Warner Bros. Discovery’s Split Strategy: A Necessary Restructuring Amid Industry Shifts

Warner Bros. Discovery (WBD) stands at a pivotal crossroads as it prepares to split into two distinct entities by mid-2025: one housing its struggling legacy cable networks, and the other focusing on its high-growth streaming and film studio businesses. This move, which Deutsche Bank argues could “more appropriately” value the company’s assets, reflects a broader industry-wide reckoning with the decline of linear TV and the rise of streaming. For investors, the split presents both opportunities and risks, requiring a granular analysis of WBD’s financial trajectory and strategic execution.

The Case for Separation

The rationale for the split is clear. WBD’s legacy cable division—home to CNN, TBS, and HGTV—saw revenue decline 7% to $4.8 billion in Q1 2025 amid falling affiliate fees and advertising revenue. In contrast, its streaming arm (HBO Max) added 5.3 million subscribers in the quarter, reaching 122.3 million globally, with revenue up 8% to $2.7 billion. This divergence underscores the need to separate operations, allowing each division to pursue distinct strategies.

Deutsche Bank’s analysis highlights the potential benefits: the merged entity of WarnerMedia and Discovery (finalized in 2021) had an initial enterprise value of $48 billion, with $2 billion in annual cost synergies projected by 2025. The bank estimates AT&T’s 25% stake in WBD could now be worth $12–15 billion, depending on execution. However, this valuation hinges on WBD’s ability to reduce its $38 billion debt, improve streaming margins, and capitalize on hits like The White Lotus and A Minecraft Movie (which grossed $875 million in Q2 2025).

Strategic Shifts and Financial Challenges

WBD’s leadership, under CEO David Zaslav, has prioritized cost discipline. The company cut $2.2 billion in debt in Q1 2025, reducing net leverage to 3.8x. It has also canceled underperforming projects—such as a Wonder Woman video game—and shuttered three interactive entertainment studios to focus on high-margin content.

Yet challenges loom. The Q1 net loss widened to $453 million, driven by weak theatrical performance (e.g., Mickey 17 underperforming with $132 million globally) and a 25% drop in content revenue. To counter this, WBD introduced an “Extra Member Add-On” for HBO Max, pricing shared accounts at $7.99/month—a strategy mirroring Netflix’s success in boosting average revenue per user (ARPU).

Competitive Landscape and Risks

WBD’s split mirrors moves by Comcast (spinning off its cable networks into Versant) and Paramount Global, signaling an industry-wide pivot away from legacy TV. However, execution risks remain. High interest rates and President Trump’s tariffs could complicate debt reduction, while subscriber retention battles with Netflix and Disney+ loom large.

Analysts like Bank of America’s Jessica Reif Ehrlich caution that WBD’s stock—down 15% year-to-date despite a 5% jump on split speculation—requires “streamlined operations and focus on profitable content.” The Q2 earnings report, due in August, will be critical in validating these trends.

Conclusion: A Risky But Necessary Gamble

Deutsche Bank’s valuation framework suggests WBD’s split could unlock significant shareholder value by separating its declining cable division from its growth-oriented streaming business. The $12–15 billion stake valuation for AT&T’s shares, if realized, would validate the strategic shift. However, success depends on WBD’s ability to:

1. Reduce debt: With $38 billion in liabilities, deleveraging is non-negotiable.
2. Boost streaming margins: HBO Max’s adjusted EBITDA rose to $339 million in Q1—a positive sign but still far from Netflix’s scale.
3. Execute on high-quality content: Films like The Pitt (a global hit) and Sinners ($250 million+ in revenue) demonstrate the studio’s potential.

Investors should remain cautious but watchful. The split, if managed well, could position WBD as a leaner, more focused competitor in a streaming-dominated era. Yet with a net loss in Q1 and lingering operational challenges, this remains a high-stakes gamble. As Deutsche Bank’s analysis implies, the restructuring may “more appropriately” value WBD—but only if the execution matches the ambition.

Final verdict: Hold for now, but monitor Q2 results and regulatory approvals closely.