(Bloomberg) -- Warner Bros. Discovery Inc. shares rose on Thursday after the Financial Times reported it’s considering separating its streaming and studio businesses from legacy TV, one of several options that could be deployed to boost its share price.
Chief Executive Officer David Zaslav is pondering a split among other options such as asset sales, the newspaper said, citing people familiar with the matter. Executives are discussing spinning out the Warner Bros. movie studio and Max streaming service into a new company free of the company’s current US$39 billion debt load, the FT said.
Warner Bros. shares rose 3.9 per cent to $8.64 at 9:55 a.m. in New York. They are still down 24 per cent this year. Warner Bros. declined to comment on the FT report.
US media groups including Warner Bros. have struggled to improve their profitability in the face of an expensive streaming war against Netflix Inc. Analysts have been predicting a wave a consolidation as companies try to recover from a post-pandemic slump.
Warner Bros., the parent of CNN, HBO and other channels, was formed in 2022 via the merger of AT&T Inc.’s WarnerMedia and Discovery Inc. The deal created a company weighed down with debt at a time when cable TV, its largest business, was hemorrhaging viewers and advertising dollars.
“Breaking up the company to separate linear from streaming and studios would not be easy,” Kannan Venkateshwar, an analyst at Barclays Capital wrote in a note to investors. “Most of the company’s cash flow comes from the linear television business, while most of the cash is used by the streaming and studio business. Therefore, separating these assets would implicitly starve the streaming and studio business of capital.”
At the same time, the streaming business depends on programming from the cable channels. Still, such a deal could set the stage for another combination, such as merging Max with NBCUniversal’s Peacock, Venkateshwar said.
Zaslav was quick to cut staff and production costs, including shutting down online news service CNN+ and shelving movies including the almost-completed $90 million Batgirl. While the cuts helped reduce debt, they failed to impress investors and shares have fallen about 67 per cent since the merged company’s inception in April 2022. In May, Warner Bros. reported quarterly sales and profit that fell short of analysts’ expectations.
Earlier this month, Zaslav said that the entertainment industry needs to do more deals.
“Over the next year or two you’re going to see some real consolidation, whether that happens with companies buying each other or going after streaming together,” he told reporters at the Sun Valley Conference, after news of Paramount Global’s merger with Skydance Media broke.
With assistance from Lucas Shaw
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