Following a bondholder-approved $18 billion debt restructuring, Warner Bros. Discovery moves toward a corporate split, signaling a major shift in media consolidation strategy.
BURBANK - The era of the monolithic media conglomerate appears to be fracturing. Warner Bros. Discovery (WBD), the giant forged from the 2022 merger of Discovery Inc. and AT&T's WarnerMedia, has initiated a definitive pivot to unwind its massive corporate structure. Following approval from bondholders to restructure and repurchase nearly $18 billion in debt, the company is moving forward with a strategic split designed to separate its volatile linear television assets from its high-growth streaming and studio businesses.
This move marks the culmination of a grueling three-year effort to manage the staggering leverage inherited during the company's formation. Despite posting a net profit of $1.6 billion in the second quarter of 2025-the first since the merger-WBD's leadership has concluded that the sum of its parts is currently valued at less than the whole by Wall Street. The decision to split signals a broader industry retrenchment, prioritizing financial flexibility over sheer scale.
According to reports from Nasdaq, the greenlight from bondholders to repurchase debt is a critical precursor to this separation. By reducing leverage, WBD aims to create two viable standalone entities, potentially unlocking shareholder value that has remained trapped under the weight of interest payments and declining cable revenues.
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To understand the necessity of the current split, one must examine the financial architecture of the 2022 merger. When the deal closed in April 2022, AT&T received $42.4 billion, and the new Warner Bros. Discovery was saddled with a gross debt load of approximately $53 billion. Los Angeles Times reporting from the time highlighted that much of this debt was legacy baggage from AT&T's earlier acquisition of Time Warner.
The intervening years have been defined by aggressive cost-cutting and debt repayment:
• October 2022: The company disclosed up to $4.3 billion in restructuring charges, including over $1.3 billion in content write-offs, as it scrapped projects to save cash.
• End of 2024: Diligent repayment efforts brought net debt down to $34.6 billion, according to company filings.
• Q1 2025: Gross debt stood at $38 billion, with a net leverage ratio of 3.8x adjusted EBITDA.
• Q2 2025: The company finally turned a corner, posting its first post-merger net profit of $1.6 billion.
The market's reaction to WBD's austerity measures has been mixed. While the debt reduction has been praised by credit agencies, equity investors have been less forgiving. Analysis from Substack financial observers noted that despite the Q2 2025 profit, WBD stock fell 7% immediately following the release, leading some to question if the stock remains a "value trap."
"Repurchasing nearly $18 billion of debt significantly reduces the company's leverage... and enhances long-term financial flexibility for both new entities." - Nasdaq Reports
Forbes analysts suggest the split is the only remaining lever to pull. By separating the declining linear TV assets (which generate cash but drag down valuation multiples) from the streaming and studio business (which commands higher multiples but consumes cash), the company hopes to cater to different classes of investors.
The WBD split represents a significant reversal in media strategy. For a decade, the prevailing wisdom was that bigger was better-necessary to compete with tech giants like Netflix and Amazon. However, the operational reality of managing $50 billion in debt in a high-interest-rate environment has proven that scale without a pristine balance sheet is a liability. This could trigger similar de-mergers across the sector, as other conglomerates reassess their portfolios.
The restructuring has already had tangible cultural impacts. The $1.3 billion to $1.6 billion in content write-offs taken in late 2022 signaled the end of the "peak TV" spending spree. Projects were cancelled not because they lacked artistic merit, but because they offered poor tax efficiency or debt-service value. As the company splits, consumers might see a clearer distinction between "premium" streaming offerings and ad-supported linear content, potentially leading to more fragmented subscription models.
Looking ahead to the remainder of 2025, the execution of this split will be complex. Regulators will scrutinize the deal structure, particularly regarding the allocation of the remaining debt load. Firm Returns analysis from earlier in the merger cycle warned that interest expenses were a major drag on profitability; ensuring the new entities are not set up for failure will be paramount.
With the bondholder hurdle cleared, the path is open. The industry is watching closely: if WBD succeeds in unlocking value by getting smaller, it may well prove that in the modern media landscape, agility is more valuable than size.
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