Disney: Iger must make asset sales or suffer a full Nelson

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Blockbuster sequels have a high success rate. That augurs well for veteran US activist Nelson Peltz. He has boosted his stake in Disney as he returns to agitate for change. A share price at 2014 levels helps his case. But as with all sequels, original ideas may be lacking.

Peltz’s Trian Partners has a position worth over $2.5bn. That is less than 2 per cent of outstanding Disney equity. Trian will need support to secure board seats. Its pitch must include bold suggestions.

The entertainment giant fought off activist investors earlier this year with heavy job cuts and a promise to bring back the dividend. At the time, Trian called the initiatives “a win for all shareholders”.

Disney has gone further since then. Cost cuts mean net income in the current quarter is expected to be 50 per cent above last year’s. The group has also committed to spending $60bn on its popular parks and experiences business over the next decade.

Disney’s focus on rollercoasters and themed products makes sense. The division’s $2.4bn operating income in the last quarter was double that of the film and TV business, despite reporting lower revenue.

Streaming is still the problem. Disney launched Disney+ in late 2019 with an enviable back catalogue and IP ready to be pressed into service. But high content spend has not been matched by sustained user growth. Global subscribers have fallen in three consecutive quarters to just over 146mn. Netflix has more than 238mn.

Disney’s effort to lower costs has halved operating losses for streaming in the past year. But at $512mn for the quarter, they are still high for a company in cost-cutting mode. Subscription price rises will knock the total down. The House of Mouse is expecting profits from the division by the end of fiscal 2024. But activists do not want to wait that long. 

If chief executive Bob Iger wants to hang on to his job he may need to make a splashy asset sale. Traditional TV viewership is in decline. Selling TV assets and finding a partner for ESPN — Amazon, say — would cut profits but it would also help to relieve the company’s $44.5bn long-term debt burden.

Iger has already hinted that a sale of TV networks is possible. He must hope Peltz does not have something even more drastic in mind. Chief executives prefer to supply plot twists themselves. They typically see investors as the audience, not fellow actors.