Should Disney spin off ESPN and fold Hulu into Disney+? This activist investor thinks so

A man at a conference
Daniel Loeb, chief executive officer of Third Point LLC, speaks during the Skybridge Alternatives Conference on May 18, 2017. Loeb disclosed on Monday that his hedge fund had purchased a “significant stake” in the Burbank entertainment giant.
(Bloomberg via Getty Images)

Walt Disney Co. last week wowed Wall Street with strong third-quarter results and robust subscriber growth for Disney+. But activist investor Daniel Loeb is making the case that Disney could be doing better.

In a letter addressed to Disney chief executive Bob Chapek, New York-based Loeb on Monday disclosed that his hedge fund, Third Point LLC, had purchased a “significant stake” in the Burbank entertainment giant.

In the four-page letter, Loeb outlined a series of proposed initiatives Disney could take to boost shareholder value. Those ideas include merging Hulu with Disney+ and spinning off ESPN.


“We were particularly pleased to see the strength in DTC subscriber growth, the key driver of Disney’s long-term transformation towards less volatile, ultimately higher margin cashflows with a greater return on invested capital,” Loeb wrote. “We expect to see the quality of Disney’s financial results improve as the company’s business shifts further.”

Loeb recommended that Disney embark on a cost-cutting program that would include the “disposal of excess underperforming assets.” He also encouraged Disney to hold off on reinstating its shareholder dividend and instead use the money to pay down debt, repurchase shares and invest in the business. He also called for a “refresh” of the company’s board of directors to include more people with experience in technology, advertising and consumer engagement.

“We welcome the views of all our investors,” Disney said in a written statement. “Under the leadership of Bob Chapek, the company has delivered this strong performance while navigating the COVID-19 pandemic and its aftermath, including record streaming subscriptions and the reopening of our parks, where we have seen strong revenue and profit growth in our domestic parks business.

Investor Daniel Loeb of hedge fund Third Point wrote in a letter to Disney’s chief executive that the company should cancel its annual dividend and redirect the money to make more Disney+ content.

Oct. 7, 2020

“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.”

Loeb previously put pressure on Disney’s leadership in an October 2020 letter in which he called on the company to cancel its annual dividend and double its budget to produce and acquire content for its streaming services. Disney stopped paying dividends in the wake of the COVID-19 pandemic to cope with the disruption to its businesses and to focus on boosting its direct-to-consumer operations.


The new Loeb letter suggests that Disney should consider buying out Comcast’s 33% stake in Hulu before it has to in 2024. “We believe that integrating Hulu directly into the Disney+ DTC platform will provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market,” Loeb said.

Merging the two services could boost Disney+’s reach in the U.S. by expanding the types of programming Disney+ provides. Disney+’s content strategy has already broadened, with the addition of shows like the next season of “Dancing With the Stars” to live alongside Disney+’s Marvel, Star Wars, Pixar and kid-friendly shows.

But buying Comcast’s stake would be expensive. Disney in 2019 made a deal with Comcast to purchase the remaining third of the streaming service at a minimum value of $27.5 billion in early 2024, meaning Disney would be out at least $9 billion. Loeb suggested that Disney should consider paying a premium to get full ownership of Hulu earlier than expected.

Hulu’s parents — Walt Disney Co. and Comcast Corp. — have agreed to an amicable divorce, giving the Burbank entertainment giant full custody of the streaming video site.

May 14, 2019

Disney+ added 14.4 million subscribers during its third fiscal quarter, bringing its global total to 152.1 million. The vast majority of those new subscribers were international. Just 100,000 of the new Disney+ subscribers came from the U.S. and Canada. Nonetheless, Disney+ is increasing its monthly subscription fee to $11, an increase of $3, in December. Customers who want to keep paying $8 a month for Disney+ can use a tier that shows commercials.

In his boldest proposal, Loeb said Disney should spin off sports cable network ESPN, a move that he said would help reduce debt at Disney and allow ESPN to move more aggressively into businesses such as sports betting.

While traditional television networks as are struggling with long-term issues such as cord-cutting, ESPN remains a profitable business for Disney. The brand is also part of Disney’s broader streaming offering. ESPN+ is Disney’s sports-focused streaming service, which is raising its price by $3 to $9.99 a month. ESPN+ is also part of the $19.99-a-month “Disney bundle” that includes Disney+ and Hulu.

Disney’s stock rose $2.92, or 2%, to $124.49 in midday trading. The stock is down about 20% so far this year.