Shares jump 13% after restructuring statement
Follows course taken by Comcast's brand-new spin-off business
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Challenges seen in offering debt-laden direct TV networks
(New throughout, adds information, background, remarks from market experts and analysts, updates share costs)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its declining cable television businesses such as CNN from streaming and studio operations such as Max, preparing for a potential sale or spinoff of its TV company as more cable television subscribers cut the cord.
Shares of Warner leapt after the company said the new structure would be more deal friendly and it anticipated to finish the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.
Media companies are thinking about options for fading cable companies, a longtime golden goose where revenues are deteriorating as millions of consumers welcome streaming video.
Comcast last month revealed plans to divide most of its NBCUniversal cable television networks into a brand-new public company. The new business would be well capitalized and placed to acquire other cable television networks if the market consolidates, one source informed Reuters.
Bank of America research expert Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable tv assets are a "extremely rational partner" for Comcast's new spin-off company.
"We strongly think there is capacity for fairly large synergies if WBD's direct networks were combined with Comcast SpinCo," wrote Ehrlich, utilizing the industry term for standard tv.
"Further, our company believe WBD's standalone streaming and studio possessions would be an attractive takeover target."
Under the brand-new structure for Warner Bros Discovery, the cable television TV business including 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 film studios, consisting of Warner Bros Pictures and New Line Cinema.
The restructuring reflects an inflection point for the media industry, as investments in streaming services such as Warner Bros Discovery's Max are finally settling.
"Streaming won as a habits," stated Jonathan Miller, president of digital media investment firm Integrated Media. "Now, it's winning as an organization."
Brightcove CEO Marc DeBevoise stated Warner Bros Discovery's brand-new business structure will differentiate growing studio and streaming assets from profitable but diminishing cable television business, providing a clearer financial investment picture and likely setting the phase for a sale or spin-off of the cable unit.
The media veteran and adviser predicted Paramount and others may take a similar course.
CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before obtaining the even bigger target, AT&T's WarnerMedia, is positioning the company for its next chess move, wrote MoffettNathanson analyst Robert Fishman.
"The concern is not whether more pieces will be walked around or knocked off the board, or if more debt consolidation will take place-- it refers who is the purchaser and who is the seller," composed Fishman.
Zaslav indicated that situation during Warner Bros Discovery's investor call last month. He said he prepared for President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media market combination.
Zaslav had actually participated in merger talks with Paramount late in 2015, though a deal never emerged, according to a regulative filing last month.
Others injected a note of care, keeping in mind Warner Bros Discovery carries $40.4 billion in debt.
"The structure modification would make it simpler for WBD to sell its linear TV networks," eMarketer expert Ross Benes stated, describing the cable television TV business. "However, discovering a buyer will be challenging. The networks are in debt and have no signs of development."
In August, Warner Bros Discovery jotted down the worth of its TV properties by over $9 billion due to uncertainty around charges from cable television and satellite distributors and sports betting rights renewals.
This week, the media company revealed a multi-year deal increasing the overall costs Comcast will pay to disperse Warner Bros Discovery's networks.
Warner Bros Discovery is wagering the Comcast contract, together with a deal reached this year with cable television and broadband provider Charter, will be a design template for future negotiations with suppliers. That might help support prices 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)
