Warner Bros. Discovery's Debt Divide: How the Split Could Unlock Value

Warner Bros. Discovery's (WBD) decision to split into two publicly traded companies—Global Networks and Streaming & Studios—marks a bold restructuring aimed at addressing its $38 billion debt burden while positioning each division to capitalize on distinct growth opportunities. The strategic separation, announced in June 2025, hinges on optimizing capital structure, rationalizing debt allocation, and streamlining operations. For investors, this move could unlock significant value—if executed effectively.

text2imgA split-screen graphic showing CNN's newsroom (Global Networks) and HBO Max's streaming interface (Streaming & Studios), symbolizing the division's dual focus./text2img

The Debt Divide: Who Gets What?

The separation's success depends on how WBD allocates its debt between the two entities. Global Networks, tasked with managing legacy linear TV assets (CNN, TNT, HGTV), will inherit the bulk of WBD's $38 billion debt. CFO-turned-CEO Gunnar Wiedenfels has stated the division will prioritize deleveraging through cost discipline, asset sales, and free cash flow generation. Key strategies include:
- Layoffs and cost cuts: Reducing operational bloat in declining linear TV businesses.
- Asset rationalization: Shedding underperforming networks (e.g., Discovery's lifestyle channels).
- Sports rights renegotiations: Securing cheaper terms for TNT Sports and other live content.

visualWarner Bros. Discovery's debt-to-EBITDA ratio compared to Comcast and Discovery prior to the split./visual

Streaming & Studios, led by CEO David Zaslav, will retain a smaller portion of the debt but gain autonomy to invest in growth. The division's focus on HBO Max's expansion, hit-driven content (e.g., The White Lotus), and international markets requires capital. However, its higher revenue growth (8% in Q1 2025) and 122 million subscribers provide a stronger cash flow runway than its linear counterpart.

Why the Split Makes Strategic Sense

1. Debt Alignment with Cash Flows:
   Global Networks' debt-heavy structure is matched with its stable, if declining, linear TV revenue. By focusing on margin expansion and free cash flow, it can chip away at liabilities. Meanwhile, Streaming & Studios' lighter debt load allows it to prioritize growth over immediate profit.

2. Tax Efficiency:
   The tax-free spinoff avoids capital gains for shareholders, a stark contrast to Comcast's recent spinoff of NBCUniversal's linear assets, which triggered taxable gains. This incentivizes long-term investment in both entities.

3. Competitor Benchmarking:
   The split mirrors moves by Lionsgate (Starz spinoff) and Comcast (Versant), reflecting a sector-wide shift to bifurcate linear and streaming operations. This reduces internal conflicts over capital allocation and allows each division to attract sector-specific investors:

4. Value investors: Drawn to Global Networks' predictable cash flows and dividend potential.
5. Growth investors: Lured by Streaming & Studios' content IP (DC Comics, Stranger Things) and HBO Max's global reach.

Risks and Challenges

• Debt Execution: Global Networks must prove it can deleverage without stifling cash flows. A 20% retained stake in Streaming & Studios, to be monetized tax-efficiently, is a key variable.
• Regulatory Scrutiny: The IRS's new post-2025 rules on debt reallocation (e.g., 30-day holding periods for refinanced debt) add compliance complexity.
• Streaming Competition: Streaming & Studios faces pressure to hit its $1.3 billion EBITDA target amid rising subscriber acquisition costs and Netflix's dominance.

Investment Implications

The separation could unlock a valuation premium by clarifying WBD's mixed portfolio. Analysts estimate a 20–30% upside for WBD shares post-split, with AT&T's 25% stake potentially tripling in value. Key catalysts to watch:
- Q2 2025 Results: Streaming & Studios' progress toward EBITDA targets will validate its growth thesis.
- Debt Refinancing: The $17.5 billion bridge facility's terms and Global Networks' ability to reduce leverage.

visualWarner Bros. Discovery's stock price performance pre- and post-announcement./visual

Bottom Line

Warner Bros. Discovery's separation is a strategic masterstroke that aligns capital structure with market realities. While risks remain, the division of debt and focus into two distinct entities—each with clear mandates—creates a compelling investment case. For investors, this is a buy-and-hold opportunity with a 12–18 month horizon. Success hinges on execution: Global Networks must deleverage without choking growth, and Streaming & Studios must prove its streaming model can rival Netflix's scale.

Final Take: WBD's split is a bold, necessary step to untangle legacy liabilities and unlock value. Investors who bet on disciplined debt management and sector-specific growth could see significant rewards—if the divisions deliver.