Competition in the streaming industry is increasing rapidly. By joining Walt Disney, the hedge fund manager encounters a company that has long since set the right course.
Investor Daniel Loeb wants to arm Disney for the competition.
Streaming – if until recently you had associated lucrative profit fantasies with it, then these have now faded quite a bit. After all, the top dog Netflix recently had to warn of growth problems, then the company was overtaken by its competitor Disney in terms of aggregate subscriber numbers, and now the activist investor Daniel Loeb wants to whip it into shape and prepare it for the increasing competition.
The founder and chief strategist of New York-based hedge fund Third Point says he has acquired an unspecified but “significant” stake in California entertainment and media giant Walt Disney, writing a letter to CEO Bob Chapek calling for notable changes in the company strategy and in management. Loeb values stricter cost awareness. He also proposes buying the rest of Comcast’s streaming subsidiary Hulu, divesting sports channel ESPN and replacing the board of directors.
These suggestions sound familiar. After all, the hedge fund manager had similar ideas in the past, for example when he first brought fresh operational momentum to the chemical company Dow Chemical and finally persuaded it to merge with DuPont. Or when he joined the Swiss food giant Nestlé five years ago and provided fresh impetus there. Although the American only acquired a 1.3 percent stake in Nestlé at the time, his initiative could not be ignored. At that time, the market value of the group rose by more than 10 billion francs in one fell swoop – and since then it has increased by a further 50 percent.
With such transactions, Loeb has doubled his billion dollar fortune in the past ten years, and he is by no means new to the Internet or media industry. For example, he had tried, with the support of the well-known manager Marissa Mayer, to get the search service Yahoo back on its feet before it was finally sold to the telecom giant Verizon. Later he wanted to help the Japanese electronics and media conglomerate Sony out of the crisis, but this did not succeed at first.
Nowadays Loeb absolutely hits the economic nerve with his demands and proposals for Walt Disney. The streaming industry initially experienced explosive growth in the wake of the coronavirus pandemic, but is now facing significant challenges – including operating losses, signs of saturation, fickle subscribers and inflation-induced loss of purchasing power among consumers.
Some are now regularly switching back and forth between the major streaming services. You cancel one and sign up for another, depending on which one currently offers the formats you want. “It’s like a diet, you lose a few calories here and there,” but it helps save money and in this way leads to financial relief, explains a neighbor. “Why should I wire you money if I’m not watching?” As a result, streaming video providers are finding it increasingly difficult to retain their subscribers as they are inundated with various offerings.
If you believe the numbers from analysis companies like antenna in the past two years, around a fifth of all subscribers to premium services such as Netflix, Hulu, AppleTV+, HBO Max or Disney+ have canceled three or more subscriptions in between. That is six percent more than in the previous two years. This practice of so-called churning seems to be increasing because consumers are becoming more cost-conscious and therefore more selective. Some people cancel their subscriptions after watching a particular series from one provider and then switch to another that has something more interesting to offer.
News of Daniel Loeb’s arrival comes just days after Disney for its third fiscal quarter had reported considerable growth and a pleasing development in earnings. During this time, the group was able to win 14.4 million new subscribers for the Disney + streaming service alone and has now increased the prices for its various streaming offers. Adding up Disney+, Hulu, and ESPN+ subscribers brings the total to 221.1 million customers. This means that the Disney group is just ahead of its competitor Netflix, which has been hyped in the past.
Apparently, Loeb seems convinced he can make Disney’s streaming business profitable by next fiscal year at the latest. With this goal in mind, he warns management to exercise cost discipline, proposes suspending the dividend and wants to bring people to the supervisory board who are familiar with advertising in the digital space and with the evaluation of customer data. The sports streaming service, on the other hand, is to be handed over to specialized investors, although it has so far been one of the Disney Group’s cash cows. Experts criticize Loeb’s proposal, but they cannot deny that the number of customers in this segment is structurally declining and that the spin-off would free up financial capacity for investments in growth areas.
Whatever one might think of the New York City-based “agitator’s” proposals, the only thing that seems certain is that competition in the streaming industry is becoming increasingly intense. The production of high-quality or exciting content is very expensive, and in the end the highest possible number of subscribers should decide on the profitability of the provider. That’s why competitor Paramount, for example, has just announced that it will work with retail giant Walmart to sell its services.
Disney’s management, on the other hand, has been forced to constantly adapt to changing conditions for a while. It can rely on the well-known brand for further transformation and, under normal circumstances, on the solid revenues from its theme parks. Daniel Loeb’s activist approach may make headlines. In fact, however, it hits a company that has long since adjusted to the increasing competition. At most, conflicts threaten in the details.