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.
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“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.
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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