Nelson Peltz’s Trian Partners, which is agitating to get two seats on Disney’s board, on Monday released a lengthy white paper analyzing the Mouse House’s financial performance — and suggesting strategic fixes.
The recommendations, according to Trian, are aimed at turning around Disney‘s total shareholder returns, which have trailed most of its peers (except Warner Bros. Discovery and Paramount Global), according to the white paper. Trian is urging Disney shareholders to vote for its two board nominees — Peltz and ex-Disney CFO Jay Rasulo — at the company’s April 3 shareholder meeting. Disneyopposes the candidates put forward by Trian and another activist firm, Blackwells,as lacking “the appropriate range of talent, skill, perspective and/or expertise.”
“For more than a year, Trian has described its thoughts on strategies and goals, some of which Disney has now implemented, such as reducing excess costs, reinstating a dividend, and making the Parks business a bigger part of Disney’s growth strategy,” the Peltz-run firm says in the white paper. “We are now making our 100+ page presentation public with our comprehensive views.”
Among the proposals in the 133-page white paper (available at this link), the hedge fund says that to achieve a better return on its streaming content, Disney should take more “shots on goal” and increase creative risks outside of its core franchises, similar to Netflix. The company, Trian says, should “explore allocating more budget dollars across lower-cost, easier-to-produce projects to further balance Disney’s higher-cost franchise content; prioritizing ‘retention’ content spend should diversify away the risk of expensive streaming flops.”
Trian also recommends that Disney make fewer movie sequels. “Disney’s ‘flywheel’ spins the fastest when the company creates or acquires new intellectual property to monetize,” the white paper says. “Sequels are less risky film ventures to produce, but do not drive long-term benefits in the same way that new IP can.”
The firm continues, “The percentage of Disney films that are sequels, prequels, spin-offs or remakes has dramatically increased — suggesting a creative engine that is sputtering.” Trian is calling for “a comprehensive review of studio operations and culture” by the board, including the state of leadership, process and workflow.
Meanwhile, Trian recommends two potential paths for ESPN: One, that ESPN’s standalone streaming service, which Disney is aiming to debut by the fall of 2025, be launched “ideally with a ‘bundle’ partner like Netflix or Amazon”; or two, that ESPN should “harvest cash out of its linear business to selectively reinvest in ESPN+ and higher growth parts of Disney’s business (such as Disney+).”
Elsewhere, Trian suggests merging Disney+ and Hulu product and content organizations to cut costs — a move it claims would create cost efficiencies in the neighborhood of $1 billion. Disney is in the process of buying out NBCUniversal’s 33% stake in Hulu. In November,Disney said it would pay at least $8.61 billion to Comcastfor the Hulu stake, with the final price tag — which could be higher — to be based on an assessment of Hulu’s market value by each parties’ bankers.
As it relates to the integration of Hulu content on Disney+, Trian believes the service should “phase out the Hulu tile.” “We are skeptical that keeping Disney’s best general entertainment content behind a Hulu tile optimizes user engagement,” the white paper opines.
In addition, Trian says it believes Hulu + Live TV “is a loss-leading product that has struggled to scale and adds limited strategic value.” Per the white paper, “In our view, Live is not competitively positioned compared to YouTube TV following its deal to secure NFL Sunday Ticket and is no longer positioned as a ‘low-cost alternative to cable.’”
Other suggestions in the white paper aren’t new. For example, Peltz wants Disney to achieve “Netflix-like” streaming margins of 15%-20% by 2027, something the hedge fund has previously outlined. Trian also wants to see Disney’s board “fix” its “chronic succession problems” for CEO Bob Iger, whose contract expires at the end of 2026.
Much of Trian’s white paper dwells on making the case for change on Disney’s board. For example, the hedge fund argues that Disney’s $71 billion deal for 21st Century Fox, which closed in 2019, was “strategically flawed”: “We are skeptical that Disney has delivered on its targeted synergies and EPS accretion given the deterioration of Disney’s media earnings power following the acquisition.”
The Disney/Fox deal was “arguably the result of misaligned incentives,” Trian’s white paper says. “On the same day that Disney agreed to acquire Fox, the board extended Mr. Iger’s employment agreement by four years and awarded him an ‘over-the-top’ compensation package, reasoning that doing so was ‘critical’ to driving long-term value from the acquisition,” the paper says. “In our view, the prospect of a much larger compensation package (more than double his previous package) created a strong financial incentive for Mr. Iger to pursue the Fox deal regardless of its prospects, creating a significant conflict of interest.”
Here are Trian’s agenda items for the Disney board from the white paper, divided into four categories:
Enhance Corporate Governance & Accountability
- Refresh the board by adding Nelson Peltz and Jay Rasulo as independent, aligned, and focused Directors
- Fix succession process and run a thorough and successful search for a CEO in time for Mr. Iger’s 2026 retirement
- Align pay with performance by tying the compensation program to outcomes that drive long-term shareholder value
- Form a board-level finance & strategy committee to evaluate progress on recommended initiatives and improve the Board’s monitoring of Disney’s long-term strategy
Accelerate Media Profitability
- Insist management develop and articulate a clear DTC strategy with tangible goals that will achieve Netflix-like margins of 15-20% by 2027
- Explore opportunities to improve DTC engagement and cost structure, including changes to product and marketing strategies and reducing redundant overhead costs
- Right-size legacy media business cost structure in light of industry dynamics
- evaluate Disney’s organizational structure to improve accountability and efficiency
Review of Creative Engine
- Initiate a comprehensive Board-led review of studio operations and culture, including leadership, processes and workflow
- Prioritize new intellectual property to reignite the “flywheel” and drive Disney’s long-term growth
- Explore additional opportunities to enhance the “flywheel” with digital cross-promotion
Clarify Strategic Focus
- Issue long-term free cash flow growth target beyond FY 2024 to anchor investors on a clear strategic vision and enhance accountability
- Explore strategic partnership(s) for non-core linear assets – benefits include an enhanced focus on linear assets, a preserved strategic alignment with Disney’s DTC business, and an improved growth profile for Disney
- Insist on a digital strategy for ESPN that has a clear path to attractive financial returns
- Refine parks strategy to include tangible return targets on the $60bn of Parks capex, plans to address new competitive threats to Walt Disney World, and a commitment to improving the guest experience at domestic parks
