Warner Bros. Discovery has been downgraded to BB+, or junk bond status, for 2025 and 2026 by SP Global over linear TV weakness as the Hollywood studio continues to pivot to the streaming space.
The ratings firm continued its outlook for WBD as stable, but pointed to weak credit metrics overall to explain its bond rating markdown to speculative grade. We lowered our 2025 and 2026 forecast due to continued challenges in WBDs linear television networks segment, which we forecast will offset growth at its studio and streaming segments, SP Global said in a statement. WBD like its industry rivals has been under pressure from Wall Street amid industrywide challenges, including advertising softness and cord-cutting, as investors look for a return on an expensive transition from legacy linear TV networks to the digital streaming world.
The possibility of WBD doing a major split of the company with WB studios being potentially paired with a rebranded HBO Max and the Discovery linear cable channels being spun off into a separate company hasnt exactly cheered the ratings firm.
SP Global has not factored into its ratings downgrade any potential split of the company because one hasnt been formally announced. But the ratings firm added a separation would likely pressure ratings because it would weaken our view on the individual businesses, particularly the Global Linear Networks company, due to ongoing secular pressure in the linear television ecosystem.
WBD has already begun to reorganize the company with an eye to a possible spinoff of its legacy TV assets. In Dec. 2024, the studio said it had reworked its corporate structure into a global linear TV division, separate from its streaming and studios division.
WBD added it had begun the early steps leading toward the new corporate reorganization, with a completion set for mid-2025. A possible split of the company at WBD would follow rival Comcast unveilinga plan to spin offitsless lucrative cable networks away from its film and TV studio entertainment and parks businesses.
While the cable business used to be a cash driver for studios, the TV channels lately have become a drag on earnings, and investors have dinged companies that have been weighed down by channels tied to bundles that have fast fallen out of out of favor with consumers whove spent instead on individual streaming services.
AS a result, SP Global analysts said they expect WBD to only modestly reduce leverage, or its borrowings, this year and next by generating cash flow.