Dan Loeb pulls back from call for Disney to spin off ESPN

Activist investor Dan Loeb has appeared to step back from his call for Disney to sell or spin off the ESPN sports television network, after chief executive Bob Chapek vowed to restore the business to its one-time status as a growth engine of the company.

Loeb, whose Third Point hedge fund revealed in August that it had bought a $1bn stake in the company, called for ESPN to be spun off to reduce Disney’s debtload — just one element of a sweeping plan to shake up the media company.

In an interview with the Financial Times, Chapek said Disney had been “deluged” with interest from companies seeking to buy ESPN this year amid rumours that the company was weighing a sale of the cable network.

“If everyone wants to come in and buy it . . . I think that says something about its potential,” Chapek said. “I think its potential is within the Disney company.”

He added: “We have a plan for it that will restore ESPN to its growth trajectory. When the rest of the world knows what our plans are, they will be as confident about that proposition as we are.”

Following the remarks, Loeb appeared to retreat from his ESPN push. Writing on Twitter on Sunday morning, Loeb said that while Third Point had “a better understanding of ESPN’s potential as a standalone business”, he looked forward to seeing network chief Jimmy Pitaro “execute on the growth and innovation plans, generating considerable synergies as part of The Walt Disney company”.

ESPN broadcasts live sports in the US, including games of the National Football League, National Basketball Association and Major League Baseball.

In the interview, Chapek said he has “regular conversations” with Loeb, who also took a stake in Disney in 2020 that he sold early this year. The Disney chief characterised the conversations as “very collaborative, non-antagonistic and collegial”, including Loeb’s recommendations to change the composition of the entertainment group’s board.

Chapek defended the board, saying that the average tenure was four years and has a broad “range of skillsets”.

But he added: “We’re so consistent with Dan’s thinking that everything he’s talked about are either things we have considered in the past or are considering for the future.”

Loeb has also called on Disney to purchase Comcast’s 33 per cent stake in the Hulu streaming service earlier than January 2024, when Disney has the option to purchase the remaining shares. Some analysts on Wall Street have called for Disney to settle the Hulu ownership sooner than the deadline.

Chapek said he would “love” to settle the matter but that Comcast has seemed reluctant.

“We have talked to them numerous times over the past year-plus,” he said. “If that were in the cards we would love to do that, but it takes two to tango.” He noted that market sentiment has changed significantly since the agreement was struck, when investors were more bullish on streaming services.

Chapek spoke on the sidelines of the annual D23 conference in Anaheim, California, where the company revealed its streaming and theatrical slate to thousands of fans. Disney showed off trailers of two highly anticipated films coming this autumn, the Black Panther sequel Wakanda Forever and Avatar: The Way of Water.

It also previewed a run of original series on Disney Plus, including the Star Wars prequel Andor and the Marvel series Secret Invasion.

Chapek said the slate represented the end of a coronavirus-induced production bottleneck. “This is our new steady state [of production],” he said, saying that both the pace of production and the size of its content budget — about $30bn — would remain level.

Disney has continued to add customers to its streaming services this year, and by some measures, its overall streaming operations have surpassed Netflix in subscribers. But Netflix’s revelation that it has lost more than 1mn subscribers this year has cast a pall over the entire streaming business, with investors growing concerned over high content spending and clamouring for a clear path to profitability.

Disney’s theme park business is also recovering strongly despite the closure of parks in China, analysts said. But shares are down 26.5 per cent this year, compared with a decline of 15.2 per cent for the S&P 500.

Chapek said Disney has “commercial momentum that is enviable” in its content and theme parks businesses, but was suffering from investor “malaise” around streaming due to Netflix’s problems.

“For a long time we benefited from being just like Netflix because we were a streaming company,” he said. “It’s not unexpected that we would get painted with the same brush [but] we’re not the same company.”