Nelson Peltz said his proxy fight against Disney DIS 2.12%increase; green up pointing triangle was over in February, but Bob Iger knew the activist investor might return.
The Disney CEO remained in direct contact with Peltz this year, seeking to reassure him that Disney’s $5.5 billion in budget cuts and elimination of 7,000 jobs were progressing quickly, according to people familiar with the matter.
Iger spoke to Peltz, co-founder of Trian Fund Management, on the phone in May after Disney’s second-quarter earnings report, in which the company reported that it reduced losses in its streaming business, and tried to reassure him that the cost-saving plan was working, these people said.
As the share price declined over the summer, however, the Trian team lost confidence in Disney’s ability to right the ship, even as the company’s board in July extended Iger’s contract through 2026, according to people familiar with the matter.
When Wall Street analysts began reducing their target price for Disney shares, it caught Peltz’s attention and contributed to his sense that Disney wasn’t on a path to financial health, according to people familiar with the matter. The company’s stock closed at $78.32 last Wednesday, its lowest level in more than nine years.
The activist is seeking several board seats, including one for Peltz, and wants the board to be more focused, accountable and aligned with shareholder interests, The Wall Street Journal reported Sunday.
Disney shares, which have traded under $100 for most of the year, rose 2.1% to $84.70 Monday, more than the S&P 500. Peltz’s Trian Fund Management has boosted its stake in Disney to around 30 million shares, making the hedge fund one of Disney’s largest shareholders.
Iger has made progress with some of his stated goals to reduce costs and make streaming profitable, but struggled with others. Since announcing in July that the company is seeking a strategic partner for ESPN, the sports unit has held discussions with a range of organizations, including professional sports leagues and telecom providers.
Elsewhere, an effort to fold Hulu into Disney+ has been slowed by delays, according to people familiar with the matter.
Some features designed to attract customers to a planned new Disney+ and Hulu bundle won’t be available when the Hulu tile within Disney+ debuts later this year.
Overseas, Disney has begun to have discussions about selling all or a stake of its Disney India business, as The Wall Street Journal first reported.
Here is an update on some of the initiatives Iger has so far set in motion.
ESPN’s future
ESPN has said it is preparing to transform the network into a fully direct-to-consumer streaming service in coming years. Meanwhile, Iger has taken steps to bolster ESPN’s finances and attract new viewers, especially younger males.
The company has explored pacts with the National Football League and National Basketball Association in which the leagues would supply programming and assets in exchange for small equity stakes in ESPN, according to people familiar with the situation.
In the case of the NFL, the league could contribute assets such as the NFL+ subscription service, which has mobile rights to many games, while the NBA could contribute the NBA League Pass package, a subscription service that lets fans watch games outside their home markets.
Such partnerships could help ESPN add even more programming to its new app, broadening its appeal. ESPN also has talked to Major League Baseball about a deal that would give it the right to stream local telecasts in some markets.
Those talks are very early, the people cautioned, and might not go anywhere. Under any such arrangement, Disney, which owns 80% of ESPN, would maintain majority control, and Hearst, which owns 20%, would maintain its stake.
ESPN is also exploring adding a distribution partner to help market the new service, and has had talks with Verizon and T-Mobile.
Hulu hurdles
Iger said in February that Disney might not be interested in buying the remaining third of the Hulu streaming video service it owns with Comcast, but months later reversed course and said it would pull the service closer to its core Disney+ streaming service.
A plan to integrate Hulu into Disney+ has hit roadbumps and in April was delayed amid companywide cost cuts and layoffs and a growing to-do list for the company’s technology development teams.
The tech team working on integrating the streaming service into Disney+ pushed the project deadline to the end of the year from September, the people said. Key features designed to attract new customers to its newly launched Hulu/Disney bundle have been delayed until March.
When the new Hulu tile launches, it will not include all the content currently on the platform—Disney is still negotiating some licensing agreements for shows and movies. It also won’t immediately offer some functionalities, such as personalization of Hulu programming based on a subscriber’s past Disney+ viewing, as initially planned.
Disney has projected that these features, as well as one that would prompt viewers to sign up for a new Hulu/Disney+ bundle could draw as many as 150,000 subscribers to a new Hulu/Disney bundle over the next year and potentially generate millions of dollars in revenue, according to a person familiar with the matter.
Streaming profitability
Disney, like its competitors, is struggling to balance the need to cut costs while growing its streaming services and realizing these two goals can run counter to each other. For Iger, who returned as CEO of Disney last November, being able to make the company’s goal of streaming profitability by September 2024 is seen as crucial.
In August, the company unveiled a round of price increases to its streaming products, raising the cost of the ad-free versions of Disney+ and Hulu by more than 20% each in October, the second round of price hikes in about a year. The latest increase, which takes effect this month, was moved up from December, according to a person familiar with the matter.
Among priorities for the streaming team—whose projects have code-names after Disney characters, such as Yoda for “Yield Optimization Delivery Allocation” or Dory for “Disney Optimization and Revenue Yield”—are rolling out ads internationally and implementing ways to crack down on password sharing.
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