Warner Bros. Discovery's Split Strategy: A Bold Gamble to Survive in Streaming's New Era

Warner Bros. Discovery (WBD) is on the brink of a corporate overhaul that could redefine its future in an entertainment industry increasingly dominated by streaming. According to a report by CNBC’s David Faber, the company is preparing to split into two entities: one focused on its struggling linear TV networks (CNN, TNT, TBS, Discovery Channel) and another housing its film studios and streaming platform, Max. The move, if executed, would mirror similar restructurings by rivals like Comcast and Paramount, but WBD’s path is clouded by staggering debt and the urgent need to adapt to a shifting landscape.

The Case for Splitting: Decline and Opportunity

The split’s logic is clear: linear TV networks are hemorrhaging revenue, while streaming and film studios—though not without challenges—represent the future. WBD’s first-quarter 2025 earnings highlighted this divide. Linear networks revenue fell 7%, driven by a 12% drop in ad sales and an 18% decline in film revenue. Meanwhile, streaming subscribers rose to 122.3 million, a positive sign for Max’s growth. Yet overall revenue dropped 10% to $8.9 billion, underscoring the strain of supporting both legacy and modern assets under one roof.

The separation would allow investors to value these segments separately. Linear networks, burdened by declining viewership and ad budgets, could be managed as a “cash cow” or spun off to focus on cost-cutting. The film-streaming division, by contrast, might attract higher valuations akin to rivals like Disney+ or Paramount+, where content libraries and subscriber growth are prized.

The Debt Ceiling: A Structural Hurdle

But the split’s success hinges on navigating WBD’s $35 billion–$38 billion debt mountain. With a leverage ratio of 3.8x, the company’s balance sheet is already stretched thin. Dividing debt between two entities could complicate financing: the linear division, with weaker cash flows, might struggle to service its share, while the streaming arm would need capital for content investments.

Analysts compare WBD’s situation to Comcast’s spin-off of NBCUniversal’s cable networks into Versant, which required careful debt allocation. For WBD, the challenge is greater due to its larger debt load and the Federal Reserve’s reluctance to cut interest rates, which keeps borrowing costs high.

A Race Against Time—and Competitors

WBD’s restructuring timeline, targeting mid-2025, is tight. The company has already segregated its financial reporting, a common precursor to splits. However, regulatory hurdles and operational reorganization could delay execution. Competitors are moving swiftly: Paramount’s merger with Skydance Media aims to create a leaner, content-driven entity, while Disney continues to dominate with its integrated ecosystem.

The market has reacted cautiously. WBD’s stock jumped 5% on the split news but remains down 15% year-to-date, reflecting skepticism about execution risks.

Conclusion: A Necessary, Risky Gamble

Warner Bros. Discovery’s split is a strategic necessity to address structural challenges in linear TV while capitalizing on streaming’s growth. The separation could unlock shareholder value by isolating underperforming legacy assets and empowering its streaming division. However, the execution must overcome two critical obstacles:

1. Debt Allocation: WBD’s $38 billion debt must be divided fairly. If the linear division inherits too much debt, it could become a drag; if the streaming arm takes on too much, its growth potential could be stifled.
2. Regulatory and Operational Complexity: Streamlining operations across two entities while managing regulatory approvals—especially in the U.S. and abroad—will test WBD’s management.

The stakes are high. If successful, the split could position WBD to compete with Disney and Paramount in the streaming era. But missteps could amplify its current struggles. With $122.3 million in streaming subscribers and a film library spanning decades, WBD has the assets to thrive—but only if it can decisively separate its past from its future.

In the end, this split isn’t just about division—it’s about survival.