Billionaire Loeb Wants Disney to Tell a Different Story

(Bloomberg Opinion) - When filmmakers think about subjectivity as they tell stories, they often rely on the thriller Rashomon, the 1950 Japanese film that tells the story of the same murder from different angles. By highlighting or downplaying various actions, each narrator tries to shape the audience's understanding of the event.
Walt Disney Co. can also be understood from different perspectives. It's the largest film studio in the world, but it typically makes significantly more money from its theme parks and television channels. Investing in the Disney + video streaming platform is negatively impacting those profits. On Wednesday, Bloomberg News reported that activist investor Dan Loeb had sent a letter encouraging Disney CEO Bob Chapek to permanently cut the company's dividend and instead use the funds on new content for Disney +.
It is essentially an attempt to reinforce what is known as the company's equity story. Rather than being a boring old movie studio with a constant dividend trading at ten times expected earnings, it seems like it is saying that Disney should be primarily viewed as a fast growing digital streaming platform like Netflix Inc. 60 is traded times future profit.
Of course, the market already gives Disney a lot of credit for the pace at which Disney + is growing: by August, less than 10 months after its launch, it had added 60 million subscribers. It took Netflix six years to hit that number. However, the 28,000 job cuts announced last month have drawn attention back to the company's beleaguered parking business. It would benefit from a streaming narrative revitalization.
A permanent abolition of the dividend would be a dramatic letter of intent for the Magic Kingdom. It would encourage investors to invest in the company's growth rather than its returns on money. To some extent, Loeb is merely asking Disney to ratify it, which it may already be: With access to cinemas and theme parks restricted by the global pandemic, the company has already given up dividend for this year, and some expect that this will happen next year too. And Disney + is actually growing.
But a fairytale ending is far from certain. As my colleague Tara Lachapelle wrote, Disney already has a generous price that is traded at 46 times the future profit. And that rating contradicts some real flaws with Disney + when it comes to content.
With all the company's extensive back catalog, the quality and quantity of the shows and films on the platform are frankly quite low. The only hit show that was made specifically for Disney + remains Star Wars spinoff "The Mandalorian". It can and should do a lot more - Netflix spends more than $ 15 billion on content annually. Disney doesn't split up dedicated spending on Disney + content, but it's significantly less. More spending would help maintain the current rating by maintaining the pace of subscriber growth.
If Rashomon can learn a lesson, Bob Chapek must take control of his company's narrative. Loeb's plot could be a good start.
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering the European technology, media and communications industries. He previously reported on Apple and other technology companies for Bloomberg News in San Francisco.
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