Shares dive 13% after reorganizing announcement
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Follows path taken by Comcast's brand-new spin-off company
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Challenges seen in selling debt-laden direct TV networks
(New throughout, adds details, background, comments from market insiders and analysts, 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 TV 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 cord.
Shares of Warner leapt after the company stated the brand-new structure would be more deal friendly and it to complete the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.
Media companies are considering options for fading cable television services, a longtime golden goose where earnings are deteriorating as countless customers accept streaming video.
Comcast last month revealed plans to divide the majority of its NBCUniversal cable television networks into a new public company. The new company would be well capitalized and placed to obtain other cable television networks if the industry combines, one source told Reuters.
Bank of America research analyst Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable tv properties are a "very logical partner" for Comcast's new spin-off business.
"We strongly believe there is potential for relatively substantial synergies if WBD's linear networks were combined with Comcast SpinCo," composed Ehrlich, utilizing the market term for standard tv.
"Further, our company believe WBD's standalone streaming and studio possessions would be an attractive takeover target."
Under the new structure for Warner Bros Discovery, the cable television organization 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 together with movie studios, including 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 lastly paying off.
"Streaming won as a behavior," said Jonathan Miller, president of digital media investment firm Integrated Media. "Now, it's winning as an organization."
Brightcove CEO Marc DeBevoise said Warner Bros Discovery's brand-new corporate structure will distinguish growing studio and streaming properties from rewarding however shrinking cable business, offering a clearer investment picture and most likely setting the stage for a sale or spin-off of the cable system.
The media veteran and adviser forecasted Paramount and others may take a similar path.
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 positioning the business for its next chess move, composed MoffettNathanson analyst Robert Fishman.
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"The concern is not whether more pieces will be moved or knocked off the board, or if more consolidation will occur-- it is a matter of who is the purchaser and who is the seller," wrote Fishman.
Zaslav signified that circumstance during Warner Bros Discovery's investor call last month. He stated he prepared for President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media industry combination.
Zaslav had engaged in merger talks with Paramount late in 2015, though an offer never ever materialized, according to a regulative filing last month.
Others injected a note of caution, noting Warner Bros Discovery brings $40.4 billion in debt.
"The structure modification would make it simpler for WBD to offer off its linear TV networks," eMarketer expert Ross Benes said, describing the cable television organization. "However, discovering a purchaser will be tough. The networks are in financial obligation and have no indications of growth."
In August, Warner Bros Discovery wrote down the value of its TV properties by over $9 billion due to unpredictability around charges from cable and satellite suppliers and sports betting rights renewals.
Today, the media business announced a multi-year deal increasing the overall fees Comcast will pay to disperse Warner Bros Discovery's networks.
Warner Bros Discovery is sports betting the Comcast arrangement, together with an offer reached this year with cable and broadband provider Charter, will be a design template for future settlements with suppliers. That could help support pricing for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles
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