Activist investor Dan Loeb is urging The Walt Disney Company’s CEO Bob Chapek to halt its $3 billion annual dividend payment and redirect the funds towards content production and acquisition for its streaming service, Disney+, according to a letter Wednesday obtained by FOX Business.

Ticker Security Last Change Change %
DIS WALT DISNEY COMPANY 122.89 +2.04 +1.69%

“By reallocating a dividend of a few dollars per share, Disney could more than double its Disney+ original content budget,” Loeb wrote. “These incremental dollars would, based on our analysis, generate returns that are multiples of the stock’s current dividend yield by driving high life-time-value  subscribers to your [direct-to-consumer] platform.”

Besides bringing in additional subscribers, Loeb said “increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power.”

Loeb, who doubles as CEO and chief investment officer of hedge fund, Third Point LLC wrote that driving more subscriber growth, while reducing “churn” and increasing pricing will “present the opportunity to create tens of billions of dollars in incremental value for Disney shareholders in short order, and hundreds of billions once the platform reaches a larger scale.”

Churn is the rate at which customers stop subscribing to video services.

Disney announced in its third quarter earnings report in August that the streaming service had surpassed 60 million subscribers. Meanwhile, Disney-owned Hulu has surpassed 35.5 million subscribers and ESPN+ has surpassed 8.5 million subscribers.

Ticker Security Last Change Change %
AMC AMC ENTERTAINMENT HOLDINGS INC 4.04 -0.02 -0.49%

The letter comes as the coronavirus has prompted the acceleration of cord-cutting from traditional cable and has forced media companies to adapt to a new release model while the pandemic continues

Activist investor Dan Loeb is urging The Walt Disney Company’s CEO Bob Chapek to halt its $3 billion annual dividend payment and redirect the funds towards content production and acquisition for its streaming service, Disney+, according to a letter Wednesday obtained by FOX Business.

Ticker Security Last Change Change %
DIS WALT DISNEY COMPANY 122.89 +2.04 +1.69%

“By reallocating a dividend of a few dollars per share, Disney could more than double its Disney+ original content budget,” Loeb wrote. “These incremental dollars would, based on our analysis, generate returns that are multiples of the stock’s current dividend yield by driving high life-time-value  subscribers to your [direct-to-consumer] platform.”

Besides bringing in additional subscribers, Loeb said “increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power.”

“Together, the ability to drive subscriber growth, reduce churn, and increase pricing present the opportunity to create tens of billions of dollars in incremental value for Disney shareholders in short order, and hundreds of billions once the platform reaches a larger scale,” he added.

Disney announced in its third quarter earnings report in August that the streaming service had surpassed 60 million subscribers. Meanwhile, Hulu has surpassed 35.5 million subscribers and ESPN+ has surpassed 8.5 million subscribers.

Ticker Security Last Change Change %
AMC AMC ENTERTAINMENT HOLDINGS INC 4.04 -0.02 -0.49%

The letter comes as the coronavirus has prompted the acceleration of cord-cutting from traditional cable and has forced media companies to adapt to a new release model while the pandemic continues to prompt the closure of theaters across the globe, including Cineworld’s Regal Cinemas. As for Cineworld’s competitors, AMC and Cinemark, both have expressed their commitment to remain

Dan Loeb of activist investment firm Third Point called on Disney  (DIS) – Get Report to permanently suspend its dividend and use those funds to beef up its offerings on the Disney+ streaming service, a media report says.

In a letter to the Burbank, Calif., company’s board that was reviewed by Bloomberg, Loeb said the $3 billion the company pays out annually would be better spent on content production. 

“Beyond bringing additional subscribers onto the platform, increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power,” Loeb said, according to Bloomberg. 

Third Point holds less than a 1% stake in Disney after opening a long position in the entertainment giant due to its bullishness on its streaming service. 

Disney’s most recent dividend payment was 88 cents a share in January. After the coronavirus pandemic forced the company to close its theme parks and torpedoed its movie release schedule, Disney suspended its biannual dividend payment. 

Disney paid a dividend for 64 consecutive years through 2019.

Last month, Deutsche Bank analysts upgraded the stock to buy due to streaming strength. 

“Disney is succeeding in the land-grab phase of direct-to-consumer and has the most clear path to successfully transitioning its general entertainment programming and content production businesses into a globally scaled, vertically integrated streaming entertainment leader,” analyst Bryan Kraft wrote in a commentary.

The firm also raised the company’s price target to $163 from $128. 

Disney shares at last check rose 1.6% to $122.91. 

Disney is a holding in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS? Learn more now.

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