Warner Bros. Discovery’s Strategic Split: A Bold Move for Shareholder Value

Warner Bros. Discovery (WBD) is on the brink of a transformative corporate split, reorganizing into two distinct entities by mid-2025: Global Linear Networks (GLN) and Streaming & Studios (S&S). This move, announced in December 2024, aims to unlock shareholder value by addressing the divergent trajectories of its legacy linear TV business and its high-growth streaming and film studios. The split reflects a strategic pivot to prioritize operational clarity and capital allocation, while confronting industry headwinds such as cord-cutting and content competition.

The Structure of the Split

The GLN division will focus on maximizing profitability from traditional networks like CNN, TNT, TBS, and Discovery Channel. These assets generate stable cash flows but face declining viewership and ad revenue. The S&S division, meanwhile, will consolidate HBO Max, Warner Bros. Studios, DC Comics, and other intellectual property (IP) engines, aiming to capitalize on streaming growth and high-margin content production.

CEO David Zaslav emphasized that the split creates “strategic optionality”, allowing each division to pursue tailored growth paths. For GLN, this means deleveraging debt and optimizing ad sales; for S&S, it means scaling streaming subscribers and monetizing IP franchises like Harry Potter and The Batman.

Financial Implications and Market Reaction

The stock price surged 15.4% on the announcement, reaching $9.20—a stark contrast to its 2022 post-merger lows. Analysts at Benchmark upgraded the stock to “Buy” with a $18 price target, citing the split’s potential to unlock undervalued assets. However, Q1 2025 results revealed mixed performance:

• Streaming Growth: Added 5.3 million global subscribers, totaling 122.3 million (up 8% year-over-year).
• Revenue: Total revenue fell 7% to $4.8 billion for GLN, while S&S revenue dipped 18% to $2.3 billion (due to a lighter film slate).
• EBITDA: GLN’s adjusted EBITDA dropped 15% to $1.8 billion, while S&S reported a $259 million EBITDA gain driven by cost discipline in TV production and games.

The split’s immediate benefit is financial transparency: investors can now value GLN’s cash flows separately from S&S’s growth potential. This could narrow WBD’s price-to-book ratio of 0.62, suggesting undervaluation.

Risks and Challenges

While the split is strategically sound, execution risks loom large:

1. Linear TV Decline: GLN’s reliance on ad revenue—down 11% domestically—exposes it to economic volatility.
2. Streaming Competition: Netflix and Disney+ dominate the market, while WBD’s MAX platform faces challenges in monetizing global subscribers.
3. Content Costs: S&S’s film and studio division must balance IP-driven hits (e.g., The Last of Us) with costly production budgets.

Strategic Opportunities

The split also opens avenues for value creation beyond the balance sheet:

• Spin-off or Sale of GLN: Analysts speculate that GLN could be spun off or sold, freeing capital for S&S’s growth.
• Global Expansion: WBD aims to reach 150 million subscribers by 2026, leveraging localized content (e.g., Eastern Gate in Asia) and sports rights.
• Cost Efficiency: The company has reduced corporate expenses by $200 million annually, a trend likely to continue post-split.

Conclusion: A Necessary Evolution, but Execution Will Determine Success

Warner Bros. Discovery’s split is a bold response to an industry in flux. By separating legacy linear TV from streaming/studios, WBD addresses two core truths: linear networks are a cash cow in decline, while streaming is a growth engine with undervalued potential.

The data supports cautious optimism:
- Streaming EBITDA Target: $1.3 billion by 2025 (up 85% from 2024), achievable if subscriber growth and ad revenue continue.
- Global Reach: MAX’s expansion into 45+ markets by 2026 could drive incremental subscriber gains.
- IP Portfolio: The $40 billion valuation of DC Studios alone underscores the value of its content library.

However, risks remain. A macroeconomic downturn could hurt ad revenue, while content competition may cap streaming margins. Investors should monitor S&S’s EBITDA trajectory and GLN’s deleveraging progress.

In the end, the split is less about division and more about focus. If WBD executes its strategy—prioritizing quality storytelling, global expansion, and cost discipline—the move could deliver the 20% upside to the $18 price target, unlocking the value that has long eluded its stock. For now, the split is a necessary step, but the proof will lie in the performance of its two new entities.