Warner Bros Discovery Sets Stage For Potential Cable Deal By

Shares jump 13% after reorganizing announcement

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, includes information, background, remarks from market insiders and analysts, updates share rates)

By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni

Dec 12 (Reuters) – Warner Bros Discovery on Thursday decided to separate its decreasing cable television organizations such as CNN from streaming and studio operations such as Max, preparing for a possible sale or spinoff of its TV company as more cable television subscribers cut the cord.

Shares of Warner jumped after the business said the brand-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 business are considering options for fading cable TV companies, a long time golden goose where incomes are wearing down as countless consumers accept streaming video.

Comcast last month unveiled strategies to split many of its NBCUniversal cable television networks into a brand-new public company. The brand-new business would be well capitalized and positioned to obtain other cable networks if the industry consolidates, one source told Reuters.

Bank of America research analyst Jessica Reif Ehrlich composed that Warner Bros Discovery’s cable properties are a « very rational partner » for Comcast’s new spin-off company.

« We highly believe there is potential for relatively sizable synergies if WBD’s direct networks were integrated with Comcast SpinCo, » composed Ehrlich, using the market term for traditional tv.

« Further, we think WBD’s standalone streaming and studio possessions would be an attractive takeover target. »

Under the new structure for Warner Bros Discovery, the cable business consisting of TNT, Animal Planet and CNN will be housed in an unit called Networks.

Streaming platforms Max and Discovery+ will be under a separate department in addition to film studios, including Warner Bros Pictures and New Line Cinema.

The restructuring shows an inflection point for the media market, as financial investments in streaming services such as Warner Bros Discovery’s Max are finally settling.

« Streaming won as a behavior, » said Jonathan Miller, chief executive of digital media investment firm Integrated Media. « Now, it’s winning as a company. »

Brightcove CEO Marc DeBevoise said Warner Bros Discovery’s brand-new business structure will differentiate growing studio and streaming assets from lucrative however shrinking cable television service, providing a clearer financial investment image and most likely setting the stage for a sale or spin-off of the cable unit.

The media veteran and adviser anticipated 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 acquiring the even larger target, AT&T’s WarnerMedia, is positioning the business for its next chess move, wrote MoffettNathanson analyst Robert Fishman.

« The question is not whether more pieces will be moved or knocked off the board, or if more consolidation will happen– it refers who is the buyer and who is the seller, » composed Fishman.

Zaslav signaled that circumstance during Warner Bros Discovery’s financier call last month. He said he expected President-elect Donald Trump’s administration would be friendlier to deal-making, opening the door to media industry consolidation.

Zaslav had engaged in merger talks with Paramount late in 2015, though an offer never ever materialized, according to a regulative filing last month.

Others injected a note of caution, noting Warner Bros Discovery carries $40.4 billion in debt.

« The structure change would make it simpler for WBD to sell off its direct TV networks, » eMarketer analyst Ross Benes said, referring to the cable television organization. « However, discovering a buyer will be challenging. The networks are in debt and have no indications of growth. »

In August, Warner Bros Discovery composed down the value of its TV possessions by over $9 billion due to unpredictability around costs from cable and satellite suppliers and sports betting rights renewals.

Today, the media company revealed a multi-year offer increasing the general costs Comcast will pay to disperse Warner Bros Discovery’s networks.

Warner Bros Discovery is sports betting the Comcast contract, together with an offer reached this year with cable television and broadband supplier Charter, will be a template for future negotiations with suppliers. That might assist stabilize rates 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)