Warner Bros. Discovery came into being through a friendly exchange, reminiscent of sunny days and rainbows. In February 2021, David Zaslav, CEO of Discovery Inc., texted AT&T CEO John Stankey with golf and sunglasses emojis. This cordial message initiated a string of discussions, including secret meetings in a townhouse in lower Manhattan, culminating in the establishment of WBD in 2022.
In just three short years, sunny days at the golf course have given way to overcast skies, as the corporation is now gearing up for a major division. This development has left one employee, who works within Gunnar Wiedenfels’ future global networks company, feeling dismayed. He regrets that when this transaction is finalized next year, the company would have spent an entire decade passing ownership from one entity to another—from AT&T’s acquisition of Time Warner, to the Discovery deal, and now—all while the share price and cash flow have been on a downward trend, mirroring the dissolving cable industry. During this time, layoffs and cost-cutting measures have persisted, while executive compensation continues to rise.
At a glance, WBD’s move appears to share similarities with Comcast’s action of separating its cable TV channels into Versant, but upon closer inspection, the two strategies differ significantly, particularly in the finer details. One of the most noticeable disparities can be observed when comparing the financial aspects, as indicated by Wall Street analysts during a conference call on June 9, where they primarily questioned Zaslav about debt.
Wiedenfels’ global networks firm will control a significant portion of WBD’s debt exceeding $30 billion, using its wealth of cash flow but dwindling assets to repay that debt. On the other hand, Versant is anticipated to carry minimal debt, allowing it to act swiftly as an acquirer (as expressed by Versant CEO Mark Lazarus to fellow media executives, he aims for a bold strategy and expects Versant to be more of a buyer than a seller).
Jon Miller, CEO of Integrated Media, poses this question: “Given a collection of linear channels, are there counterparts in the streaming realm? If yes, how can we transition from our current state to that domain?” He further notes that a heavy debt burden might decrease the company’s attractiveness as an acquisition candidate. Miller explains, “Not every linear channel will successfully adapt to and prosper in the streaming world. Therefore, it’s crucial to identify potential winners and make strategic decisions regarding investments. However, if you’re weighed down with debt, your investment options become more restricted. Consequently, you must be selective about the areas you choose to invest in moving forward.
At Zaslav’s studios and HBO operations, however, they maintain a robust financial status and an impressive creative collection, but these benefits are tempered by the absence of revenue from cable TV. Meanwhile, NBCUniversal retains businesses like NBC and Universal theme parks that generate substantial cash flow in their separation, whereas WBD is essentially letting go of its profitable cash cow to focus on building a business geared towards growth.
Comcast pointed out that Versant is projected to generate approximately $7 billion in cash flow, whereas NBCU will bring in almost $40 billion in sales. At this time, Warner Bros. Discovery (WBD) hasn’t disclosed its financials after the merger, but since its linear networks account for a significant portion of its revenue, it has a distinctly different economic structure compared to before.
Zaslav’s venture might prove an excellent acquisition candidate, according to Peter Supino of Wolfe Research. On the other hand, Morningstar analyst Matthew Dolgin commented dryly on June 9 that “Global Networks are unlikely to disappear in our opinion, but they will significantly decrease.” He further noted that some appealing assets such as U.S. sports rights, the CNN and Discovery streaming services, and digital properties like Bleacher Report could help counteract the decline of linear television networks.
Or:
Zaslav’s company could be an ideal acquisition target, suggests Peter Supino from Wolfe Research. Meanwhile, Matthew Dolgin from Morningstar wrote on June 9 that while Global Networks are unlikely to vanish, they will shrink substantially. However, attractive assets such as U.S. sports rights, the streaming services of CNN and Discovery, and digital properties like Bleacher Report could help offset the decrease in linear television networks.
With Versant owning a compact set of seven cable TV networks and digital properties like Fandango, the emerging Warner Bros. Discovery (WBD) network business will boast a wider array of channels. This expansive collection may offer it more room to maneuver, yet potentially limit its capacity for concentration. Conversely, NBCUniversal has spent years reducing its cable channel lineup to only those deemed crucial, whereas WBD has been making efforts to sustain its channels in the name of survival – the shift of TruTV into a sports network being the most recent instance of such adaptation.
Keith Bowen, president of Optimum’s news, programming, and business services division, has praised NBC for their active and effective efforts in streamlining their programming over the past few years. This move allows them to avoid renewing contracts with networks that don’t offer much value,” he said.
At Versant, Lazarus emphasizes creating an exciting atmosphere for employees, positioning it as a thriving startup instead of a company tied to a fading industry. Beyond buying other companies, Lazarus has discussed expanding into sports rights, growing a team to create and acquire entertainment content, increasing staff at MSNBC and CNBC, and planning a temporary headquarters in midtown Manhattan (formerly the New York Times building) that he playfully calls “summer camp.
Instead of shifting focus, WBD’s primary pitch during its initial public offering consistently emphasized efficiency over opportunities.
However, the efficiency brings about a chance, as Bank of America’s analyst Jessica Reif Ehrlich pointed out not long after the separation was made public.
By splitting Streaming & Studios into an independent public company free from heavy debt obligations, there’s likely to be a lot of interest from both private and public investors in these lucrative resources. Similarly, operating as a standalone entity, Global Networks could explore various opportunities such as asset sales or serving as a consolidation platform for similar assets, potentially at favorable prices. This could lead to numerous cost savings (in areas like corporate overhead, advertising sales, etc.) and extend the period during which these assets generate free cash flow to help manage debt over the coming years.
One business that is likely to captivate investors, and another that will find cost savings to manage its debt, with any potential deal still on the horizon. “We see the separation of Networks and Streaming & Studios as merely the initial move to generate value, but a subsequent step might call for patience,” Supino notes.
Two companies known as SpinCos hold a prophecy about the future. The initial figure who suggested separating their traditional channels was Bob Iger, Disney’s CEO, soon after returning to the company in 2022. However, Disney decided against this move. One can’t help but ponder if they might reconsider given what competitors are attempting. As Paramount Global awaits the completion of the Skydance deal, similar doubts are bound to surface.
For the past three decades, cable television revenue has dominated the entertainment industry; however, it appears that this era is nearing its conclusion. The gatekeepers have been replaced by financiers, and these financiers are now selling off television networks to predators.
For 30 years, cable TV was a big part of the entertainment business, but it seems like this time is ending soon. People who decided what was popular were replaced by people who only care about numbers, and these number-obsessed people are now selling off TV channels to companies that might take advantage of them.
In simpler terms, as Barry Diller explained to THR in May, we’ve transitioned from a community-driven town to a data-focused spreadsheet. Those responsible for managing these spreadsheets are now in control, and they believe that dismantling the businesses they helped create is the key to achieving success.
You can find this story in the June 11 edition of The Hollywood Reporter magazine. If you’d like to receive future editions, consider subscribing by clicking here.
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2025-06-11 15:25