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Shares jump 13% after reorganizing announcement

Follows path taken by Comcast's brand-new spin-off company
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Challenges seen in offering debt-laden linear TV networks

(New throughout, includes details, background, remarks from industry insiders and analysts, updates share costs)

By Dawn Chmielewski, Deborah Mary Sophia and Aditya Soni

Dec 12 (Reuters) - Warner Bros Discovery on Thursday decided to separate its declining cable TV services such as CNN from streaming and studio operations such as Max, preparing for a potential sale or spinoff of its TV organization as more cable television customers cut the cable.

Shares of Warner jumped after the company stated the new structure would be more deal friendly and it expected to complete the split by the middle of 2025. Warner shares closed at $12.49, up more than 15%.

Media companies are thinking about choices for fading cable television services, a longtime cash cow where profits are wearing down as millions of customers accept streaming video.

Comcast last month unveiled strategies to split the majority of its NBCUniversal cable television networks into a new public company. The new business would be well capitalized and positioned to acquire other cable television networks if the industry consolidates, one source informed Reuters.

Bank of America research study analyst Jessica Reif Ehrlich wrote that Warner Bros Discovery's cable assets are a "extremely logical partner" for Comcast's new spin-off business.

"We strongly think there is potential for relatively large synergies if WBD's direct networks were integrated with Comcast SpinCo," wrote Ehrlich, the industry term for standard television.
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"Further, our company believe WBD's standalone streaming and studio assets would be an appealing takeover target."

Under the new structure for Warner Bros Discovery, the cable television TV service consisting of TNT, Animal Planet and CNN will be housed in a system called Global Linear Networks.

Streaming platforms Max and Discovery+ will be under a different department in addition to movie studios, consisting of Warner Bros Pictures and New Line Cinema.

The restructuring shows an inflection point for the media market, as financial investments in streaming services such as Warner Bros Discovery's Max are finally paying off.

"Streaming won as a behavior," said Jonathan Miller, chief executive of digital media investment firm Integrated Media. "Now, it's winning as an organization."

Brightcove CEO Marc DeBevoise said Warner Bros Discovery's brand-new corporate structure will separate growing studio and streaming properties from lucrative but shrinking cable business, giving a clearer investment image and likely setting the stage for a sale or spin-off of the cable television unit.

The media veteran and adviser forecasted Paramount and others might take a comparable path.

CEO David Zaslav, a veteran deal-maker who led Discovery through its acquisition of Scripps Networks Interactive before obtaining the even bigger target, AT&T's WarnerMedia, is positioning the business for its next chess relocation, composed MoffettNathanson expert Robert Fishman.

"The question is not whether more pieces will be moved around or knocked off the board, or if further combination will take place-- it is a matter of who is the buyer and who is the seller," composed Fishman.

Zaslav signified that circumstance during Warner Bros Discovery's investor call last month. He said he anticipated President-elect Donald Trump's administration would be friendlier to deal-making, unlocking to media market consolidation.

Zaslav had taken part in merger talks with Paramount late last year, though a deal never emerged, according to a regulatory filing last month.

Others injected a note of care, keeping in mind Warner Bros Discovery brings $40.4 billion in debt.

"The structure change would make it much easier for WBD to sell off its direct TV networks," eMarketer expert Ross Benes said, referring to the cable service. "However, finding a buyer will be difficult. The networks are in financial obligation and have no signs of development."

In August, Warner Bros Discovery jotted down the value of its TV assets by over $9 billion due to uncertainty around fees from cable television and satellite suppliers and sports betting rights renewals.
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Today, the media company announced a multi-year deal increasing the overall fees Comcast will pay to disperse Warner Bros Discovery's networks.

Warner Bros Discovery is sports betting the Comcast arrangement, together with an offer reached this year with cable and broadband provider Charter, will be a template for future negotiations with distributors. That might help support pricing for the domestic pay TV market. (Reporting by Deborah Sophia and Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles; Editing by Shilpi Majumdar, Arun Koyyur, Keith Weir and David Gregorio)
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