Is Warner Bros. Discovery breaking up?
Is Warner Bros. Discovery breaking up?
The company could find success in such a move, according to a leading Wall Street analyst.
The future of Warner Bros. Discovery is tough to discern at the moment. The company is caught between a rock and a hard place; its cable networks bring in drastically less revenue than they used to, but their movie studio and streaming services aren’t ready to fully pick up that financial slack as of now. Bank of America analyst Jessica Reif Ehrlich has been tracking WBD’s prospects for years, and continues to recommend a drastic step: breaking up the company.
Key Details:
- Stronger apart?: Ehrlich continues to advocate for WBD’s cable networks to split from its studio and streaming businesses.
- Corporate musical chairs: A corporate restructuring announced in December could make it easier for WBD to break up if it chooses.
- Follow the leader: Comcast has already made the decision to spin off its cable channels into a separate company.
Echoing comments she made a year ago, Ehrlich once again called on WBD to consider splitting its two primary parts to improve the financial standing of both.
“We believe the market value for WBD’s Studio and DTC (direct-to-consumer) assets standalone could far exceed the market cap of the company today,” Ehrlich wrote in an investor note distributed on Monday. “Further, as a standalone linear asset, we believe there is an opportunity to consolidate a long tail of linear assets (e.g. Versant) that are currently housed within other media organizations.”
In essence, Ehrlich is pointing to a possible future in which WBD has paired its movie studio with its streaming service Max — soon to return to the HBO Max branding — to operate as a standalone entity, leaving Discovery and the company’s other cable channels to continue on their own. WBD’s cable channels have become a millstone around its neck, pulling its revenue and credit rating down.
WBD has already made moves that could aid it if it wants to spin off its cable channels. In December 2024, the company announced a plan to reorganize and move the cable channels into their own corporate division, while Max and the movie studio would be housed in another division. It did not spin its cable channels off in this reorganization, but that could be easier to do when the restructuring is completed by mid-2025.
Comcast is already swimming in waters that Ehrlich is recommending for WBD. Comcast took the extra step of spinning off most of its cable networks into a new company now called Versant, which makes it easier for those channels to be sold if a buyer comes sniffing around for them.
Will WBD be next? In my humble opinion, the company should give deep thought to Ehrlich’s advice. While it has amassed over 100 million global streaming subscribers, Max has a long way to go before it’s able to compete with Disney+ in that regard, let alone Netflix. Freeing itself from the drag of cable networks could help WBD put an increased focus on its streamer and build toward an inevitable future in which cable networks are simply no longer relevant.
Only time will tell if that happens. Until then, Ehrlich will likely continue to advocate for WBD to think about reshaping its business to further emphasize its movie studio and streaming service.
HBO Max
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