Third Point, an activist investment firm, has bought a new stake in entertainment giant Disney and is pushing for the company to make a number of changes, including spinning off ESPN, quickly taking full control of streaming service Hulu and installing new board members, according to a letter sent to Disney, a copy of which was obtained by The New York Times.
Third Point, which is run by billionaire investor Daniel S. Loeb, had recently ended a different campaign at Disney. The firm disclosed a stake in Disney in 2020, worth more than $900 million at its height, and pushed for Disney to invest more in streaming. It sold all of its shares in the company in the first quarter of this year, according to regulatory filings. Third Point did not disclose the size of its current stake in Disney, but a person with knowledge of the investment who was not authorized to speak publicly described it as close to $1 billion.
The latest campaign by Third Point presents a new challenge for Bob Chapek, Disney’s chief executive. The company’s board last month renewed his contract until July 2025, after a tumultuous period that thrust Disney into partisan political controversies. Disney is also still trying to rebuild its balance sheet after the height of the pandemic.
Disney’s bet on steaming, the focus of Third Point’s previous campaign, has been paying off: Disney+ added 14.4 million subscribers in the most recent quarter, far more than Wall Street had expected.
“This quarter’s results are an important proof point that Disney’s complex transformation is succeeding and our confidence in Disney’s current trajectory is such that we have, in recent weeks, repurchased a significant stake in the Company,” Loeb wrote in the letter.
Still, Disney’s stock is down about 20% since the start of the year, underperforming the S&P 500, amid broader industry hand-wringing over the profitability of direct-to-consumer streaming. Netflix’s shares have dropped 58% since January.
Disney shares were up about 2% on Monday after Loeb’s letter was made known.
“We welcome the views of all our investors,” Disney said in a statement that went on to emphasize the company’s recent strong financial results. “Our independent and experienced board has significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises,” the statement added.
Loeb said he was encouraged by Disney’s efforts in streaming, but he said the company could move faster to shift away from cable assets in decline and toward fast-growing streaming services. In the United States, about 7.5% of cable customers cut the cord in the most recent quarter, up from 4% a year earlier, according to research firm LightShed Partners.
Chief among Loeb’s requests, which he acknowledged may already be in the works, is buying out Comcast’s remaining stake in Hulu. In 2019, Disney said that it would acquire Comcast’s one-third stake in Hulu for at least $5.8 billion in the coming years, with the final price to be determined by independent arbiters.
Since then, Comcast’s NBCUniversal unit has taken steps to move high-profile TV programming away from Hulu in an attempt to bolster its own streaming service, Peacock. Analysts have estimated that buying Comcast’s stake in Hulu would cost at least $9 billion.
Loeb also urged Disney to spin off ESPN, the division that has been Disney’s traditional profit engine, because it would give the sports broadcaster “greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” he wrote.
ESPN’s lineup of live games makes Disney’s bundle of cable channels more valuable in negotiations with cable companies like Comcast and Charter. Disney also emphasized the contribution that ESPN makes to its streaming business, telling investors last week that sports-focused service ESPN+ had 22.8 million paying subscribers as of July.
And, crucially, ESPN generates significant revenue and profit. Led by ESPN, Disney’s cable networks had $7.2 billion in revenue in the second quarter and $2.5 billion in profit. That money helps offset Disney’s losses in streaming as it builds a portfolio of services. Losses for Disney’s streaming division exceeded $1 billion in the quarter, compared with a loss of $300 million a year earlier, as the company spent aggressively on content, marketing and technology.
“Disney needs ESPN’s free cash flow to accelerate its investment in streaming content,” Richard Greenfield, a LightShed Partners founder, wrote in an analyst report this year. He also noted that spinning off ESPN would be “that much more difficult because it shares resources and content licensing deals with the ABC broadcast network,” another Disney division.
Loeb suggested that Disney might still benefit from an independent ESPN if it maintained a contractual relationship similar to the one created by eBay when it spun out payments company PayPal in 2015.
And he suggested that Disney hire new board members, arguing the company has “gaps in talent and experience as a group that must be addressed.” Third Point has already “identified potential board members who we believe would make essential contributions,” Loeb said, without providing names. He added that the firm “would be happy to make an introduction.”
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