Assessing Warner Bros Discovery's Strategic Restructuring: Layoffs, Splits, and the Road to Recovery

The media and entertainment industry has long been a battlefield of innovation and reinvention. In an era where streaming dominance, global competition, and shifting consumer habits collide, conglomerates like Warner Bros Discovery (WBD) are under immense pressure to adapt or risk obsolescence. WBD's recent 10% layoffs in its motion picture group, coupled with its planned split into two publicly traded entities, represent a high-stakes gamble to reposition itself for long-term survival. But does this strategy hold the key to unlocking value, or is it a desperate attempt to stave off decline?

The Anatomy of a Restructuring

WBD's decision to cut 10% of its film group workforce—spanning marketing, production, and distribution—is not a random move. It is part of a broader restructuring plan to transition from a U.S.-centric model to a fully global business. This shift aims to align with the company's planned split into Warner Bros (Streaming & Studios) and Discovery Global (Global Networks) by mid-2026. The film group layoffs, initiated in early 2025, are designed to reduce overhead costs while enabling the new Warner Bros entity to focus on high-impact, globally scalable content.

The timing is critical. The film division has faced a rocky year, with box office disappointments like Joker: Folie A Deux and Furiosa dragging down revenue. Yet, recent releases like A Minecraft Movie and Superman have injected much-needed momentum, with the latter grossing over $500 million globally. This rebound underscores the value of WBD's iconic IP and its ability to deliver franchise-driven hits—a crucial asset in the streaming era.

The Split: A Strategic Reboot

The split into two entities is a bold move to address the "conglomerate discount," a phenomenon where diversified companies trade at a lower valuation due to perceived complexity. By separating the high-growth streaming and content creation operations from the stable but declining linear TV and global networks, WBD aims to unlock hidden value.

• Warner Bros (Streaming & Studios) will own HBO Max, DC Studios, and the film group. With a target of 150 million HBO Max subscribers by 2026, this entity is positioned to compete directly with Netflix and Disney+. Its focus on global expansion and franchise-driven content (e.g., Superman, Harry Potter, The Matrix) could drive subscriber growth and EBITDA margins.
• Discovery Global (Global Networks) will inherit CNN, TNT Sports, and international TV assets. This entity will prioritize monetizing live content and digital platforms like Discovery+, while navigating the decline of linear TV.

The split also allows for tailored capital allocation. Warner Bros will carry a leaner debt profile, enabling reinvestment in content, while Discovery Global will focus on deleveraging. WBD's $17.5 billion bridge loan from J.P. Morgan signals confidence in the transition, though refinancing risks remain.

Financial Realities and Cost Optimization

WBD's 2024-2025 cost-cutting measures have yielded $1.8 billion in savings, driven by layoffs and operational streamlining. These savings are critical given the company's $34.19 billion net debt and $11.31 billion net loss in 2024. While the film group layoffs are painful, they align with a broader industry trend of reducing fixed costs in response to declining linear TV revenue and the high cost of streaming content.

The financial benefits are already materializing. In Q2 2025, HBO Max's EBITDA surged 295% to $339 million, demonstrating the potential for margin expansion. If this trend continues, the streaming division could reach $1.3 billion in EBITDA by year-end 2025—a significant improvement from 2024.

Box Office Rebound: A Glimmer of Hope

The recent box office success of Superman and A Minecraft Movie has been a lifeline for WBD's film division. These hits not only boosted revenue but also validated the company's strategy of leveraging iconic IP to reengage audiences. However, the division's reliance on blockbuster performance remains a double-edged sword. Flops like Mickey 17 highlight the risks of over-investing in high-stakes projects.

The key for WBD is to balance blockbuster spending with profitability. Unlike the past, where theatrical performance was the primary metric, the modern media landscape demands integration across streaming, home video, and ancillary revenue streams. The success of Superman on HBO Max, for instance, could drive cross-platform engagement and subscriber retention.

Investment Implications: Buy, Wait, or Avoid?

The strategic split and cost optimization efforts present a compelling case for long-term investors. However, several risks must be weighed:
1. Execution Risk: The split's success hinges on seamless integration and operational independence. Delays or mismanagement could erode value.
2. Debt Load: WBD's net debt-to-EBITDA ratio remains elevated at 18.13x. While deleveraging progress has been made, further refinancing and EBITDA growth are critical.
3. Streaming Competition: HBO Max faces stiff competition from Netflix, Disney+, and Apple TV+. Retaining subscribers in a saturated market will require consistent content innovation.

For now, the stock appears undervalued relative to peers. WBD trades at a forward EV/EBITDA of 7.2x, significantly below Netflix's 12.5x and Disney's 10.8x. If the split reduces the conglomerate discount and the streaming division achieves its 150 million subscriber target, the stock could see a 30–50% upside.

Final Thoughts

Warner Bros Discovery's restructuring is a high-stakes chess move. The 10% film group layoffs and planned split reflect a commitment to adapt to the streaming era, while the box office rebound demonstrates the company's enduring brand power. For investors, the path forward is clear: monitor the execution of the split, the streaming division's subscriber growth, and the film group's ability to deliver consistent hits.

If WBD can navigate these challenges, it may emerge not just as a survivor, but as a formidable player in the next era of global media. For now, a cautious "buy" makes sense for long-term investors willing to bet on the company's transformation—and its iconic IP.