How Disney+ Can Surpass Netflix, According To Dan Loeb

Activist investor Dan Loeb of Third Point is calling on Walt Disney Co DIS to maintain its dividend cut to fund its streaming offering Disney+.

What He Said: Loeb took a stake in Disney in early 2020. After increasing his holdings, he now owns 5.5 million shares of the company.

Loeb believes the move will help Disney “capitalize on this transformational opportunity” referring to streaming.

“We believe the company should permanently suspend its $3 billion annual dividend and redirect this capital entirely into content production and acquisition for Disney’s direct to consumer businesses centered around Disney+," he wrote in the letter, according to Variety.

Loeb goes on to mention movie theater closings and suggests streaming represents the future of movies, encouraging Disney to put new release movies on the streaming platform and skipping theaters.

“I am sure that people felt similar emotions about horse-drawn carriages when the automobile was first introduced,” Loeb said.

Why It's Important: In 2019, Disney set records for domestic box office, international box office, and total box office revenue with totals of $3.76 billion, $7.35 billion, and $11.1 billion, respectively.

The company held a 33% share of the domestic box office and had seven of the top eight highest-grossing movies. Loeb believes streaming could eclipse these segments.

“We are confident that Disney can build a DTC business that will meaningfully exceed its current cable TV and box office revenue streams, but only if the company leans into the opportunity and invests more aggressively,” said Loeb.

Large Content Spends: Disney is a major competitor to Netflix Inc NFLX with its streaming offering. Netflix has spent billions of dollars on acquiring content and creating original shows to get new subscribers and keep its existing subscriber base.

BMO Capital estimates Netflix is spending $17.3 billion on content for 2020. That figure is expected to rise to $26 billion by 2028. Disney said it would spend $1 billion on original programming for Disney+ for fiscal 2020.

“With Disney’s superior tentpole franchises and production capabilities, we believe that the company can exceed the subscriber base of the industry leader Netflix, in just a few years,” Loeb said.

What’s Next: Disney did not pay out its semi-annual dividend payment in July, which saved the company $1.6 billion. The company will report fourth-quarter earnings on Nov. 12.

Shares of Disney are up 2% to $123.04. Shares are down 16% in 2020.