Credit…George Ruhe/The New York Times
Third Point, an activist investment firm, has bought a new stake in entertainment giant Disney and is pushing for the company to make a series of changes, including splitting off ESPN, quickly taking full control of the service of Hulu streaming and the installation of 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 finished a different campaign at Disney. The company disclosed a stake in Disney in 2020, worth more than $900 million at its peak, and pushed for Disney to invest more in streaming. He sold all of his 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.
Third Point’s latest campaign presents a new challenge for Bob Chapek, Disney’s chief executive. The company’s board of directors last month renewed his contract through July 2025, after a tumultuous period that launched Disney into controversial partisan politics. Disney is also trying to rebuild its balance sheet after the peak of the pandemic.
Disney’s bet on Steam, the focus of Third Point’s previous campaign, has paid off: Disney+ added 14.4 million subscribers in the most recent quarter, far more than Wall Street 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, in recent weeks, we have bought back a significant stake in the company.” , wrote Mr. Loeb a la carte.
Still, Disney shares have fallen about 20 percent since the start of the year, underperforming the S&P 500, amid a broader industry push over the profitability of live streaming to the consumer Netflix shares are down 58 percent since January.
Disney shares rose about 2% on Monday after Mr. Loeb.
“We welcome the views of all our investors,” Disney said in a statement that emphasized the company’s recent strong financial results. “Our independent and experienced board of directors has extensive experience in branded, consumer-facing and technology businesses, as well as talent-driven companies,” the statement added.
Mr. Loeb said he was encouraged by Disney’s streaming efforts, but said the company could move more quickly away from declining cable assets and toward fast-growing streaming services. In the United States, about 7.5 percent of cable customers cut the cord in the most recent quarter, up from 4 percent a year earlier, according to research firm LightShed Partners.
The main request of Mr. Loeb, who acknowledged that they may already be in the works, is to buy Comcast’s remaining stake in Hulu. In 2019, Disney said it would acquire Comcast’s one-third stake in Hulu for at least $5.8 billion over the next few years, with the final price to be determined by independent arbitrators.
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.
Mr. Loeb also urged Disney to spin off ESPN, the division that has been Disney’s traditional profit driver, because it would give the sports network “more flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” he wrote.
ESPN’s live game programming makes Disney’s bundle of cable channels more valuable in negotiations with cable companies like Comcast and Charter. Disney also emphasized the contribution ESPN makes to its streaming business, telling investors last week that the sports-focused service ESPN+ had 22.8 million paying subscribers in July.
And above all, ESPN generates significant revenue and profit. Led by ESPN, Disney’s cable networks had $7.2 billion in second-quarter revenue and $2.5 billion in profit. That money helps offset Disney’s streaming losses as it builds a portfolio of services. Losses for Disney’s streaming division topped $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, founder of LightShed Partners, wrote in an analyst report this year. He also noted that spinning off ESPN would be “much more difficult because it shares resources and content licensing agreements with the ABC broadcast network,” another Disney division.
Loeb suggested Disney could still benefit from a standalone ESPN if it maintained a contractual relationship similar to the one eBay created when it spun off payments company PayPal in 2015.
And he suggested that Disney hire new board members, arguing that the company has “talent and experience gaps as a group that need to be addressed.” Third Point has already “identified potential board members that we believe would make essential contributions,” Mr. Loeb, without providing names. He added that the company “would be happy to make a presentation.”
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