A Warner Bros. Discovery Split Is a Matter of Time
**A Warner Bros. Discovery Split Is a Matter of Time**
Warner Bros. Discovery's studio in Burbank, Calif. Photo via Getty
By Martin Peers
Feb 27, 2025, 5:00pm PST
If you're watching the latest season of the HBO drama "The White Lotus," you'll know that the aging cable channel (represented on streaming through Max) can still capture the zeitgeist. That's not so true of HBO's owner, Warner Bros. Discovery, whose fourth-quarter results on Thursday—showing revenue fell 2% for the quarter and 5% for the year—demonstrated the sorry state of the traditional TV business that makes up much of WBD.
The company's streaming operations are doing fine, expanding its subscriber base 20% in 2024, mostly overseas where Max is moving into new markets. But as the slowly shrinking cable channels account for half of WBD's revenue, streaming's growth can only do so much. Things would be much easier if WBD spun off the cable channels, as Comcast's NBCUniversal is already doing. WBD's streaming business is profitable, and a new company composed just of streaming, HBO, and the Warner film studio should prosper—drawing a much better valuation than the company does now.
Consider that WBD's stock price has been bobbing around the $10 level for the past 17 months, giving the company an enterprise value now of just $61 billion. That's roughly one-seventh the value Netflix enjoys, even though the two companies had the same revenue last year. Netflix deserves a good premium, no question. Apart from anything else, it's much more profitable: Netflix generated free cash flow of $6.9 billion last year compared with WBD's $4.4 billion. But the valuation difference is mostly owing to the fact that half of WBD is steadily shrinking.
Recent signals from WBD suggest a spinoff of the cable channels may just be a matter of time. After the Financial Times reported last summer that management was contemplating such a step, executives didn't exactly shoot the idea down when asked about it later. WBD has introduced a new corporate structure that separates the cable channels from streaming and the studio, seeming to make a split-up along those lines more likely. On Thursday, CEO David Zaslav said the new structure would "enhance our strategic flexibility and also create potential opportunities to unlock additional shareholder value." That translates from corporate gibberish into plain English as: "Yes, we might dump these slowly dying channels the first chance we get."