Daniel Loeb, whose Third Point hedge fund owns a small stake in Disney, is urging the media giant to ditch its shareholder dividend and re-route those funds to streaming.
“Beyond bringing additional subscribers onto the platform, increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power,” Loeb wrote in a letter to Disney CEO Bob Chapek, a copy of which was provided to Deadline.
The change should not just be a 2020 decision, the letter maintains. “We believe the company should permanently suspend its $3 billion annual dividend, redirect capital entirely into content production and acquisition for Disney’s DTC business, centered around Disney+,” Loeb writes.
The tone of the letter is not as strident as some of the communiques that have forged Loeb’s reputation as an activist investor. Hollywood well remembers his back-and-forths with George Clooney over the future of Sony. Clooney called it “dangerous” for a hedge fund manager to be weighing in on studio affairs.
As it contends with a biblical series of challenges to its theme parks, movie studio and media networks due to COVID-19, Disney has managed to put up more encouraging numbers in streaming. It said in August that its Disney+ service has racked up 60.5 million global subscribers, already meeting projections for its first five years. Along with Hulu and ESPN+, however, the new platform is losing money, with Wall Street analysts pegging the yearly losses at about $2 billion.
As with other new players like HBO Max and Apple TV+, the budget for content on Disney+ is a fraction of the $17 billion outlay by Netflix, the category leader at 193 million global subscribers.
Even the dividend wouldn’t dramatically change the investment outlook, arguably. During its quarterly earnings call with Wall Street analysts in May, Disney said it would forego its dividend in the first half, in an effort to conserve cash. That move was expected to net the company about $1.6 billion. In 2018, Disney declared a dividend of 88 cents a share, maintaining that level in 2019.
Disney is not the only blue-chip company with longtime promises to investors in the form of a dividend. AT&T, which has struggled with its debt load in the wake of acquiring DirecTV and Time Warner, has set out an ambitious plan for WarnerMedia streaming service HBO Max. But the company issues about $15 billion a year in dividends to shareholders.
Disney shares gained nearly 2% Wednesday after the letter surfaced, to around $123, though the direct effect of Loeb’s overture is not entirely clear.
In August, Loeb said he took a long position in Disney during the worst of the pandemic damage, buying 1.4 million out of the company’s 1.8 billion outstanding shares. Streaming, a once-in-a-lifetime chance for the company to regain its footing, drove the investment.
Loeb wrote in a shareholder letter in August that streaming was “biggest market opportunity ever with potentially $500 billion of revenue spread across over a growing market of 750 million current broadband homes globally ex-China, dwarfing the size of Disney’s current addressable markets (roughly $100 billion between global box offices and theme parks).”
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