Warner Bros Discovery Sets Stage For Potential Cable Deal By
Shares jump 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 information, background, comments from market insiders and experts, updates share rates)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its declining cable TV organizations such as CNN from streaming and studio operations such as Max, preparing for a potential sale or spinoff of its TV service as more cable customers cut the cable.
Shares of Warner jumped 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 television businesses, a longtime golden goose where earnings are eroding as countless consumers welcome streaming video.
Comcast last month unveiled strategies to divide the majority of its NBCUniversal cable television networks into a new public business. The new company would be well capitalized and positioned to acquire other cable networks if the market combines, one source informed Reuters.
Bank of America research study analyst Jessica Reif Ehrlich composed that Warner Bros Discovery's cable assets are a "really rational partner" for Comcast's new spin-off company.
"We highly think there is capacity for relatively sizable synergies if WBD's linear networks were combined with Comcast SpinCo," composed Ehrlich, using the market term for traditional television.
"Further, we believe WBD's standalone streaming and studio assets would be an appealing takeover target."
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Under the new structure for Warner Bros Discovery, the cable television TV business consisting of TNT, Animal Planet and CNN will be housed in an unit called Global Linear Networks.
Streaming platforms Max and Discovery+ will be under a different department together with movie studios, consisting of Warner Bros Pictures and New Line Cinema.
The restructuring reflects an inflection point for the media market, as investments in streaming services such as Warner Bros Discovery's Max are finally settling.
"Streaming won as a habits," said Jonathan Miller, primary executive of digital media investment business Integrated Media. "Now, it's winning as a company."
Brightcove CEO Marc DeBevoise stated Warner Bros Discovery's brand-new business structure will distinguish growing studio and streaming assets from lucrative but shrinking cable organization, providing a clearer financial investment image and likely setting the stage for a sale or spin-off of the cable system.
The media veteran and adviser anticipated Paramount and others might take a comparable path.
CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before obtaining the even larger target, AT&T's WarnerMedia, is positioning the company for its next chess move, composed MoffettNathanson expert Robert Fishman.
"The question is not whether more pieces will be moved around or knocked off the board, or if additional consolidation will happen-- it is a matter of who is the purchaser and who is the seller," composed Fishman.
Zaslav indicated that circumstance throughout Warner Bros Discovery's investor call last month. He said he expected President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media industry .
Zaslav had actually engaged in merger talks with Paramount late in 2015, though a deal 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.
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"The structure modification would make it easier for WBD to sell its direct TV networks," eMarketer analyst Ross Benes said, referring to the cable company. "However, finding a purchaser will be difficult. The networks owe money and have no indications of development."
In August, Warner Bros Discovery documented the value of its TV properties by over $9 billion due to unpredictability around charges from cable television and satellite distributors and sports betting rights renewals.
This week, the media business revealed a multi-year offer increasing the general charges Comcast will pay to distribute Warner Bros Discovery's networks.
Warner Bros Discovery is sports betting the Comcast agreement, together with a deal reached this year with cable television and broadband supplier Charter, will be a design template for future negotiations with suppliers. That could assist support 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)