Disney Should Drop Dividend and Double Streaming Content Budget, Activist Investor Dan Loeb Says

Disney investor Dan Loeb is pleading with the company to go all-in on streaming, arguing the company should “permanently suspend” its $3 billion annual dividend and redirect that money towards Disney+’s original content budget. “By reallocating a dividend of a few dollars per share, Disney could more than double its Disney+ original content budget,” said Loeb, the founder of hedge fund Third Point, which owns around 5.5 million shares of the company as of June 30, in a letter to Disney CEO Bob Chapek. Disney+ has got off to a better than expected start, surpassing 60 million subscribers globally within its first 9 months, reaching the low-end of its 2024 subscriber goals four years ahead of schedule. But that has come while the coronavirus pandemic has obliterated the company’s theme parks and movie businesses. The parks division lost out on $3.5 billion in operating income for its fiscal third quarter, which ended June 27. Overall, Disney’s parks business pulled in just $983 million during the quarter, which was an 85% slide compared with the $6.6 billion in revenue the parks earned during the same period last year. That’s coming off a second quarter in which the company took a $1 billion hit earlier this year. The company announced last week it would be cutting around 28,000 jobs. The pandemic has supercharged the shift towards streaming, which now boasts around seven top-tier streaming services, with ViacomCBS’ upcoming rebrand of CBS All Access into Paramount+ set for early next year. Loeb argues that Disney’s direct-to-consumer unit that also includes Hulu and ESPN+ can collectively challenge Netflix. “With Disney’s superior tentpole franchises and production capabilities, we believe that the company can exceed the subscriber base of the industry leader, Netflix, in just a few years,” Loeb continues. “But time is of the essence and the company should consider significant additional investments in content both through production and acquisitions here and abroad.” Because of the pandemic, the only film Disney has put in theaters since March (Pixar’s “Onward”) has been “New Mutants,” one of the films it acquired in its Fox deal. With the theatrical business still reeling, Loeb argues that rather than wait for theaters to become safe again, Disney should push more of its films towards streaming. Just about every major release has been pushed out of 2020. Though not the way they did with “Mulan,” where subscribers could pay an extra $29.99 for three months of exclusive access. Loeb described the experiement as a valuable learnings experience (TheWrap estimated that “Mulan” could have done quite well for Disney, but it’s an imperfect guess). “While some pundits have described the Mulan release as a ‘debacle’ due to the $29.99 cost for a VOD download, we see this as a valuable learning experience, expect stumbles on the way to greatness, and believe this will drive a faster decision to make all content available to subscribers for a simple subscription fee,” Loeb writes.