Disney doubles down on unified offering amid Warner Bros Discovery split
Analysis
Disney CEO Bob Iger has made it clear that his company has no intention of spinning off its linear network assets from the studios and streaming side of the business, despite plans at Warner Bros Discovery and Comcast’s NBCUniversal to follow this path.
Speaking to CNBC Television last week, Iger acknowledged that two years ago Disney had considered divesting its cable networks but chose not to: “We decided the best course of action was to integrate them seamlessly with our streaming business because that enables us to aggregate subscriber fees and advertising revenues.”
Iger explained the value of having Disney Channel and National Geographic feeding programming into Disney+, while FX and ABC (the broadcast network) feed their programming into Hulu, another Disney-owned streamer. He said Disney would become more competitive because of the proposed WBD and NBCUniversal spin-offs.
“As others exit that business [linear cable networks], it gives us a stronger hand. We like the fact that we are one of the few doing this [pairing networks with a global streaming service], because it makes us more competitive in a market that is becoming more fragmented.”
He added: “There are still enough linear TV subscribers to generate significant revenue in advertising and subscription fees. We programme them seamlessly and manage them in one organisation, so have great economies of scale. We also aggregate audiences for marketing purposes.”
Disney did put the spin-off option on the table two years ago, but Iger told CNBC: “We have determined that having both [streaming/studios plus networks] is a winning combination for us. It is one of the things that enabled us to turn the streaming business around from a huge loss to profitability.
“Over the next few years, this [combination] will enable us to grow margins significantly on the streaming side because we have the ability to amortise programme costs and aggregate audiences and revenue.”
Bucking the SpinCo trend
Disney is bucking the trend, however, with Comcast ready to set its “SpinCo” — called Versant — free from the rest of NBCUniversal in the autumn.
WBD last week announced the creation of two new public companies: Streaming & Studios and Global Networks, with completion expected (subject to final board approval and other closing conditions) in mid-2026.
The Streaming & Studios company will consist of Warner Bros Television, Warner Bros Motion Picture Group, DC Studios, HBO (whose hits include The White Lotus) and HBO Max, plus the film and TV libraries from these companies.
Global Networks includes Discovery, CNN, TNT Sports in the US and some free-to-air channels across Europe. This new business will also include the Discovery+ streaming service and other digital products like Bleacher Report.
The reorganisation follows a similar pattern to that proposed by Comcast, where Versant will contain the cable TV networks USA Network, CNBC, MSNBC, Oxygen, E!, SyFy and Golf Channel. This company also gains complementary digital assets (including GolfNow, Sports Engine, Fandango and Rotten Tomatoes).
NBCUniversal’s broadcast, streaming and studios assets (plus theme parks) stays with Comcast (ie. NBC, NBC News, NBC Sports, Bravo, Telemundo and Peacock).
Guy Bisson, executive director at Ampere Analysis, noted that the rationale behind these separate spin-offs is the same: “The future is streaming and the best structure for a streaming entity contains production and distribution businesses that focus on streaming.
“That is why the studio and streaming assets are being placed into one unit, with the linear and traditional businesses — with their declining assets — going into the other. That leaves you with a clean slate for the growth businesses.”
Bisson said this model leaves the option to sell what he calls the challenged business (the linear networks side), while it also creates the possibility for the studio/streaming business to combine with another studio-streamer business through M&A.
But there is still life in the networks-focused business units, he suggested: “If linear was dead or completely doomed, you could not split it off, but these [networks] businesses are in decline.
“However, they generate lots of cash. They are good cashflow businesses that are in decline, but that is interesting and valuable to some investors who can sweat the assets and leverage the cash flow. Investors will still see value in that asset.
“Linear is still a big business, so it is not going to disappear tomorrow or in five years’ time. These is still a decent amount of time to make lots of cash.”
Bisson believes we could still see another global media company follow the path of WBD and Comcast with a streaming/studios vs linear networks split, even if it is not Disney. (Paramount has the same kind of asset profile as the other global streamers.)
Classic growth/ex-growth split
Ian Whittaker, the analyst covering media and technology, said the WBD deal “looks like a classic ‘growth/ex-growth’ split of assets that you see across industries”.
Streaming & Studios is the glamorous growth part, while Global Networks is the more profitable but ex-growth part, he added.
“In the Global Networks part, I would expect to see a sell-down of at least some of the assets. I doubt there would be a full sell-off because combining networks is difficult in the US. However, there are clear franchises, like CNN and Cartoon Networks, that could be disposed to pay down debt.”
Whittaker also sees the possibility of M&A among major streaming services. “It looks like one of the clear aims is to encourage consolidation in the streaming market — or at least to dangle the option out there.
“By deconsolidating the streaming platform from networks, it reduces the regulatory risk. By adding studios to streaming, a potential buyer would also gain access to the content library.”
Whittaker believes the WBD split is primarily financially driven to please shareholders, noting high debt and the pressures on US linear TV among its challenges. “Management will hope that the prospect of M&A will help maintain the share price,” he suggested.
Both WBD and Comcast have highlighted the need for restructuring to enable growth for all parts of their current television/film assets. When outlining Versant last autumn, Comcast president Mike Cavanagh said the transaction positions Versant and NBCUniversal to play offence in a changing media landscape.
Comcast noted that Versant would have an independent strategy and establish itself as a potential partner and a potential acquirer for complementary media businesses.
On an investor call last week, David Zaslav, president and CEO of WBD (who will become president and CEO of Streaming & Studios) and Gunnar Wiedenfels, chief financial officer of WBD (who will become president and CEO of Global Networks) said the split would enable the existing assets to maximise their potential.
Zaslav added: “This gives us a lot more strategic flexibility, which is important. This reflects our belief that each company can go further and faster apart than they can together.”
A press statement said the split will invigorate each of the new companies, allowing them to be more aggressive in pursuing opportunities that strengthen their competitive positions. It added that they would attract a shareholder base aligned with their growth prospects and financial profiles, and allow each company to pursue investment opportunities and drive shareholder value.
Zaslav believes the current market valuation for WBD does not reflect its potential: “There are likely to be different investors who have different growth metrics and trajectories.”
Wiedenfels said the desire to consume network content from the likes of TNT Sport, CNN and Food Network would not change. “I have full confidence we will see a very successful networks business for many years to come,” he declared.
Can networks businesses grow organically?
What could an organic growth strategy look like for the US cable networks at WBD’s Global Networks or Comcast’s Versant, once they are spun out? Bisson thinks US network digital strategies have lagged European broadcasters, so today they do not offer the kind of digital aggregation you get from a service like ITVX.
That is because they needed to protect their pay-TV carriage fees and their relationship with pay-TV operators, and so had to be careful about undermining those revenues with a direct-to-consumer (D2C) alternative. “They have shied away from doing all they could in streaming, so there is an opportunity to do better,” Bisson observed.
“It would be a balancing act to maintain the cable [carriage] relationship and leverage the advertising opportunity [through D2C] at a time when the advertising market is more competitive than it has ever been, not only because of the presence of Netflix and Amazon, but because of social media and creator content.”
Bisson reckoned any direct-to-consumer expansion by the linear networks would need to rely on subscriptions, if this approach were used to organically grow the spin-off network businesses (rather than rely on M&A to grow them).
A more D2C approach could become viable if carriage deals declined significantly, but even then this would be a long-term development, possibly involving a bundle of the network brands.
“If you did open that door to potentially going it alone [with D2C subscription streaming services that cut out the cable operators], then scale would make sense,” he adds. “That might then mean M&A to gather more network brands together.”
Bisson is not sure whether any digital strategy from the newly spun out networks-focused businesses could have a dramatic effect on their standing anyway. “It could stabilise these businesses, but I am not sure whether it would reverse their gradual decline,” he said.
On WBD’s investor call, Zaslav and Wiedenfels defended the decision to combine WarnerMedia and Discovery three years ago — with WarnerMedia being spun out of AT&T to enable that deal (most of the assets that will make up Streaming & Studios came from Warner Media).
They said WBD has used linear cashflow to help fund the global expansion of HBO Max, yielded $5bn in non-content efficiencies, paid down $20bn in debt and “fixed the creative side of the business” by bringing many creative staff back to the company and keeping them.
Next stage of transformation
“Three years later, it is time again to make a bold call for the next stage of the transformation, Zaslav said.
The April 2022 combination of Discovery and WarnerMedia was notable at the time for how a broadband telco giant (AT&T) had divested its major content assets — and Comcast’s introduction of Versant means another broadband giant is giving up some of its content portfolio. This should be no surprise, according to Bisson.
“That [business model] where a regional infrastructure operator and distribution platform owns media does not make sense any more,” he concluded. “The preferred model now is for global distribution plus content. All the growth is coming from global distribution and not legacy regional distribution.”