Warner Bros Discovery (WBD.O) is moving towards a potential breakup, CNBC reported on Thursday, as media companies seek to disentangle their underperforming cable-TV operations from more dynamic streaming and studios divisions. WBD shares surged more than 4% on the news, recovering from earlier losses of nearly 6% following a disappointing quarterly report.
The company missed first-quarter revenue estimates and posted a larger-than-expected loss, driven by sluggish box-office returns most notably the underperformance of Bong Joon Ho’s “Mickey 17” and ongoing declines in its cable-TV unit. Streaming, however, remained a bright spot: WBD added 5.3 million subscribers to its Max platform in Q1, far exceeding the 3.1 million analysts had forecast, bringing total streaming subscribers to 122.3 million.
WBD had already laid groundwork for a separation in December by reorganizing its reporting structure to distinguish between linear TV networks (including CNN, Discovery Channel and Animal Planet) and its “Max and Studios” segment. Analysts note that a split would align WBD with Comcast’s strategy of spinning off cable networks such as MSNBC and CNBC to sharpen focus on streaming.
Despite the subscriber gains, studio revenue fell 18% to $2.31 billion, missing analyst estimates of $2.73 billion. Overall revenue declined 10% to $8.98 billion, below the $9.60 billion expected by the market, and the company reported a loss of $0.18 per share versus the $0.13 loss analysts anticipated.
With $38 billion of gross debt and ongoing cord-cutting trends, WBD’s cable assets have long been viewed as a drag on its valuation. Should a breakup proceed, significant asset sales or a spinoff of the linear TV unit would likely be required to allay competition concerns and manage the combined company’s debt load.
