Warner Bros. Discovery shares surged 7% on Tuesday after analysts at Bank of America Global Research suggested several strategies to enhance the company’s shareholder value. These suggestions included the sale of the company or its assets, a merger with a broadcast network, and a strategic spinoff.
Despite the success of Warner Bros. Discovery’s streaming platform, the company has been hindered by its underperforming linear TV assets, leading to a 70% drop in its stock since the 2022 merger that formed the company. Recently, the company initiated a new round of layoffs.
Wall Street analysts have a pessimistic outlook for the company’s near-term prospects. BofA analysts, led by Jessica Reif Ehrlich, stated, “it is becoming increasingly clear that the company, as it is currently constructed, is not working as a publicly traded entity, and transformative changes are likely required to unlock the considerable value embedded within these assets.”
The BofA report, titled “Is Unbundling the Answer?” explored all potential strategies for Warner Bros. Discovery. While selling the company was considered, analysts pointed out potential challenges, including a lack of interested buyers and possible regulatory hurdles.
Another proposed strategy involves selling some assets, such as CNN, valued at an estimated $6 billion, or Warner Bros. Games, valued at $5.6 billion.
Merging with a broadcast network, an asset type not currently in Warner Bros. Discovery’s portfolio, was also suggested. The acquisition of a broadcast network would expand the company’s audience reach, allow for higher advertising charges, and add premium sports programming like NFL games. Fox was mentioned as a potential merger candidate.
Combining broadcast, which caters to an older demographic, with streaming, which appeals to a younger audience, could significantly increase overall viewership.
Lastly, BofA suggested a strategic spinoff where Warner Bros. Discovery’s direct-to-consumer (streaming) and studio assets would be separated from its linear TV assets (cable channels). This would involve leaving most of the company’s debt with the linear TV segment. The linear TV business could then merge with other struggling linear assets within the media industry.