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Activist investor pressures Disney to spin-off ESPN, combine Hulu and Disney+

Daniel Loeb, whose investment firm reportedly has a $1 billion stake in Disney, is pushing for The Mouse to give ESPN more flexibility and prioritize a Hulu-Disney+ combo before Comcast is obligated to sell its stake in Hulu.

Jeff Baumgartner

August 15, 2022

4 Min Read
Activist investor pressures Disney to spin-off ESPN, combine Hulu and Disney+

Third Point, an investment firm run by Daniel Loeb, has taken a new stake in The Walt Disney Company and is urging the company's CEO to make a wave of changes, including spinning off ESPN and combining Hulu and the Disney+ streaming service.

In a letter to Disney CEO Bob Chapek, Loeb, whose stake in Disney is reportedly worth about $1 billion, also wants The Mouse to expand its board of directors.

Spinning off sports TV giant ESPN would give the unit "greater flexibility" and enable it "to pursue business initiatives that may be more difficult as part of Disney, such as sports betting," Loeb explained in the widely-reported letter. ESPN has been under pressure from cord-cutting and has attempted to counter the trend with its ESPN+ streaming service.

Figure 1: (Source: Jack Sullivan/Alamy Stock Photo) (Source: Jack Sullivan/Alamy Stock Photo)

Loeb is also pressuring Chapek and Disney to make "every attempt" to merge Hulu with Disney+ amid Comcast's pending option to sell its stake in Hulu to Disney. Disney controls Hulu, but a path has been set for Comcast to unwind its 33% stake in the streaming service in 2024.

"We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration," Loeb wrote. "We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months."

Loeb argued that a combination of Hulu and Disney+ will "provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market."

Loeb founded Third Point in 1995 with a stated focus to seek and "identify situations where we anticipate a catalyst will unlock value."

Update: In a research note issued Tuesday, MoffettNathanson analyst Michael Nathanson reiterated a view that a spin-out of ESPN could make strategic sense, but the numbers might not add up. Among the reasons? ESPN is facing significant headwinds as pay-TV, driven by cord-cutting, continues to decline. He also believes it would be "financially dangerous" for Disney to divest ESPN and its other networks today, given the continued importance of ESPN's cash flow.

As for the suggested scenario with Hulu, Nathanson also questions whether that could be pulled off in Loeb's suggested timeframe. He notes that Hulu is likely valued to the $27.5 billion floor price Comcast and Disney previously agreed to, and Disney still needs to pay a minimum of $9 billion for Comcast's 33% stake.

"If Disney ends up paying a premium to acquire the stake earlier, this would further eat into the cash on hand for the company and, while advancing Disney’s ability to more fully integrate Hulu into Disney+ by a year, not change the longer-term dynamics for Disney’s domestic DTC operations, which have slowed dramatically," he wrote. Moreover, Nathanson's unsure that Comcast would be willing to give Disney the option to get a deal done ahead of its pending option to sell that stake in 2024.

Next phase of the streaming era is underway

Loeb's suggestion comes as Warner Bros. Discovery, formed from the merger of WarnerMedia and Discovery, pursues a plan to combine HBO Max and Discovery+. The idea is to create a global brand and a service that can appeal to a wider audience than the services can individually.

In response to Loeb's letter, Disney said: "We welcome the views of all our investors … As our third quarter results demonstrate, The Walt Disney Company continues to deliver strong financial results powered by world-class storytelling and our unique and highly valuable content creation and distribution ecosystem."

Disney's streaming business continues to tack on subscribers, even as big losses continue.

Disney+ added a better-than-expected 14.4 million subs in the company's fiscal third quarter, for a total of 152.1 million. Hulu's subscription video-on-demand service ended the period with 42.2 million subs, up from 39.1 million a year-ago, while its pay-TV offering ended the quarter with 4 million subs, up from 3.7 million a year earlier. ESPN+ ended the quarter with 22.8 million subs, up from 14.9 million in the year-ago quarter.

Disney's overall direct-to-consumer business posted quarterly revenues of $5.1 billion, up 19%, but was paired with an operating loss that climbed to $1.1 billion.

Disney, which has set a December 8 launch date for a new ad-supported version of Disney+, has held firm that it expects the Disney+ service to reach profitability by the end of the company's fiscal 2024.

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— Jeff Baumgartner, Senior Editor, Light Reading

About the Author(s)

Jeff Baumgartner

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.

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