
Splitting Warner Bros. Discovery into two companies
has one financial wrinkle that may not be entirely visible to some: The linear TV network side will own a significant stake in the other, according to Bernstein Research.
The proposed WBD Global
Networks unit -- a live, linear cable TV networks group -- will own up to 20% of the WBD Streaming & Studios part of the company.
Bernstein Research calls this a “stroke of
genius” because 70% of the total adjusted cash flow -- earnings before interest, taxes, depreciation, and amortization (EBITDA) -- of all of Warner Bros. Discovery still comes from a declining
part of the company: Global Networks at a projected $6.1 billion compared to Streaming & Studios at $2.7 billion.
This is necessary, writes Lawrence Yoon, media analyst of Bernstein,
because without it, that “would make bondholders nervous.”
advertisement
advertisement
Warner Bros. still have a massive $38 billion in debt, hampering growth and its stock price. Having a piece of the rising
part of the business -- including expected growing streaming/studios revenues -- is key.
“The value of Global Networks’ stake in S&S is likely to be meaningful,” he says.
This would be “$7 billion to $10 billion, enough to reduce the current debt load by a full turn (and more for Global Networks)."
But overall challenges still remain for WBD, including on
the streaming side of the business in what he says are “subscale platforms.” This includes many of the legacy media-owned streamers -- including WBD’s owned HBO Max as well as
Peacock, Paramount+, Apple TV+ and others.
“Bundling offers a near-term solution, but the streaming ecosystem, too, will look different in a few years. HBO Max, backed by its studios,
could be the catalyst for the next major event in the industry.”