Warner Bros Discovery's Split Strategy: A Gamble or a Necessity?

Warner Bros Discovery (WBD) is at a crossroads. The media giant, formed from the 2022 merger of WarnerMedia and Discovery, faces mounting pressure to restructure its business to address declining linear TV revenues and capitalize on its streaming and studio divisions. Recent reports suggest the company may soon split into two separate entities: one focused on traditional cable networks (e.g., CNN, HGTV) and another on streaming platforms (HBO Max) and film studios (Warner Bros.). This decision, if executed, could redefine WBD’s financial trajectory—and present both opportunities and risks for investors.

The Case for a Split: Declining Linear TV vs. Streaming Growth

The rationale for splitting is clear. Linear TV networks, once cash cows, are struggling as viewers shift to streaming. In Q1 2025, WBD’s linear revenue fell 7% to $4.8 billion, with ad revenue plummeting due to cord-cutting trends. Meanwhile, its streaming division showed resilience: HBO Max added 5.3 million subscribers in Q1, reaching 122.3 million total users, while films like A Minecraft Movie (earning $900 million globally) and Sinners (approaching $250 million) provided a much-needed box office boost.

The split would allow WBD to isolate its declining linear business, potentially spinning it off or selling it to focus capital and attention on high-growth areas. This mirrors moves by peers like Comcast, which is spinning off NBCUniversal’s cable networks into a new entity, SpinCo, to streamline operations.

Financial Headwinds and Strategic Flexibility

WBD’s debt burden is a critical challenge. The company carries $38 billion in total debt, complicating any sale or spinoff. However, CEO David Zaslav argues that the reorganization—announced in December 2024 and formalized in Q1 2025—creates “strategic flexibility” to address these challenges.

The financial benefits could be significant. The linear division, though declining, still generates 85% of WBD’s profits through distribution fees. These cash flows could help deleverage debt, while the streaming/studio segment—boasting hits like The White Lotus and Dune: Part Two—could command a higher valuation. Analysts estimate the streaming division alone could be worth $20–$25 billion, excluding the linear business.

Risks and Uncertainties

The path to a split is fraught with obstacles:
1. Finding Buyers for Linear Networks: The cable TV sector is in long-term decline, and potential buyers like Paramount Global face regulatory hurdles.
2. Debt Allocation: How to fairly divide $38 billion in debt between the two entities remains unresolved.
3. Content Synergy Losses: Separating divisions could weaken synergies, such as leveraging HGTV’s library for HBO Max or leveraging studio hits for linear promotion.

Moreover, WBD’s stock performance has been volatile. While shares surged 15% in May 2025 on breakup speculation, they remained down 15% year-to-date due to concerns over Zaslav’s leadership and execution risks.

Analyst and Investor Sentiment

Analysts are divided. Bullish voices point to the strategic logic of focusing on streaming and premium content, where WBD holds a trove of IP (e.g., DC Comics, Harry Potter). Optimists also highlight the company’s recent hits, such as A Minecraft Movie, which could signal a rebound in studio performance.

Bearish arguments focus on WBD’s debt, inconsistent box office results (e.g., Mickey 17’s underperformance), and the difficulty of selling linear networks in a weak market. JPMorgan analyst Jessica Reif Ehrlich noted, “The split is necessary but execution will determine success.”

Conclusion: A High-Stakes Gamble, but One Worth Taking?

Warner Bros Discovery’s potential split is a bold move to adapt to industry shifts. By separating its declining linear TV business from its streaming and studio divisions, WBD could unlock shareholder value, reduce debt, and focus resources on growth areas. Key data points support this path:
- Streaming Revenue Growth: Up 8% in Q1 2025 to $2.7 billion, despite overall revenue declines.
- Subscriber Momentum: 122.3 million streaming users, with international markets driving growth.
- Content Pipeline: Upcoming films like The Batman 2 and Harry Potter 2 could drive box office returns.

However, risks are substantial. The company must navigate debt allocation, find buyers for linear assets, and prove its studio’s ability to deliver hits consistently. If executed well, the split could position WBD as a leaner, more agile competitor in streaming. If mishandled, it could exacerbate financial struggles and shareholder dissatisfaction.

For investors, the decision hinges on whether WBD can execute this transformation. With streaming’s growth trajectory and the industry’s shift toward digital-first content, the split may be necessary—even if the road ahead is uncertain.

In short, the split is both a gamble and a necessity. For now, the market’s reaction—brief surges on speculation—suggests investors are cautiously optimistic. The next steps will determine whether WBD can turn this strategic pivot into sustained success.