Friday Mailing: What if... Disney *Should* TikTok-ify or Amazon Prime-ify Itself?
Last week The Wall Street Journal reported that Disney is exploring a membership program that could offer discounts or special perks to encourage customers to spend more on its streaming services, theme parks, resorts and merchandise. The objective of the program is something akin to Amazon Prime and seeks to better link Disney products and services, something I’ve been describing in recent mailings as “Customer Data Platform (CDP) business logic”.
Last night I ran into a friend I had not seen in 15 years. He now runs a hedge fund.
We started discussing the stock market, tech and media stocks, and then the conversation moved to the topic of board dynamics. He had raised the topic independently while discussing his own experiences on boards, and I had just written about activist investor Dan Loeb of Third Point Capital and the Disney board.
As the Wall Street Journal reported last week, Loeb “is concerned that Disney directors don’t have enough experience in digital advertising, the monetization of consumer data and other areas that could help Disney boost profits as the company becomes more technology-focused.”
My friend hypothesized that perhaps Loeb was not acting independently but rather at the request of senior Disney management.
Rethinking my conclusion
My conclusion in “Can Disney TikTok-ify or Amazon Prime-ify Itself?” had been that Dan Loeb’s ultimate concern was “there may be better paths for Disney management to create shareholder value than by pursuing this consumer-facing personalization and membership strategy, and they might be pursuing them if they had better and savvier board oversight.”
My friend’s hypothesis rejiggers the logic of that point: the best paths for Disney management to create shareholder value are indeed this consumer-facing personalization and membership strategy, but they cannot pursue them without better and savvier board oversight.
The Wall Street Journal highlighted why the board’s current makeup lacks market savvy:
“Disney’s board makeup is now thinner on directors leading consumer-facing brands in tech and media. Instead, the board is stocked with executives with backgrounds at manufacturers such as Procter & Gamble, General Motors Co. and Coca-Cola Co., consumer-apparel brands such as Nike Inc. and Lululemon Athletica Inc. and healthcare and biotech companies.”
The two most recent board appointments, former Cisco and Google executive Amy Chang and Chief Executive Officer of lululemon athletica Calvin McDonald, are the first two under CEO Bob Chapek’s regime. The rest were all appointed while former CEO Robert Iger was at the helm.
The implication of both my friend’s hypothesis and the WSJ article is that Chapek believes that he cannot execute his proposed strategy with the current board, and needs Dan Loeb to help force one or two directors out.
Media convergence & Disney board politics
I have little understanding of Disney's board politics so I cannot speculate as to who stays or who goes, or whether they might leave willingly or with a fight.
That all said, the subtext is that Chapek or another C-suite executive (but probably Chapek) seems to have certain targets in mind, and if my friend’s hypothesis is right, he is willing to have a board fight via proxy Dan Loeb in order to change the board. [NOTE: That may be a big part of the rationale for why Loeb reinvested in Disney after selling all of its shares of a $900MM stake it took in the company back in 2020.]
The prospect of a board fight via proxy suggests that Disney management has already identified either new candidates or the types of new candidates they would like to nominate. Notably, Loeb wrote in his letter to the Disney board that Third Point has “identified potential board members who we believe would make essential contributions to the Company’s Board at this critical time”.
He recommended new directors must “possess diverse talents and experience with strengths in technology, advertising, and consumer engagement, as well as proven track records of leading large complex organizations and creating shareholder value.”
The tricky part here is that, in the simplest reading, Loeb sounds like he is describing Amazon CEO Andy Jassy or even former Amazon CEO Jeff Bezos. But for the facts that Amazon’s exponentially growing advertising business and Amazon is moving more aggressively into streaming - making it a powerful competitor to Disney on both fronts - both would make sense.
So if it’s not Jassy or Bezos, then who?
Gaming companies hit all three buckets. Candidates could include EA CEO Andrew Wilson, Epic Games CEO Tim Sweeney, Roblox CEO David Baszucki (Roblox just announced it is moving into advertising) or Take Two Interactive CEO Strauss Zelnick (Activision Blizzard’s Bobby Kotick also makes sense but seems too controversial for Disney’s family-friendly brand).
Perhaps the better reading is that Loeb is recommending two different permutations of these skillsets:
Technology and advertising, and/or
Technology and consumer engagement.
The first bucket may be someone at a media buying agency like GroupM CEO Kirk McDonald, or a holding company like Omnicon CEO John Wren or perhaps even like former WPP founder and S4 Capital CEO Sir Martin Sorrell.
The second may be someone like Shopify CEO Tobias Lütke, who has been at the forefront of where technology, consumer engagement and commerce intersect for almost two decades.
These are mostly white male candidates, so odds are there exists a diverse list of former or current executives at these businesses who I cannot think of right now.
Political Calculus
Ultimately what Chapek and his management team must solve for is post-”streaming wars” media convergence. I have defined this as the marketplace’s assumption that direct-to-consumer (DTC) streaming business models would enable companies to monetize the same consumer via additional DTC models beyond streaming.
Disney has solved that model offline with its Parks business but it is still figuring out the online component. The irony of this sentence is Disney, the PARQOR Hypothesis-ideal media company, now finds itself solving the same problem MGM Resorts needed to solve when IAC invested $1B back in 2019.
IAC CEO Joey Levin's letter to shareholders rationalizing this investment inspired the PARQOR Hypothesis. It explained, “Our history in driving off-line to on-line conversion gives us confidence in the path and, like other industries we’ve seen transform, a conviction that it will be assisted by natural tailwinds.” MGM Resorts took on the investment in the spirit of partnership , and placed IAC Chairman Barry Diller on its board.
The sense from Loeb is that Disney now needs a similar IAC-like partner on its board in one or more seats (and one can't rule out IAC CEO Joey Levin). That partner won’t be a company taking a 12% stake (now 16% after a pandemic-fueled stock dip) in Disney. But it will be a similar pain point to MGM’s in 2019 that this board member will be solving, and backed by the tailwinds of Chapek’s aggressive moves into advertising and Consumer Data Platform business logic.