Aug 15, 2022 - Economy

Disney facing activist pressure, pushed to consider ESPN spinoff

Illustration of a basketball wearing a mickey mouse ear hat

Illustration: Sarah Grillo/Axios

Disney is facing renewed pressure to focus its future more narrowly around its streaming business.

Driving the news: Activist investor Dan Loeb said Monday that his fund, Third Point, "repurchased a significant stake" in Disney. In a letter to CEO Bob Chapek, Loeb recommended the company take full control of Hulu sooner than targeted, spin off ESPN, cut costs, suspend dividends and change up its board.

Why it matters: Disney's streaming business has taken off, and investors like Loeb are eager to see the company ride the momentum.

Details: Loeb likened Disney's evolution — "from 'analog' theatrical releases towards digital distribution" — to Microsoft’s transition from "selling software in plastic wrap boxes to a SaaS model."

  • Shares of Disney rose 2.2%.

Be smart: Loeb has history with Disney — having asked for a similar push for a streaming expansion in late 2020.

The big picture: The benefits (global distribution) and costs (technology build and large quantities of content to produce) of streaming present challenges for media companies with legacy distribution businesses.

  • For example, spinning off ESPN would, according to Loeb, free Disney from being "haunted by the specter of cord cutting."
  • And the sports network's strong cash flow would allow it to take on some of Disney's debt load in a spinoff.

Meanwhile, he also argued that ESPN would likely benefit from pursuing business opportunities currently complicated by its Disney ownership, such as sports betting.

What Disney is saying: "We welcome the views of all our investors," the company said in a statement.

What to watch: Disney isn't alone in facing calls for change amid industry-changing formats and changing consumer behaviors.

  • The New York Times has been talking to activist investor ValueAct about offering more subscription bundles.
  • Media measurement giant Nielsen in March agreed to a private equity takeover as it continues to shift its measurement from linear to digital media.

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