Aug 16, 2022 - Economy

Activist investors come for media

Illustration of a repeating megaphone pattern.

Illustration: Eniola Odetunde/Axios

Disney and the New York Times are under pressure from activist investors to focus their business efforts on consumer revenue.

Why it matters: The transition to direct-to-consumer subscriptions has forced media giants to streamline their investments.

  • As the advertising market becomes increasingly volatile, investors are pushing for faster action.

Driving the news: Hedge fund manager Dan Loeb on Monday revealed a new stake in Disney designed to put pressure on the entertainment giant to spin off ESPN, cut costs and take full control of Hulu sooner.

  • The fate of Hulu remains unclear as Comcast still owns a 33% stake that Disney is on the hook to buy for at least $27.5 billion as soon as 2024.
  • Loeb, who is the CEO of Third Point, is no stranger to pressuring Disney on its streaming business. In late 2020, Loeb argued the company should drop its dividend and instead redirect that money to Disney+ content.
  • Loeb has also pressured other media companies in the past, like Yahoo, with activist investments targeting board structures. In his letter to Chapek, Loeb argued that Disney should hire new board members.

What they said: Disney responded to Loeb by touting the experience of its board.

  • "Our independent and experienced Board has significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises. The Board has also benefited from continuous refreshment with an average tenure of four years."

Between the lines: Disney has reportedly eyed an ESPN spinoff, but ultimately hedged against selling the asset, as it has proven critical not only to its cable revenues but its bundled streaming product.

  • Loeb, however, argues the company could reap much more value from the asset if it combined it with a sports betting company.

Yea, but: Many companies are rethinking their previous "all-in" approach toward streaming in favor of maintaining their legacy businesses that are still quite profitable.

  • Streaming still has to prove it's a viable business. Disney's streaming business has cost the company $2.5 billion during the first nine months of its fiscal 2022.

Between the lines: The news comes several days after ValueAct, another activist investor, disclosed a nearly 7% stake in the New York Times, with which it plans to pressure management to more aggressively market its bundled subscription offering to consumers.

  • The Times has already been aggressively planning to upsell consumers to its bundle, and as such, it’s unlikely that this will turn into a major proxy fight, as Axios’ Kerry Flynn notes.

Earlier this year, streaming measurement giant Nielsen agreed to a $16 billion private equity takeover following pressure from activist investor Elliott Investment Management.

  • Elliott has previously pressured companies like Twitter and AT&T to push management to streamline their focus.
  • Activist investor Trian Fund Management took a stake in Comcast in 2020 to pressure the company to make changes.

The bottom line: Media companies are trying to diversify their revenue streams between advertising and consumer revenue. Activist investors all have their own opinions on the best approaches.

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