Top Wall Street Analyst Recommends Warner Bros. Discovery Spinoff Max Amidst New Round of Layoffs
Top Wall Street Analyst Recommends Warner Bros. Discovery Spinoff Max Amidst New Round of Layoffs
It was a tough week for WBD, which is struggling to move streaming to the forefront of its entertainment offerings.
Does David Zaslav have Warner Bros. Discovery on the right track? According to one Wall Street analyst, the answer is “No.” Deadline reports that Bank of America Global Research’s Jessica Reif Ehrlich is advocating for big changes at WBD to help boost the company’s value to shareholders as its stock price has seen a precipitous drop in the two years since Discovery and WarnerMedia merged. Amongst other things, those suggested changes include massive overhauls for WBD’s streaming service Max, but as the company announces yet another wave of layoffs, the timing of Ehrlich’s comments seems all the more poignant.
Key Details:
- Ehrlich recommends spinning off Max and WBD’s movie studio into a standalone company.
- Doing so would allow the company’s linear channels to carry its debt load, while its profit centers can go it alone.
- WBD laid off around 1,000 employees this week as it continues to seek out cost savings.
Ehrlich is convinced that the status quo won’t be workable for WBD for much longer. In her mind, drastic steps should be taken to ensure that the company starts providing better value for its shareholders sooner rather than later. WBD’s stock hit a 52-week low of $6.94 per share in June, and it should consider every avenue available to it to help rehabilitate its value according to Ehrlich.
“In our view, the current composition as a consolidated public company is not working,” she wrote. “At current levels, we believe exploring strategic options for WBD would create more shareholder value vs. the status quo. All options need to be on the table.”
In one hypothetical situation, Ehrlich proposes spinning off the Max streaming service with WBD’s movie studio to create a new, standalone company which is not hampered by WBD’s $39 billion debt load. That would allow the new entity to continue generating revenue while leaving WBD’s already-faltering linear channels saddled with the debt.
WBD expects Max to show a profit this year and made a point of celebrating that it had netted $103 million from its direct-to-consumer segment —including linear HBO — in 2023. But that isn’t nearly enough to counterbalance the continuing declines in ad revenue from cable channels like TBS, TNT, and truTV, nor will it help WBD pay down its debt with any haste.
The comments from Ehrlich come in the same week that WBD announced a new round of layoffs. The company is letting around 1,000 employees go, most of whom are departing from its finance division. As reported by Variety, fewer than 10 Max employees will be affected by the job cuts.
What is WBD’s Current Trajectory?
If it remains on its current path, WBD will likely ignore most of Ehrlich’s recommendations. The company is joining the Venu Sports joint venture streaming service later this year, and is rebranding several “Max Originals” as “HBO Originals” to better emphasize the HBO brand that is so important for the company’s reputation.
Warner Bros. Discovery has made several new sports deals in recent months, and many onlookers believe that is because its chances of keeping its share of NBA rights after the 2024-25 season are next to zero. That loss would be another blow to the company’s linear channel, if cable distributors decide that they don’t want to pay $3 per subscriber for TNT without the NBA, it could lead to blackouts that hurt both WBD and viewers.
Those measures likely aren’t going to be enough to convince Ehrlich that more drastic steps aren’t needed, but how successful they’ll be can only be answered with time. The media landscape, and specifically the video entertainment sector, is changing rapidly, and like many other legacy media companies, WBD is struggling to keep pace.
A previous version of this article misspelled Ehrlich’s last name as “Erlich.”
Max
Max is a subscription video streaming service that gives access to the full HBO library, along with exclusive Max Originals. There are hubs for content from TLC, HGTV, Food Network, Discovery, TCM, Cartoon Network, Travel Channel, ID, and more. Watch hit series like “The Last of Us,” “House of the Dragon,” “Succession,” “Curb Your Enthusiasm,” and more. Thanks to the B/R Sports add-on, users can watch NBA, MLB, NHL, March Madness, and NASCAR events.