Warner Bros. Discovery, the film and TV colossus behind HBO and CNN, announced on Monday that it would cleave itself into two companies, separating its cable networks and streaming businesses.
David Zaslav, the chief executive of Warner Bros. Discovery, will lead the company’s streaming and studios business, which will include the streaming service HBO Max and Warner Bros. Motion Picture Group. The cable business, which will include CNN, will be run by Gunnar Wiedenfels, the 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,” Mr. 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 roughly 10 percent on news of the separation.
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 called Versant.
Since it was created three years ago, Warner Bros. Discovery has struggled to convince shareholders that it has a winning combination with lighter fare like “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 the reality TV company Discovery and the vestiges of Time Warner. It has also been effected by the branding confusion surrounding its flagship streaming service, christening it HBO Max, then dropping “HBO” before re-adding it again last month.
Mr. 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.”
The decision to split represents a major about face from the conventional wisdom at the time of the deal — 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.
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 chief executive of SoFi; Joey Levin, the former chief executive of IAC; and Anton Levy, the former co-president of the private equity firm General Atlantic. John Malone, the cable mogul who mentored Mr. Zaslav, has stepped back from the board.
Shareholders expressed their discontent with the company’s performance in a ceremonial vote earlier this month against Mr. 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 on Monday, Mr. Wiedenfels said that most of the debt would be apportioned to the new cable company, with a smaller amount allocated to the streaming company.
Warner Bros. Discovery said in a news release that it was taking out a $17.5 billion short-term loan ahead of the split to buy back some debt from bondholders. Doing so could help appease investors who might have concerns about the plan.
In addition to CNN, the cable networks group will include TNT, TCM, Discovery, free-to-air channels in Europe and TV rights to U.S. sporting events, including the National Hockey League and the March Madness N.C.A.A. Basketball Tournament. The streaming business will include Warner Bros. Television, DC Studios and HBO, as well as the company’s film and TV libraries.
In its release, Warner Bros. Discovery said that the split would allow shareholders to assess the value of each business independently and let executives cater more closely to each company’s needs. The cable business will try to grow outside the U.S., while the streaming business will focus on continuing to grow HBO Max.
Rich Greenfield, an analyst at LightShed Partners, said that the split could entice a technology buyer that wanted to acquire movies and TV shows but didn’t want to manage declining cable networks.
He added that Warner Bros. Discovery should have split the businesses apart “years ago,” referencing a 2015 earnings call where Robert A. Iger, the chief executive of Disney, raised the alarm about declining subscribers at ESPN. Mr. Greenfield suggested that Warner Bros. Discovery would most likely lay off droves of staffers in its cable business to make it more profitable.
“This was flagged by Bob Iger 10 years ago,” Mr. Greenfield said. “Why did it take these companies so long to act?”
Benjamin Mullin reports for The Times on the major companies behind news and entertainment. Contact him securely on Signal at +1 530-961-3223 or at [email protected].
Lauren Hirsch is a Times reporter who covers deals and dealmakers in Wall Street and Washington.
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