David Zaslav just threw in the towel on his WBD experiment — and Wall Street is thrilled

Business Insider

2 days ago

Warner Bros. Discovery — the brainchild of media mogul David Zaslav — is splitting up.
Wall Street had long questioned the wisdom of WBD, and Zaslav now seems to agree.
While this spinoff was predictable, it sparks questions for other media companies.
Warner Bros. Discovery on Monday announced plans to split its declining TV networks from its growing streaming and studios business. This spinoff proposal comes three years after WBD's inception.
WBD CEO David Zaslav will oversee the sexier streaming part, while CFO Gunnar Wiedenfels — known for delivering "synergies" — will be in charge of the shrinking networks. WBD isn't alone, as Comcast is also splitting from most of its cable assets.
By largely undoing the merger, Zaslav is acknowledging something Wall Street has been saying for a while: WBD's assets are better off apart.
WBD shares were up as much as 13% in early trading.
"The decision to separate Warner Bros. Discovery reflects our belief that each company can now go further and faster apart than they can together," Zaslav said on a call with investors about the spinoff.
When asked for comment, a WBD spokesperson referred Business Insider to comments made by executives on the investor call.
Better late than never
Many media analysts were initially excited when Zaslav orchestrated the deal to form WBD. But they soon soured on the media conglomerate as cord-cutting accelerated and WBD's streamer — Max/HBO Max — missed lofty expectations and failed to truly challenge the likes of Netflix.
Zaslav and company took note. WBD executives telegraphed this spinoff by reorganizing the business late last year, separating the TV networks from its studios and streaming businesses.
Wall Street was pleased by this potential split, which was the key catalyst for WBD's stock's 16% rally in the past month, UBS media analyst John Hodulik told BI last week.
Others agreed.
"Investor excitement for a Warner Bros. Discovery spin-off of its Global Linear Networks is building by the day," Lightshed analysts led by Rich Greenfield wrote last week.
Bank of America's Jessica Reif Ehrlich wrote in an early-June note that a "spin of studios and streaming could be the best way to unlock the significant unrecognized value of the company."
So far, it seems like she's right.
A sign of the times?
WBD's announcement will likely spark more speculation about future reordering of the media and entertainment landscape.
It's long been the expectation among industry insiders that WBD's spun-off linear networks would combine with others, potentially Versant, the linear assets that Comcast is spinning off. Other ideas that have been floated in media circles are a combination with Paramount — assuming its Skydance deal ever gets approved — or with Fox's linear assets.
Reordering is also afoot across the advertising industry. Two giant holding companies, Omnicom Group and Interpublic Group, are in the process of combining. Their peer WPP is replacing its CEO, Mark Read.
One wild card in the mix with WBD is CNN, with President Donald Trump's general hostility to deals involving media companies.
Longtime ad industry analyst Brian Wieser remarked that the news network could be an asset and a liability, given its history and future ability to attract the ire of Trump, who has been aggressive in targeting the mainstream media.
Wieser wrote on Monday that CNN would "probably benefit" from being separated from all of WBD's other assets as it's "the one part of WBD that could tie up other parts of this transaction so long as any government approvals are required to facilitate its completion."
Another question is the fate of WBD's studio business, which has been dragged down. On a call Monday announcing the separation, Zaslav emphasized that the movie business was harder to project than TV. But he said that by leaning into well-known IP, he saw WBD's studios arm becoming a $3 billion business.
The separation also could put WBD's studios business in play, Bernstein's Lauren Yoon said.
The companies that could ingest such a business include Amazon, Disney, Netflix, and Comcast. However, most of the tech companies haven't historically been big acquirers, and the timing isn't ideal.
"No tech companies want to give the government any reason to be in their business," said Jonathan Miller, chief executive of Integrated Media, which specializes in digital media investments.
Also, expect Bob Iger to field new questions about what's ahead for Disney's linear and cable networks. He once floated the idea of selling them, though he then retreated from the idea.
Disney's line at the time was that it wouldn't get the price it wanted if it sold those properties and that it'd be too complex to separate them from the rest of the company. Iger and Trump have also sparred in the past, and Disney could look to avoid deals that need government approval.