Warner Bros. Discovery to Split Into Two Public Companies

Warner Bros. Discovery is following in the footsteps of cable giant Comcast by carving out its traditional pay-TV networks from its broader media operations.

Comcast’s NBCUniversal is already in the process of spinning off its cable network portfolio — including CNBC — into a new publicly traded entity called Versant. NBCUniversal will retain control over its streaming platform Peacock, the NBC broadcast network, and its film business, among other assets.

WBD boasts the industry’s largest portfolio of cable networks, a result of the 2022 merger between Warner Bros. and Discovery, which united channels like CNN, TBS, and TNT with Discovery, TLC, and HGTV.

Both Warner Bros. Discovery and Comcast are restructuring amid an industry-wide shift away from traditional pay-TV bundles and toward streaming platforms.

The priority has shifted toward building profitable streaming businesses.

The burden of legacy TV was underscored last year when WBD recorded a $9.1 billion write-down on its TV networks division. The company said the charge stemmed from a reassessment of the TV networks segment’s book value.

Despite those challenges, traditional TV remains a key profit center, still generating substantial cash flows. Live sports, in particular, continue to draw the largest real-time audiences, keeping them a critical part of any media portfolio.

Wiedenfels noted on a call with investors Monday that much of the free cash flow generated from the traditional TV business over the years has been used to build up the streaming platform.

But while that cash flow has supported streaming growth, its content hasn’t resonated in the same way on the Max platform — which is being rebranded again to HBO Max. In May, the company said the platform will now prioritize quality over quantity.

During Monday’s call, Zaslav said sports hadn’t been “a real driver” for the streaming platform.

On the same call, WBD executives stressed that each of the two new companies would be “free and clear from a transaction perspective.” Although the separation is structured to be tax-free, executives signaled they’d be open to sacrificing that benefit if the right deal emerged, according to a source familiar with the matter.

Zaslav has advocated for loosening media regulations to facilitate further consolidation in what he described as a time of “generational disruption” for the industry.

NBCUniversal’s decision to spin off its cable networks aims to create more flexibility to invest and potentially merge with other entities, according to prior reporting from CNBC. Versant CEO Mark Lazarus told CNBC the new company intends to be acquisitive.

Warner Bros. Discovery itself is the product of a major media merger. The 2022 combination brought together WarnerMedia’s assets — including HBO, TNT Sports, and its film studio — with Discovery’s suite of pay-TV networks.

Since then, the company has focused on reducing the debt it took on from the deal.

To date, the company has paid down $19 billion in debt, though it still reported nearly $34 billion in net debt at the end of Q1, according to Wiedenfels.

Last month, S&P Global Ratings downgraded WBD’s credit rating to junk status, citing “continued revenue and cash flow declines” from its legacy TV business.

That debt will be divided between the two newly formed companies following the split, the company confirmed.

Both companies are expected to maintain strong liquidity, particularly the global networks unit, which is projected to generate substantial free cash flow that will support continued debt repayment.