Justin Solomon | CNBC
Daniel Loeb’s Third Point has taken a new stake in Disney, prompting the entertainment giant to spin off its sports network ESPN, according to a letter obtained by CNBC’s David Faber.
Shares jumped 2% on the news.
In a letter to Disney CEO Bob Chapek, Loeb said there is a strong case for splitting the ESPN business, saying the segment generates significant free cash flow for Disney.
“ESPN would have greater flexibility to pursue business initiatives that may be more challenging within the Disney framework, such as sports betting,” Loeb said. “We believe most of the agreements between the two companies can be replicated contractually, similar to how eBay transformed PayPal while continuing to use the product to process payments.”
Disney makes more money from cable subscribers than any other company from ESPN alone. ESPN and sister network ESPN2 charge nearly $10 per month combined, while Disney requires pay-TV providers to include ESPN in their most popular cable packages.
ESPN+, a content-limited streaming service, has grown into a stronger product over the past year as Disney moves more exclusive live games to the service. Disney said last month it would increase the price of ESPN+ to $9.99 per month, up from $6.99 per month starting Aug. 23, the biggest price increase yet.
Second, Loeb urged the entertainment company to integrate the Hulu streamer directly into the Disney+ direct-to-consumer platform.
Comcast has an agreement to sell its 33% stake in Hulu to Disney in two years. Loeb said Disney should “do everything possible” to acquire Comcast’s remaining minority stake before the 2024 deadline.
“We believe it would even be prudent for Disney to pay a modest premium to expedite the integration,” Loeb said in the letter. “We know this is a priority for you and hope there is a deal to be done before Comcast is contractually obligated to do so in about 18 months.”
Disney just finished a strong quarter with streaming subscriber growth that beat estimates. Disney also reported better-than-expected results in terms of revenue and profit, supported by increased spending at its national theme parks.
Loeb used to be an activist investor in the media giant. Most recently, he had held a stake for two years from 2020 to early 2022, pushing Disney to ramp up its streaming services.
Disney shares are down about 20% this year.
Disclosure: CNBC is part of Comcast’s NBCUniversal.