Warner Bros. Discovery Mulls Break-Up Plan

So much for marriage.

Just two years after the mega-merger that brought Warner Bros. and Discovery together, it’s discussing dramatic plans to break the flailing empire up into different pieces, according to a Financial Times report. It may just be a tacit admission that bigger isn’t always better in today’s media landscape, despite company leaders long arguing otherwise.

Maxed Out

Oh how time flies. Just last week, CEO David Zaslav publicly pushed for deregulation so that media companies can “consolidate” in order “to be even better.” Now, it seems, the firm has flipped from buyer to seller. A note earlier this week from Bank of America analyst Jessica Reif Ehrlich arguing WBD’s “current composition as a consolidated public company is not working” may have been the kick in the pants it needed. Reif Ehrlich cut WBD’s price target from $14 per share to $12. WBD’s market cap has fallen by about one-third in the past year.

In a bid to boost its share price, the FT reports that company leaders have outlined a plan that would split the company in two — and create a game of debt-load hot potato:

• The plan would effectively silo WBD’s streaming service, Max, and its film studio in one company, while placing its lucrative but declining linear TV into another.
• The linear TV company would then assume most of the company’s $39 billion debt load.

Such a move would give Max a lifeboat from the twin Titanics of linear TV and massive debt. It could, however, spark a creditor revolt similar to what Lionsgate experienced when it mulled a spin-out of Starz saddled with much of the company’s debt. It could also complicate how content rights between the two companies would be shared. (If WBD is looking for more cash, Bloomberg reported Thursday that Apple is open to licensing content from Hollywood competitors to bolster its streamer’s comparatively barren library; WBD continues to license content to Netflix.)

Tudum: Speaking of Netflix, the global streaming giant beat expectations in its second-quarter earnings on Thursday, with subscribers on the suddenly all-important ad-supported tier increasing by 34% as the company continues to coast into a new era of profitability. While most of the industry has suffered content droughts this year in the wake of last year’s dual talent strikes, Netflix has relied on an international content pipeline to keep viewers hooked. If you’re in first place, at least, bigger is still better.