Warner Bros Discovery, the parent company of CNN and HBO Max, has announced plans to separate its streaming and studio operations from its traditional cable television networks by the middle of next year. This strategic move aims to better position the media giant as the industry shifts toward streaming amid declining cable TV audiences.
Background
The decision to split comes after a significant merger in 2022 that formed Warner Bros Discovery. The new organizational structure will create two distinct entities: a Streaming & Studios business and a Global Networks company. The Streaming & Studios division will include successful properties such as HBO Max, known for popular shows like Succession, The White Lotus, and The Last of Us. This segment will be led by David Zaslav, the companyโs president and chief executive.
In contrast, the Global Networks division will encompass established brands such as CNN, Discovery Channel, and TNT Sports, and will be managed by Gunnar Wiedenfels, the chief financial officer of Warner Bros Discovery. โWe are empowering these iconic brands with the sharper focus and strategic flexibility they need to compete most effectively in todayโs evolving media landscape,โ Zaslav stated regarding the restructuring.
Industry Context and Impact
This split reflects broader trends within the media landscape, where streaming services have gained unprecedented traction, garnering hundreds of millions of users globally. In contrast, traditional cable television has experienced a steady decline in viewership. For instance, CNN has faced challenges, averaging 558,000 viewers during primetime in the first quarter of 2023, marking a 6% decrease from the same period in 2022.
Amid these developments, Warner Bros Discoveryโs stock performance has not benefitted significantly from the announcement, with shares dropping nearly 3% during trading on the day of the news, and down more than 10% year-to-date. However, analysts believe the split could provide clearer valuations for investors. Peter Jankovskis, an analyst with Arbor Financial Services, noted, โWhen you make the business less complicated, analysts can go in and do a better job of determining what the business is actually worth.โ
Challenges Ahead
Despite the struggles faced by its cable networks, Warner Bros Discoveryโs streaming platforms appear to be thriving, reportedly ending the first quarter of 2023 with over 122 million subscribers. This growth offers a silver lining as competition in the streaming market intensifies. The split follows similar moves within the industry; for instance, Comcast has initiated plans to spin off NBCUniversal from its other brands, including the Peacock streaming service.
Jankovskis emphasized the industryโs current competitive nature: โSo many firms are trying to segregate out the streaming portion or the content portion of their businesses so that the remaining business can be valued separately.โ
As Warner Bros Discovery moves forward with this transformational strategy, stakeholders will be watching closely to see how the restructuring impacts brand focus, operational efficiency, and the overall valuation of both new entities.
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