HBO and CNN to Split

In this podcast, Motley Fool Chief Investment Officer Andy Cross and contributor Jason Hall discuss:

• Warner Bros. Discovery's plans to split up.
• Reddit vs. Claude.

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A full transcript is below.

This podcast was recorded on June 09, 2025.

Andy Cross: Warner Brothers files for divorce. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Andy Cross, joined here by Jason Hall. Hey, Jason.

Jason Hall: Hey, Andy.

Andy Cross: Jason, let's jump right into the big news of the day. Warner Brothers Discovery is planning to split itself up into two distinct companies. Warner Brothers Global Networks, that's home to CNN, and Warner Brothers Streaming and Studios, that's home to HBO and other things, too. Jason, since the merger between Warner Media and Discovery that created this $25 billion media company in 2022, shares are down 60%. Now, they're up 7% today, so maybe investors have some hope that WBD is finally creating, maybe it's equivalent of Netflix. Is this good for shareholders?

Jason Hall: I think that's the upside here is that we're finally seeing somebody make a true competitor to Netflix a stripped down streaming and content production company that's hyper-focused on that and not this legacy media giant that throws out a streaming brand, but still has all of its legacy businesses that are in transition it's having to navigate through. I think the response we're seeing with the stock price, Andy, is as much wanting to see change, just some positive change as maybe that bullishness Last week, we got an overwhelming rejection of management's pay package by shareholders at the annual meeting. More than 60% of voters voted against management's compensation package. Now, of course, that's a non-binding "advisory vote", but it's pretty clear that shareholders have not been happy about how things have gone.

Andy Cross: Jason, it's interesting that legacy business, that's really the global networks. You're talking like CNN and Discovery, TLC, Food Network, that kind of thing. The streaming is the more exciting, by the way, that first part of the business is the bulk of the revenues, the bulk of the cash flows, and the bulk of the profits, also getting a bulk of the debt. The streaming one is much faster growing, profitability turning. That's home of Warner Brothers, DC Studios and television, and of course, HBO. Interesting, the Networks is going to own 20% of the streaming business.

Jason Hall: Well, for good reason, it's going to be the larger business. It's taking on more financial risk with the debt that's going to be flowing over to it. I think that investors that are going to be looking at that legacy business, look, it's still in decline. It's going to take time for it needs to be financially managed well to milk that cash cow business as long as possible. There needs to be a little bit of a sweetener there for some growth and I think that's where it's happening. The interesting thing, too, if you look at how they're breaking up the business and who's going to run it, David Zaslav is going to remain the CEO of the growth oriented, really content focused business, which is more in his wheelhouse, and the CFO of the combined business now, where you want those combined skills of allocating capital and making smart financial management decisions to pay down that debt, take excess cash, buy back shares, maybe pay a nice dividend at some point along the lines. I think you can see the strategy of what they're trying to build already.

Andy Cross: Jason, I think we've said that Netflix, in a lot of ways, has won the streaming battle. You have YouTube dominance in there as well. I see this as a good positive news, by the way. They had talked about focusing the businesses and separating them. This isn't a huge surprise. I think maybe the fact that it happened now is a little bit probably maybe more surprising. But the fact that they are now making this official taking this conglomerate and splitting it up into this, I think it is a reaction to the Netflix and YouTube success. Of course, we have Apple with its streaming service and Amazon with its streaming services, too, and then we can't forget about Disney.

Jason Hall: That's right. I think to me, that's a big part of the story here is that if you look at what's happened across media, really since right before and then the pandemic it seemed a lot of things hit a critical mass, where so many more people were moving to streaming, Disney Plus was launched and had explosive growth. But at the same time, these legacy businesses still had all of their existing cash cows, which are the linear model, cable, all of that kind of thing. Of course, we've seen so much integration. They own the studios, too, and the movie industry is still well below where it was five or six years ago. It's how hard it is to get through that transition. You mentioned Netflix and YouTube. They didn't have any of those legacy things to have to navigate through transition. They were the new model of content directly for the Internet releasing it immediately. It's clear, I think that something had to happen from the structural side of the business, not just what you'd go to market with with your customer, like Peacock Plus and Disney Plus and that sort of thing. Hopefully, maybe that's what investors are going to get here.

Andy Cross: Jason, Warner Brothers has now, I think the direct to consumer, streaming part is like 120 million subscribers. Netflix is more than 300 million. Netflix does about $17 in revenue per user here in the US, Warner Brothers does about 12. Netflix International is probably more around $10, and Warner Brothers is probably more around four. I think if investors are looking to this case to increase the profitability of the streaming side, this would help because they have to be more competitive against the likes of Netflix, which is clearly leading the way.

Jason Hall: They have to. I think we're starting to get to this point where we've seen these legacy media companies have all shot their shots. They've made the attempt. They've launched the media the streaming products. But again, the combined businesses has been one of the challenge. Let's not even talk about the international market because these companies are going to make their first money in North America. Is the North American market big enough for all of these existing streaming services that they need to get 15 to $20 a month, and they need 80 million plus subscribers just to be sustainable. I don't think the market's big enough. This is a split up, but I think we're going to see some continued consolidation of content, maybe not where the businesses are combining, but licensing of content, maybe the old model that Netflix benefited from before.

Jason Hall: I think we're heading back that direction.

Andy Cross: I think that's right. I think the licensee side, you see this with Comcast now separating off some of its properties into the Versant company like USA Networks and CNBC, MSNBC, Golf Channel. They're keeping Embassy and Bravo and Peacock, that will stay with the parent company, but they're separating out, as well, trying to figure out the licensing deal, even between these two companies. How do the sports licensing as Netflix and others are going further into sports programming? The bulk of the sports side is going to be on the network side. How do they overlap there? Of course, there's an international distribution to between the two companies. Still a lot to understand how these two companies interact and what they actually look like post-spin off. That's why I'm finding it a little bit hard right now to be tremendously bullish on buying the stock right now and adding more to it, but I am more excited for them to be separate companies.

Jason Hall: I think that's right. I'd like to talk a little bit about Disney and the Amazons and Apples of the world, too, because I think there is a little bit of compartmentalization that we're going to see in the industry. Number 1, think about Disney. I think Disney is going to be the one consolidated media company that makes all of it work. We've seen the transition with Disney Plus, where they're at the point now where I think they can make money. They're going to get better operating leverage there. But they've got so much content and the brand recognition is so big. I think that's one that can get to scale, and they can make it all work. But then you look at the Amazons of the world. This is a different business model. Amazon is an ecosystem. Nobody subscribes to Prime for Prime Video.

Andy Cross: It's a bonus.

Jason Hall: Exactly. It's part of the ecosystem to make it a little bit stickier. I think that's a thing to remember about Amazon. They're playing a little bit different game than really anybody else in this space. Apple, their model is a little more curated with their content. Maybe you could almost say like HBO was 15 or 20 years ago in the cable model, where they wanted to have one or two really big shows a year, and then run those shows for multiple years. I think maybe that's more Apple's model because they're focused upstream.

Andy Cross: HBO has some of those great properties. This is one reason I think investors were somewhat encouraged by them coming together because of those properties with HBO shows like Secession and the Gilded Age, movies, the Upcoming Superman, Sinners, the Voice show. They have these great brands to be able to leverage and turn more into hopefully profits on both the streaming side and then the focus on the network side.

Jason Hall: Andy, but this is the same company that also took HBO out of the name of their streaming product.

Andy Cross: I just find that really head scratching. I don't know why. I'm glad that they brought it back, to some degree, because that mean HBO is the brand. Hopefully, I don't know the ultimate name of this company, but maybe it is something with HBO because it is the most well known brand. Although the studios business continues and Warner Brothers is a huge name, too. It's just that HBO is really the driver of the streaming.

Jason Hall: No. That's exactly right. Having the max in there, even though you and I are old enough to remember Cinemax, which eventually got renamed Max. But HBO Max makes sense because it's HBO and then a bunch of other stuff. That makes sense. The corporate name, we'll see what they decide to do because they are still making all the studio content. A lot of value there. We got more stuff to talk about, though.

Andy Cross: They got $38 billion of gross debt. Most of that's going to go to the network side, but they're going to have the cash flow to be able to pay that down. Again, like you said, the CFO going over there to manage that business. Joel Greenblatt, the great author investor who wrote, You Can Be a Stock Market Genius, talked about spin offs. Sometimes it's the ugly debt Level 1 that does actually better. My question before we get to our next story is, which one of these businesses are you most interested in and what are you thinking about the stock today?

Jason Hall: It's funny because we were in our pre-planning, we were joking around about that. This is exactly the situation where depending on what happens with the split, the story of HBO unleashed almost, the idea of fully leveraging all of those resources without the legacy history, the story could cause that stock to do great things initially that hurts the long term performance. Everybody forgets about this legacy declining sleepy business. They could end up outperforming two or 300 percentage points over the next decade. I think we have to give this time to play out, see what the structures look like, give them a few quarters to stand-alone businesses, and then weigh in.

Andy Cross: I'm going to wait and see mode, too, as it is right now, but information's changing every time, every day.

Jason Hall: That's right.

Andy Cross: After this, we're moving on to Reddit.

Jason, moving on to another media story that actually is related, and we'll get to that in a second. Last week, the user community of hundreds of millions, Reddit, sued the owner of the Claude chatbot Anthropic for illegally scraping post. Reddit has licensing deals with Google and OpenAI already. It's very naturally protective of its IP, but it is not the only one who is trying to leverage AI based on the IP it has accrued over the years.

Jason Hall: You remember Curiosity Stream, right, Andy?

Andy Cross: I painfully remember Curiosity Stream, yes.

Jason Hall: [laughs] For those that don't know, this is it's a media streaming business with fact-based content. Went public via SPAC, back in the SPAC craze 2020, 2021 area. You and I both owned some shares, Andy. You walked away sooner than I did.

Andy Cross: Well, I walked away at a very large tax loss on it. I took a tax loss on it to offset some gains. I had hoped for better to be able to leverage the documentary assets curiosity has, and that did not work out in the time frame that I had owned this.

Jason Hall: Well, you had good reason. The business was really struggling with weak growth, high expenses. It did look like it was going to get to scale and survive on its own balance sheet. The only reason I didn't sell Andy is because I owned it in a retirement account, so there was no tax loss harvesting. I wanted to see how John Hendricks new business was going to play out. John Hendricks, of course, the founder of Discovery Channel, taking us back to our first story. The stock bottomed at $0.45 a share February last year. It's a 13 bagger since then. It's now part of the Russell 2000, and, Andy, it pays a dividend.

Andy Cross: How much of that is on the licensing deal?

Jason Hall: That's the thing that ties us back together. If you look, they have these five pillars of growth. The first pillar of growth is licensing content to tech companies to use the audio and video to train AI models.

Andy Cross: It's crazy. Jason, just today, we saw the British Film Institute put out a report that claimed that 130,000 titles had now been scraped for their AI purposes. Now they were worried and complaining about it for the institute, but that is going to be somewhat of a model, somehow of a business model for some of these content creators like perhaps, WBD.

Jason Hall: I think that's exactly right. It's a reminder that this technology is pervasive and the smart companies and the law of unintended consequences, right, Andy? Winners from technological disruption can come out of surprising places.

Andy Cross: Well, we'll see how it all unfolds. Thanks so much for joining me today, Jason.

Jason Hall: This was great. Good to be on. See you next time, Andy.

Andy Cross: That does it here for us at The Motley Fool. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy stocks or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our Fool advertising disclosure, please check out our show notes. For Jason Hall, our producer Dan Boyd, and the Motley Fool team, I'm Andy Cross. Thanks for listening and Fool-on.