“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.
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After “admiral early progress” in shifting revenue from theatrical to the home with the releases of Hamilton and Mulan via Disney+ this year, Disney should keep driving in that direction, the letter says. Loeb urges Disney to take an “all-you-can-eat” pricing approach to major tentpole releases via Disney+ and avoid the “temptation” to tack on premiums in isolated case. Disney charged subscribers an extra $30 for Mulan when it debuted September 4.
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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 years ago with George Clooney over the future of Sony. Clooney called it “dangerous” for a hedge fund manager to be weighing in on studio affairs. Loeb dismissed the criticism as “hyperbolic.”
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. Since it launched last November, Disney+ has racked up 60.5 million global subscribers, already meeting projections for its first five years in operation. Along with Hulu and ESPN+, however, the new platform is losing a considerable amount of money, as forecast by the company. Wall Street analysts peg the yearly losses at about $2 billion.
As with other recent streaming entrants 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 so, Loeb writes, “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.”
During its quarterly earnings call with Wall Street analysts in May, Disney said it would forego its dividend in the first half of the year, in an effort to conserve cash. That move was expected to net the company about $1.6 billion. In 2018 and 2019, Disney declared a dividend of 88 cents a share.
Disney is not the only blue-chip company with longtime promises to shareholders 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, capital-intensive plan for WarnerMedia streaming service HBO Max. But the company is constrained to some extent by the roughly $15 billion a year it issues in dividends.
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.
Loeb took what he described as 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 in May. Streaming, which he considers a singular 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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