Warner Bros. Discovery to split in 2

Company to divide into streaming, cable entities

The Warner Bros. Studio is shown Dec. 20 in Burbank. Warner Bros Discovery on Monday says the studio and its streaming unit will be spun off from its cable TV channels. Stella Kalinina — The New York Times

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By Benjamin Mullin and Lauren Hirsch

The New York Times

Another high-profile divorce just shook Hollywood.

Warner Bros. Discovery, the film and TV colossus behind HBO and CNN, announced Monday that it would cleave itself into two companies, becoming the latest entertainment conglomerate to unshackle its withering cable networks from its growing streaming services.

David Zaslav, CEO of Warner Bros. Discovery, will lead the company’s streaming and studios business, which will include streaming service HBO Max and Warner Bros. Motion Picture Group. The cable business, which will include CNN, will be run by Gunnar Wiedenfels, chief financial officer of Warner Bros. Discovery.

“By operating as two distinct and optimized companies in the future, we are empowering these iconic brands with the sharper focus and strategic flexibility they need to compete most effectively in today’s evolving media landscape,” Zaslav said in a statement.

Warner Bros. Discovery said it expected the transaction to be completed by the middle of next year. Shares of the company increased nearly 10% on news of the division.

The decision to split is a major about-face from the conventional wisdom in the industry when Warner Bros. Discovery was created three years ago — that media companies needed to get bigger to compete with streaming giants like Netflix. Following that logic, Disney acquired 21st Century Fox, AT&T bought Time Warner, and Discovery merged with WarnerMedia.

U.S. media giants have been looking to jettison their declining cable networks while preserving their faster-growing streaming services. Comcast, the parent company of NBC and Universal Studios, said last year it would separate its traditional TV business into a new company, Versant.

The corporate maneuvering from Warner Bros. Discovery and Comcast could encourage new media deal-making. In its news release, Warner Bros. Discovery said the deal would give it “enhanced strategic flexibility,” corporate argot for further mergers and acquisitions. Comcast has also said Versant would be aggressive about looking for opportunities once it is spun off.

Since it was created three years ago, Warner Bros. Discovery has struggled to convince shareholders that it has a winning combination with lighter fare such as “90 Day Fiancé” and prestige hits such as “The White Lotus” on its traditional networks and streaming services. The company has lost roughly half its value since it was forged through the fusion of reality TV company Discovery and the vestiges of Time Warner. It has also been affected by the branding confusion surrounding its flagship streaming service, christening it HBO Max, then dropping “HBO” before re-adding it last month.

Zaslav defended the logic for the initial merger on an investor call, saying it had “delivered substantial appreciable benefits to each aspect of our business.” He added, “Now, we’re focused on the next stage of transformation.”

As Warner Bros. Discovery has faced pressure from shareholders, the company brought on several new directors to its corporate board, including Anthony Noto, a former Goldman Sachs banker who served as CEO of SoFi; Joey Levin, a former CEO of IAC; and Anton Levy, a former co-president of private equity firm General Atlantic. John Malone, a cable mogul who mentored Zaslav, has stepped back from the board.

Shareholders expressed their discontent with the company’s performance in a ceremonial vote this month against Zaslav’s roughly $52 million pay package.

A key question for investors will be how the two new companies split Warner Bros. Discovery’s $37 billion in debt. On an investor call with shareholders Monday, Wiedenfels said most of the debt would be apportioned to the new cable company, with a smaller amount allocated to the streaming company.