opportunities to unlock additional shareholder value. Additionally, it expects the new corporate structure to increase clarity and focus, with each division positioned to deliver on its specific strategic and operational objectives while executing on initiatives to further key priorities for the consolidated WBD.
Global linear networks will focus on maximising profitability and free cash flow to continue deleveraging, while streaming & studios will focus on driving growth and strong returns on increasing invested capital, said a corporate release. The latter will include streaming platforms Max and Discovery+ and film studios like Warner Bros Pictures and New Line Cinema.
The new corporate structure will also increase optionality to pursue further value creation opportunities for both divisions in an evolving media landscape, the company statement added..
What analysts are observing in this move, is the possibility of a spin off of the company’s legacy linear TV assets into a separate company as traditional cable TV and linear channels like TNT, Discovery, HLN, Animal Planet, CNN have been on a downward trajectory with cord-cutting rampant. Last year , WBD unveiled a $9.1 billion goodwill impairment charge to write down the value of its legacy TV assets.
Investors have been beating down the share prices of media companies which don’t have a clear runway for their streaming businesses.
WBD president & CEO, David Zaslav has been promising that he would ways to unlock better value for shareholders by strategic moves, as recently as a couple of months ago.
Comcast beat Zaslav’s maneuvre by announcing plans to spin off its NBCUniversal cable TV networks, including channels like MSNBC, CNBC, and E! so that they would not be a drag on its core business which includes residential broadband, wireless, business services and NBCUniversal’s streaming, studios and theme parks
However, other observers say that WBD might find it challenging to do a spinoff in the near future as a lot of the cash coming into the company is via its linear television business, which is seeing declining subscribers. It struck a new multiyear distribution deal with Charter Communications and Comcast which included higher payouts to it by the two for its linear channels. Its D2C business is actually on a growth curve and has limited cash inflows as the streaming services expand globally.
“Since the combination that created Warner Bros. Discovery, we have transformed our business and improved our financial position while providing world class entertainment to global audiences,” said Zaslav in a statement announcing the restructuring. “We continue to prioritize ensuring our global linear networks business is well positioned to continue to drive free cash flow, while our streaming & studios business focuses on driving growth by telling the world’s most compelling stories. Our new corporate structure better aligns our organisation and enhances our flexibility with potential future strategic opportunities across an evolving media landscape, help us build on our momentum and create opportunities as we evaluate all avenues to deliver significant shareholder value.”
Warner Bros. Discovery expects to start the foundational steps immediately and to complete the implementation of the new corporate structure by mid-2025.In addition, the Company expects to continue to evolve the board to execute its strategy and drive future shareholder value creation. J.P. Morgan, Evercore, and Guggenheim Securities are serving as financial advisors to Warner Bros. Discovery and Kirkland & Ellis and Wachtell Lipton are serving as legal counsel.
