Activist investor Dan Loeb urges Disney to stop dividend to fund content

(Reuters) – Activist investor Daniel Loeb on Wednesday urged Walt Disney Co to forgo paying its dividend and redirect the cash back into making and buying more content for its streaming video Disney+ service as it battles tech giants Netflix and Amazon for subscribers.

FILE PHOTO: The entrance to Walt Disney studios is seen in Burbank, California, U.S. August 6, 2018. REUTERS/Lucy Nicholson

Loeb, whose hedge fund Third Point bought into Disney during the second quarter, said the company should prioritize its streaming business, and be more aggressive in moving theatrical films into Disney+.

“We believe the company should permanently suspend its $3 billion annual dividend, redirect capital entirely into content production and acquisition for Disney’s DTC business, centered around Disney+,” Loeb wrote in a letter to Disney Chief Executive Robert Chapek on Wednesday. Reuters obtained a copy of the letter.

Loeb added Disney to the portfolio some months ago when its shares were beaten down by worries over how theme parks and movie theaters would survive the global coronavirus pandemic.

While Loeb wrote that he did not want to intrude on Disney’s basic business decisions, he left little doubt that he wants the company to move faster right now.

Even though a more aggressive investment strategy may weigh on short-term earnings, Loeb argues that with time, investors will see the benefit of such moves and be rewarded.

“Time is of the essence and the company should consider significant additional investments in content, both through production and acquisitions here and abroad,” he wrote.

Also, Disney should maintain its focus on transitioning to a subscription-led DTC revenue stream, the letter said.

The letter, first reported by Bloomberg, struck a conciliatory tone with Loeb saying he looked forward to a “constructive dialogue” with the company.

But he noted everyone should be able to enjoy movies like Hollywood executives do, from the comfort of their homes: “We urge you to democratize this experience and to continue to embrace the future of home entertainment with the utmost urgency in executing the company’s digital transformation.”

In May, Disney’s board of directors said it would forgo payment of its semi-annual cash dividend for the first half of fiscal 2020.

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