Warner Bros Discovery to split into two stand-alone companies as cable struggles mount

Warner’s cable networks have seen ratings and revenues fall as consumers continue to abandon traditional pay-TV for streaming platforms such as Netflix and Amazon Prime Video

Warner Bros. Discovery is splitting itself into two separate publicly traded companies, aiming to unlock shareholder value and give its distinct businesses sharper strategic focus. The move comes as traditional cable operations face mounting pressure from the accelerating shift to streaming, the Wall Street Journal reported.

The split will isolate Warner's broadcasting group, which includes HBO Max, Warner Bros. studios and TV, and Warner Bros. Games, in one company that will be called Streaming & Studios. The firm's shrinking cable networks, which include CNN, TNT, TBS, Discovery+ and international channels, will go into a separate company, to be named temporarily Global Networks.

Reversing the Warner-Discovery deal

The breakup marks a reversal of the 2022 merger between Warner Media and Discovery Communications, which was designed to create a media powerhouse spanning premium entertainment, news, and nonfiction content. Instead, Warner’s management has now concluded that its assets are more valuable apart than together, echoing moves by peers like Comcast, which is spinning off much of its cable business into a stand-alone company called Versant.

Warner’s cable networks have seen ratings and revenues fall as consumers continue to abandon traditional pay-TV for streaming platforms such as Netflix and Amazon Prime Video. “We are empowering these iconic brands with the sharper focus and strategic flexibility they need to compete most effectively in today’s evolving media landscape,” Warner Bros. Discovery CEO David Zaslav said in a statement.

Leadership and debt challenges

Zaslav will remain CEO of the Streaming & Studios company, while Warner’s current CFO, Gunnar Wiedenfels, will lead Global Networks. The cable unit, which remains Warner’s largest revenue generator despite a 6% drop in revenue last quarter, will also shoulder a significant portion of Warner’s approximately $34 billion debt.

Earlier this month, S&P Global Ratings downgraded Warner’s debt to junk status, citing the risks facing its cable business. Warner has since secured a $17.5 billion bridge loan from J.P. Morgan to buy back a portion of its debt. After the split, the two companies will issue new debt to repay the loan.

The restructuring follows a turbulent period for Warner employees, with thousands of layoffs in recent years as the company worked to cut costs and manage its heavy debt load. Wiedenfels said Global Networks would remain “very focused on efficiency.”

Investor pressure and governance concerns

The split also comes amid growing investor dissatisfaction with Warner leadership. Over 59% of shareholders recently voted against Zaslav’s $51.9 million compensation package for 2024 in a symbolic rejection of the company’s executive pay practices. Warner’s stock has plunged nearly 59% since the merger, adding to pressure on Zaslav to deliver results.

Global Networks will be the home to CNN's forthcoming streaming service, Discovery+, and sports assets like Bleacher Report, in addition to its cable networks. It will maintain a 20% interest in Streaming & Studios and will employ profits from that interest in contributing to debt repayment.

As legacy media players struggle to get their bearings during the streaming age, Warner's bet is that its stalwart entertainment and cable holdings will fare better as fast, independent companies. Whether the splitting up can reverse years of shareholder value destruction and reassure investors is to be seen.