With Warner Brothers Discovery slitting into two companies, one containing the linear video networks and the other the studies and streaming business, some of us might recall similar splits in other industries intended to separate low-growth, cash-flow-generating businesses from higher-growth activities.
It might seem, in retrospect, an odd thing that telecom executives at AT&T and Rochester Telephone Co., for example, once considered “long distance calling” the growth business, where the local telecom operations were seen as the low-growth entities.
As it turned out, long distance calling was not much of a business at all, once internet calling developed. Competition was an issue, of course, but the real profit killer was free and nearly-free IP-based calling, plus the rise of mobile calling that simply included domestic long distance calling as a feature.
The point is that, as logical as it seems, such asset separations often do not work out as expected.
The fundamental problem, some will argue, is that linear TV networks are experiencing accelerating decline rather than stable cash flow.
The theory behind separating growth and harvest assets assumes the declining business can generate predictable cash flows while the growth business receives focused investment. But some might note that linear TV's decline appears too steep for reliable cash generation.
The moves might still be “rational” from a management perspective, as it offloads assets in terminal decline (allowing a “harvesting” strategy) while unburdening the potential growth assets (reducing debt, boosting revenue growth rates, reducing overhead).
Sure, people are going to propose all sorts of new business models or products that might be created. That sort of advice has been common since the 1990s for telecom service providers. And, fortunately, mobility service rose to become the driver of revenue and profits, with the rise of internet access helping replace lost voice revenues as well.
It might be harder to envision what changes of product or revenue model could develop for linear video.
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