Shares dive 13% after restructuring announcement
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Follows path taken by Comcast's brand-new spin-off business
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Challenges seen in selling debt-laden direct TV networks
(New throughout, adds information, background, remarks from industry insiders and experts, updates share prices)
By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni
Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its decreasing cable companies such as CNN from streaming and studio operations such as Max, laying the groundwork for a possible sale or spinoff of its TV organization as more cable television subscribers cut the cord.
Shares of Warner leapt after the company stated the brand-new structure would be more deal friendly and it expected to finish the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.
Media business are thinking about choices for fading cable TV businesses, a longtime golden goose where incomes are eroding as millions of customers welcome streaming video.
Comcast last month unveiled plans to divide most of its NBCUniversal cable networks into a brand-new public company. The new company would be well capitalized and placed to obtain other cable television networks if the industry combines, one source informed Reuters.
Bank of America research study analyst Jessica Reif Ehrlich composed that Warner Bros Discovery's cable tv properties are a "extremely sensible partner" for Comcast's brand-new spin-off company.
"We highly think there is potential for fairly substantial synergies if WBD's linear networks were integrated with Comcast SpinCo," wrote Ehrlich, using the industry term for standard tv.
"Further, we think WBD's standalone streaming and studio assets would be an attractive takeover target."
Under the new structure for Warner Bros Discovery, the cable organization consisting of TNT, Animal Planet and CNN will be housed in a system called Global Linear Networks.
Streaming platforms Max and Discovery+ will be under a different division together with film studios, consisting of Warner Bros Pictures and New Line Cinema.
The restructuring shows an inflection point for the media industry, as investments in streaming services such as Warner Bros Discovery's Max are lastly paying off.
"Streaming won as a behavior," stated Jonathan Miller, president of digital media investment firm Integrated Media. "Now, it's winning as a business."
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Brightcove CEO Marc DeBevoise said Warner Bros Discovery's brand-new corporate structure will differentiate growing studio and streaming properties from lucrative but diminishing cable television service, providing a clearer investment picture and most likely setting the phase for a sale or spin-off of the cable unit.
The media veteran and advisor predicted Paramount and others might take a similar path.
CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before getting the even larger target, AT&T's WarnerMedia, is placing the business for its next chess relocation, wrote MoffettNathanson expert Robert Fishman.
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"The question is not whether more pieces will be moved or knocked off the board, or if additional combination will happen-- it is a matter of who is the buyer and who is the seller," composed Fishman.
Zaslav signified that circumstance during Warner Bros Discovery's financier call last month. He said he anticipated President-elect Donald Trump's administration would be friendlier to deal-making, opening the door to media industry debt consolidation.
Zaslav had actually engaged in merger talks with Paramount late in 2015, though a deal never ever materialized, 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 easier for WBD to sell its direct TV networks," eMarketer analyst Ross Benes said, referring to the cable TV service. "However, discovering a purchaser will be tough. The networks owe money and have no indications of growth."
In August, Warner Bros Discovery documented the worth of its TV possessions by over $9 billion due to uncertainty around charges from cable and satellite distributors and sports betting rights .
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This week, the media company announced a multi-year offer increasing the general charges Comcast will pay to distribute Warner Bros Discovery's networks.
Warner Bros Discovery is wagering the Comcast agreement, together with a deal reached this year with cable television and broadband company Charter, will be a design template for future negotiations with distributors. That could help support pricing for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles
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