October 7, 2020
Billionaire investor Daniel Loeb continues to see opportunity in the pandemic-throttled entertainment sector — most notably at The Walt Disney Co.
Loeb’s Third Point Management, which has more than $10.8 billion in assets, has spent much of the COVID-19 era buying up a depressed Disney stock undermined by amusement park and cruise ship closures, and waylaid studio releases, among other issues, that were reportedly costing the company $30 million in daily overhead.
Now Loeb, who is one of Disney’s largest single investors, is calling on Disney CEO Bob Chapek and the board not to authorize the company’s annual $3 billion dividend — a surprising stance considering most activist investors implore companies to give back more to stock holders; not less.
In an Oct. 7 letter to Chapek, Loeb wants the board to re-direct dividend funds to content spending on Hulu, ESPN+ and Disney+, the latter Disney’s high-profile subscription streaming video-on-demand platform the investor contends has a legitimate shot at usurping market behemoth Netflix — both in subscribers and content.
“By reallocating a dividend of a few dollars per share, Disney could more than double its Disney+ original content budget,” Loeb wrote. “The ability to drive subscriber growth, reduce churn, and increase pricing present the opportunity to create tens of billions of dollars in incremental value for Disney shareholders in short order, and hundreds of billions once the platform reaches larger scale.”
Specifically, the investor contends Disney+ has largely outdistanced subscriber growth projections by offering classic Disney, Pixar and “Star Wars” movies, with little spent on original programming except for “The Mandalorian,” among other content. Disney ended the most-recent fiscal period with more than 60.5 million subscribers. The company had originally projected 60 million to 90 million subs by 2024.
Indeed, while Disney is spending about $1 billion on original content in 2020, Netflix is reportedly spending nearly $17 billion, with plans to spend upwards of $28 billion by 2028.
“A more aggressive content roadmap will distinguish Disney as the only traditional U.S. media company able to thrive in a world beyond the box office and the cable TV ecosystem, alongside digital-first businesses like Netflix and Amazon,” Loeb wrote.