When filmmakers think about subjectivity in storytelling, they often lean on the thriller “Rashomon,” the 1950 Japanese flick that recounts the tale of the same murder from multiple perspectives. By emphasizing or playing down different actions, each narrator seeks to shape the audience’s understanding of the event.
Walt Disney Co. can also be understood from different perspectives. It’s the world’s biggest film studio, yet it usually makes significantly more money from its theme parks and television networks. Its investments in the video-streaming platform Disney+ are eating into those profits. On Wednesday, Bloomberg News reported that activist investor Dan Loeb sent a letter encouraging Disney CEO Bob Chapek to permanently scrap the firm’s dividend and use the funds to make new content for Disney+ instead.
It is, in essence, an effort to reinforce what you might call the company’s equity story. Rather than being a boring old film studio with a steady dividend that trades at around 10 times its expected earnings, he seems to be saying that Disney should primarily be seen as a rapidly growing digital-streaming platform like Netflix Inc., which trades at 60 times forward earnings.
To be sure, the market is already giving Disney a great deal of credit for the pace at which Disney+ is growing: By August, less than 10 months after it launched, it had added 60 million subscribers. It took Netflix six years to hit that number. But the 28,000 job cuts announced last month refocused attention on the firm’s beleaguered parks business. It would benefit from reinvigorating the streaming narrative.
Permanently ditching the dividend would represent a dramatic statement of intent for the Magic Kingdom. It would ask investors to invest in the company’s growth rather than its cash returns. To a certain extent, Loeb is asking Disney simply to ratify what may already be the case: With access to cinemas and theme parks restricted by the global pandemic, the company has already abandoned the dividend for this year, and some expect that to happen next year too. And Disney+ is indeed growing.
But a fairytale ending is far from certain. Disney is already generously priced, as my colleague Tara Lachapelle has written, trading as it does at 46 times forward earnings. And that valuation comes in the face of some real shortcomings with Disney+ when it comes to content.
For all of the company’s rich back catalog, the quality and quantity of shows and films on the platform remain, frankly, quite thin. The only hit show made specifically for Disney+ remains Star Wars spinoff “The Mandalorian.” It can and should be doing much more — Netflix spends more than $15 billion a year on content. Disney doesn’t break out the dedicated spend on Disney+ content, but it’s significantly less. Spending more would help it sustain its current valuation by helping it maintain its pace of subscriber growth.
If there’s a lesson to take from Rashomon, it’s that Bob Chapek needs to take control of his company’s narrative. Loeb’s plot draft may be a good place to start.
Bloomberg
