When WarnerMedia and Discovery Inc. merged back in 2022, the rationale was that the combination would put the companies in a better position to compete against Netflix, Disney and others that were diving head first into streaming and navigate what Warner Bros. Discovery CEO David Zaslav has repeatedly referred to as a “generational disruption” in the entertainment industry.
Better together was the message then. On Monday, it was better apart.
“As both organizations contemplated their futures, one truth became clear: to successfully adapt, transform, and lead in the entertainment industry of tomorrow we needed to come together — to draw on each other’s strengths,” Zaslav said in a memo to staff on Monday. “While the work since that merger has been challenging at times, ultimately, we have succeeded in strengthening each element of our business.”
Now, in the latest pivot, Zaslav and Co. have made what he called the “bold choice” to separate its “Global Linear Networks” business from its “Streaming and Studio”s” business by mid-2026, which he said reflects the company’s belief that each entity can “now go further and faster apart than they can together” as they look to unlock more value for shareholders.
“This evolution isn’t a departure from our strategy — to deploy Max globally, optimize our global networks and return our studios to industry leadership — it’s about unlocking the full potential of two strong businesses,” Zaslav added. “Each has a distinct focus, a clear mission, and the scale to succeed on its own terms. This next phase will create the conditions for both companies to grow with greater clarity, agility, and long-term strength.”
While the move unlocks more strategic flexibility for WBD, separating its divisions into two distinct publicly traded companies doesn’t immediately solve the media giant’s fundamental challenges: continuing to grow its share of streaming viewership and profitability, returning its studios business to profitability, managing the decline of its linear business and continuing to pay down its heavy debt load.
“It was inevitable once they took that big charge down on their cable assets,” one talent agent told TheWrap, referring to a $9 billion impairment charge incurred last year. “Wall Street views legacy cable assets as a drag on stock value, no different than what Comcast did months ago as well.”
As of Monday, WBD shares have fallen 52% in the past five years and 10.60% year to date and its market capitalization sits at $23.68 billion. Monday’s announcement initially sent the company’s stock soaring minutes after the opening bell, but by the time trading wrapped up at 4:00 p.m. ET, those gains had been erased; WBD’s stock closed the day down nearly 3%.
Fundamental Challenges Remain
One of the biggest challenges for WBD going forward remains the continued downward trend of the linear networks business, whose profits fell 15% to $1.8 billion and revenue tumbled 7% to $4.8 billion in its first quarter. That decline, which will only be exacerbated by WBD’s loss of the U.S. rights to the NBA, was a primary driver behind a recent credit downgrade by S&P Global to junk status.
Its streaming business, which has started turning the corner on profitability, also continues to face an uphill battle for scale and viewership share with its competitors. When looking at Nielsen’s monthly gauge report, Warner Bros. Discovery was second-to-last for the month of April with a share of 1.5%. The company also recently revealed it would rebrand its streamer yet again from Max back to HBO Max this summer as it looks to refocus on “the programming that is working best.”
Executives have said that the streaming business is on track to generate at least $1.3 billion in profit by the end of 2025 and reach at least 150 million streaming subscribers by the end of 2026, which it plans to achieve through a combination of expanding Max internationally, strategic distribution partnerships and driving higher penetration of its ad-supported tier.
Barclays analyst Kanaan Venkateshwar pointed out that the split could create a source of “operational friction” that may require some of its linear network renewals to be redone, given that Max was bundled together with its network content. It’s also unclear how the separation may ultimately impact WBD’s inter-company costs and revenues, he said.
Additionally, WBD still faces roughly $37 billion in gross debt. During a call with investors on Monday, chief financial officer Gunnar Wiedenfels — who will lead the separated linear network business — said the majority of its debt would live with global networks, while a smaller “but not insignificant” portion would remain with the streaming and studios business.
The global networks division will retain a 20% stake in the studios and streaming business to help the company deleverage. WBD also secured a $17.5 billion bridge loan from J.P. Morgan to buy back a chunk of its debt, which would be repaid following the separation’s completion.
Venkateshwar noted that neither standalone entity will be able to absorb this on a standalone basis without a significant increase in leverage, which may result in pushback from bondholders. He also warned it will be complicated for shareholders to realize value within StudioCo without a strategic capital infusion. The studios business has set a target to reach at least $3 billion in annual profit, with a specific timeline for achieving that unclear.
“This business in general will have higher operational volatility and will need a stronger balance sheet just to manage its working capital needs,” Venkateshwar said. “Overall therefore, we think the overall impact on WBD equity will be determined more by future choices rather than the announcement this morning.”
M&A Permutations
While many answers about WBD’s future aren’t immediately clear, some on Wall Street are bullish about what it means for consolidation in the industry.
Bloomberg Intelligence analyst Geetha Ranganathn expects the split to be a positive catalyst that will “play up the value of the higher-growth studio and streaming units” and “pave the way for M&A, especially at the TV networks division,” which made up 85% of WBD’s 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA).
She estimated that WBD may be worth up to $17 a share on a sum-of-parts basis and that the Studio & Streaming business’ assets are under-monetized and could generate around $3.6 billion in EBITDA in 2025, suggesting a $50 billion valuation at a multiple of 14 times.
Meanwhile, Seaport Research’s David Joyce, who has a buy rating and $15 price target on WBD stock, believes that the Studio & Streaming business could be valued at around $7.34 per share, while Global Networks could be valued at around $7.36 per share, leading to a combined $14.70 per share equity value.
Joyce argued that multiple structural moves across the industry are setting up for a “multi-year rationalization” and better industry efficiency and valuation, such as the launch of Versant, the pending merger between Disney’s Hulu Live and Fubo, the Lionsgate-Starz separation and Paramount’s pending Skydance Media merger.
“There are myriad permutations of industry consolidation possibilities from here — regulatory uncertainties being a significant question mark, of course,” Joyce wrote in a note to clients on Monday. “It will still be a multi-year process, but the synergy-driven value unlock opportunities should support the group’s shares from here.”
