A Compelling Case to Cut Disney’s Dividend, Reallocate
Third Point’s Daniel Loeb sent urging a halt to the firm’s dividend payout policy to reallocate toward financing the production of additional original content for its streaming platforms.
According to numerous news sources including Bloomberg and CNBC, Third Point’s Daniel Loeb sent a letter to Disney (DIS) CEO Bob Chapek on Oct. 7 in which Loeb urged a permanent halt to the firm’s dividend payout policy in order to reallocate the roughly $3 billion annual outlay toward financing the production of additional original content for the streaming platforms. While it’s unusual for an activist investor to advocate for lower capital returns to shareholders, we agree with Loeb’s premise that Disney has an opportunity to gain further share in the streaming marketplace and that the reallocation of capital to its services would help in this cause.
As Loeb noted, Disney+ already exceeded the bottom end of the guidance of 60-90 million subscribers by fiscal 2024, largely by relying on its vast library of blockbuster films and previously released TV shows. We think an annual infusion of $3 billion to create new content across the direct-to-consumer segment would greatly help to accelerate subscriber growth, lower churn, and increase engagement across the services. We are maintaining our wide moat rating and $127 fair value estimate.
Beyond the dividend, the letter also reportedly focused on Disney’s studio, specifically the theatrical side. Loeb advocates that Disney should debut more of its blockbuster films on Disney+. While Disney did offer Mulan to Disney+ subscribers first, viewers had to rent the film for $30. In contrast, Third Point believes that Disney should hasten the decline of movie theaters by offering all of its content for “a simple subscription fee.” We disagree as we still believe that one of Disney’s advantages in a non-COVID world versus Netflix is the ability to use of multiple windows to both monetize content and keep their franchises at the forefront of consumers’ minds.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.