Warner Bros. Discovery to split into two public companies by next year

Warner Bros. Discovery plans to split into two public companies by next year, the media giant announced Monday, the latest upheaval in the industry as consumers transition from cable to streaming.

WBD will separate into a streaming and studios company, which will include its movie properties and streaming service HBO Max, and a global networks company, which will include CNN, TNT Sports and Discovery, among other businesses.

CEO David Zaslav will lead the streaming and studios company. Current CFO Gunnar Wiedenfels will become CEO of the global networks business.

Warner Bros. Discovery expects to complete the split by the middle of 2026.

“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,” Zaslav said in a release.

The news confirms earlier reporting by CNBC and others that WBD was considering such a split. In December, the company announced restructuring that many saw as a precursor to a full break.

Warner Bros. Discovery shares were up more than 2% in midday trading Monday.

Warner Bros. Discovery joins cable giant Comcast in separating out its traditional pay-TV networks from its broader media business.

Comcast‘s NBCUniversal is currently in the process of spinning out its portfolio of cable networks, including CNBC, into a new publicly traded company called Versant. NBCUniversal will continue to oversee streaming service Peacock, NBC’s broadcast network and the film business, among other assets.

WBD has the largest portfolio of cable TV networks, which was born from the 2022 merger between Warner Bros. and Discovery, which brought together channels like CNN, TBS and TNT with Discovery, TLC and HGTV.

The moves from both Warner Bros. Discovery and Comcast come as the industry has been contending with the loss of customers from the traditional pay-TV bundle in favor of streaming.

A key focus has been on building up streaming platforms and particularly reaching profitability.

Traditional pay-TV’s drag on the broader media business was showcased last year when WBD reported a $9.1 billion write-down on its TV networks business. The company said the move was triggered by a reevaluation of the book value of the TV networks segment.

Still, the traditional TV networks remain profitable and generate hefty amounts of cash. Live sports aired on traditional TV still bring in the biggest live audiences, making sports essential to the portfolio of most media companies.

Wiedenfels noted on a call with investors Monday that much of the free cash flow generated from the traditional TV business over the years has been used to build up the streaming platform.

But while the cash from the traditional business has propped up streaming, the content hasn’t translated for the Max platform, which is being renamed, again, to HBO Max. In May, when the company announced the name change, it also added that the streaming platform would focus more on quality over quantity.

During Monday’s call Zaslav said sports hadn’t been “a real driver” for the streaming platform.

On Monday’s call, WBD executives emphasized that each company would be “free and clear from a transaction perspective.” While the split is tax-free, executives would be willing to forgo that benefit to do the right deal, according to a person close to the matter who wasn’t authorized to speak about potential M&A publicly.

Zaslav has called for deregulation in a push for more consolidation in the media industry, which he has said is going through a period of “generational disruption.”

NBCUniversal’s separation of its cable networks is meant to give it further optionality to invest in its business and also merge with other networks, CNBC has previously reported. Versant CEO Mark Lazarus has told CNBC that the spun-out company aims to be acquisitive.

The current Warner Bros. Discovery is itself a product of consolidation. Warner Media and Discovery merged in 2022, bringing together Warner Media’s portfolio of HBO, TNT Sports and other TV networks, and the film business, with Discovery’s group of pay-TV networks.

Ever since, the company has been working to lighten the debt load stemming from that merger.

While the company has repaid $19 billion in debt, it still had just below $34 billion in net debt at the end of the first quarter, Wiedenfels said on Monday’s call.

Last month S&P Global Ratings cut WBD’s credit rating to junk status, citing the “continued revenue and cash flow declines” in the traditional TV business.

That debt load will be divided among the two separated companies once the split is complete, the company said.

“It’s safe to assume that the majority of the debt is going to live with global networks and a smaller portion, but not insignificant portion on streaming and studios as well,” said Wiedenfels.

Both companies are expected to have strong liquidity, particularly the global networks business, which is projected to generate significant free cash flow that will be used to further repay debt.

Disclosure: Comcast is the parent company of CNBC. Versant would be the parent company of CNBC under the proposed cable spinout.

— CNBC’s Jacob Pramuk and Sara Salinas contributed to this report.